It feels that whatever we discuss in today’s market update will already feel outdated by the time it is published. Overnight, the Russia/Ukraine conflict escalated even further with Russia launching large scale military operations in Ukraine triggering a large liquidation in equity markets with a very strong bid for safe heaven assets and some commodities.

Yesterday saw another selloff in the US markets. The NDX was down around 2.5% and its 30d IV was higher by almost 2.5 points. For the SPX, spot finished around 2% lower and 30d IV was around 2 points higher.

With 30d IVX set to open around 29, we are into territory that is very rarely visited by the market.

We have been flagging that the volatility expansion that started around Q3–2021 had been validated over the past few months. As of yesterday’s close, 60d realized volatility was around 19.26 and will undoubtedly settle above 20% following the large move we are currently witnessing.

Given the price action in Oil overnight with the price testing the $100 per barrel level, it will be interesting to see how the oil majors react. In Europe, TotalEnergies one of the leaders in the field is currently trading down around 3.5% in a sign that the general risk-off tone is impacting all segments.

Yesterday on the other hand, CVX was the only stock within the DOW to close the day up at around +2.4%. Within the DOW which finished the day around –1.4% lower, the selling was pretty homogenous with most stocks trading between –2.5% and –1%.

Tech giants underperformed in line with the NDX, AAPL and MSFT both closed down 2.59% with vols up respectively 0.5 et 1 vol in the 30–day bucket.

In the DOW, most implied volatilities measured by the IVX30 were trading above their 90th percentile at the close yesterday with some notable exceptions.

Intel 30d IV has remained lower than other technology company, closing in its 68th percentile. AAPL also remains lower than the rest of the DOW components trading in its 82nd percentile.

Another interesting sector to watch today will be the financials. The XLF closed down around 1.75% yesterday and European Banks are under heavy selling pressure, currently trading around 8% lower than the previous close.

The XLF 30d IV closed around 28.8 yesterday, a level that is roughly in the 98th percentile for the ETF over the last 12 months.

Comparing the term structure at the close yesterday with the shape it had on the last day of 2021, we can highlight a few important points:

1. Although the curve has shift higher with all implied volatilities higher than where they were at the end of 2021, the front-end has seen most of the remarking.

2. The curve has gone from upward slopping to inverted relatively quickly

3. The 180-30d IV spread, measuring the difference between the 180d IV and the 30d IV has gone from + 2.6 vols at the end of last year to –3.3 vols yesterday.

Looking at the 5-year weekly chart for the IVX30 and the IVX180, we can see that on a weekly basis, it is fairly rare for the IVX 30 (black line) to remain above the IVX 180 (blue line) for long periods of time.

In particular, in 2021, we had multiple instances of inversions that were very rapidly corrected. It is obviously very difficult to estimate how things will play out this time. That will very much depend on the way the geopolitical tensions evolve but traders may find interesting to monitor those dislocations for possible signs of easing or increasing tensions.

Using Charts in IVolLive, this can be done on any stock or index that is part of the universe we cover.