Market Liquidity May Not Be Ample as Some Believe

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US Dollar Japanese Yen أخبار

S&P 500,US Dollar Index Futures,CBOE Volatility Index

Market Overview Analysis by Michael Kramer covering: US Dollar Japanese Yen, S&P 500, US Dollar Index Futures, CBOE Volatility Index. Read Michael Kramer's latest article on Investing.com

The VIX 1-day rose somewhat intraday, though not as much as expected given Powell’s speech. Still, with an important Jobs report on Friday, it’s likely to continue climbing through today. Reaching 20 remains possible, as this has been the level that the VIX 1-day has reached in previous instances.

The one-month implied correlation index closed below 11 yesterday, and while it could go lower, historically, this has been very rare. There appears to be a significant strain on liquidity in the overall market structure. The spread between the first-month generic BTIC on Adjusted Interest Rate S&P 500 Total Return Index Futures and the second-month generic contracts has been widening recently. Essentially, this widening spread indicates deteriorating liquidity conditions and increasing costs for maintaining near-term futures positions compared to longer-dated contracts.Something isn’t right in this market at the moment.

Adding to these concerns is the Yen carry trade situation, particularly if the BOJ decides to adjust rates in December, which could cause conditions to deteriorate further. It seems prudent to watch how these market conditions evolve.currency swap spreads rising, as the market may be beginning to prepare for the BOJ potentially raising rates in the future and lower rates in the U.S. This dynamic could make the yen carry trade less favorable.

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