CIBC says market ‘too quiet’
If you’re scratching your head over the unusually uneventful market performance this week, you’re not alone.
Following an extremely volatile 2011 and an impressive rally in January of this year, markets seem to be content with something akin to normality in February.
Gains and losses have not ventured into the kind of extremes that plagued stock markets last year, and fear has retreated as a result (the VIX, an index which gauges volatility, is at its lowest level since last July).
It’s also been quiet for the Canadian dollar, a currency tied to “risky” assets alongside stocks. Shenfeld points out that the implied volatility in Canadian dollar options is at the low end of its three-year range.
But don’t get too complacent, warned Avery Shenfeld, chief economist of CIBC World Markets.
“Financial markets are at the point in the movie where the sheriff peers out the window and worries that it’s too quiet out there,” he said.
Which is why henfeld is reminding investors that all the big risks of 2011 remain, as well as some risks which are being overlooked.
“We continue to caution that Europe’s rescue effort for Greece, while likely to go ahead and prevent a March default, will be back in the headlines later this year,” he said.
Then there’s Iran. While oil prices have spiked on fears that Israel or the United States might take preemptive measures to cripple Iran’s advancing nuclear program, the willingness of India and China to accept Iranian oil despite an international embargo has helped keep crude prices in check.