Welcome back volatility. The carnage that began in U.S. equity markets yesterday spilled over into global markets overnight. The VIX index traded at an average of 11.07 in 2017 (historic low), but it surged to 50 overnight, the highest level since early 2009. The Nikkei closed down 4.73%, and the Euro Stoxx is down 2.5% at the moment. S&P 500 futures were down 23 points earlier this morning but have since retraced much of that decline (currently down 5 points). For Treasuries, the 10-year yield reached 2.65% on heavy volumes (flight to quality) during the Asian session. However, the price action reversed after midnight, and yields are actually higher on the day across the curve.

There was no single catalyst for the correction in equity markets, but as we have noted on several occasions recently, there appeared to be growing angst given the improved inflation data and increase in long-end bond yields (and the effect the former could have on global monetary policy). Economic fundamentals remain positive, particularly in the U.S. and Europe, but after a long, sustained rally in risk markets with historically low volatility, experienced investors had been looking over their shoulders for a correction for a while now. St. Louis Fed Chair James Bullard, who is always good for a headline or two, is speaking this morning in Kentucky.

Jason Haley
Managing Director, Investment Management Group

02/05Markit US Services PMI53.353.353.3
02/05Markit US Composite PMI53.853.8
02/05ISM Non-Manf. Composite56.759.955.956
02/06Trade Balance-$52.1b-$53.1b-$50.5b-$50.4b
02/06JOLTS Job Openings59615879
02/07MBA Mortgage Applications-2.60%
02/07Consumer Credit$20.000b$27.951b
02/07Revisions: Consumer Price Index
02/07-02/09Mortgage Delinquencies4.88%
02/07-02/09MBA Mortgage Foreclosures1.23%
02/08Initial Jobless Claims232k230k
02/08Continuing Claims1940k1953k
02/08Bloomberg Feb. Economic Survey
02/08Bloomberg Consumer Comfort54.6
02/09Wholesale Inventories MoM0.20%0.20%
02/09Wholesale Trade Sales MoM0.40%1.50%