VIX: US politics and geopolitical risks remain high - Nomura

Analysts at Nomura explained uncertainty on US politics and geopolitical risks remain high. 

Key Quotes:

"However, implied volatility measures of various financial markets, such as the VIX, remain historically low. 

The latest improvement in global manufacturing sentiment, which has risen to the highest level since May 2011, likely warrants low volatility in financial markets.

The low VIX can be also explained by the fundamental market drivers, such as analyst estimate dispersion and earnings surprises. This low-volatility environment may have room to continue.

Our equity quant analysts suggested that US equity prices tend to perform resiliently when VIX is below 20.

The sustainability of the low-volatility environment can also influence the trading behaviour of G10 FX. Carry trading-type behaviours tend to be more active in a lowvolatility environment, and the more significant rate differentials seem to have been the main driver of USD/JPY recently, rather than risk sentiment."