Global markets began the year on a disastrous note. Volatility rose sharply as nervous investors exited risk assets. By February though volatility peaked and since then has been retreating. Indeed, the month of May saw calm return to global markets as oil prices continued their recovery. Since last week though volatility has returned.
One of the reasons for investors taking risk off the table is uncertainty over the Federal Reserve’s monetary policy. The Fed had hinted at a summer rate hike last month but the weak jobs report for the month of May has delayed a potential rate hike. However, the market is still not sure about the pace of future rate hikes and this week’s monetary policy meeting could throw some light on it.
Another factor that has led to increased volatility is the Brexit issue. The UK will vote on June 23rd on its future in the European Union (EU). Recent polls have shown that the Leave campaign is leading slightly.
As volatility has returned to global markets and weighed down sentiment, the Horizons BetaPro S&P 500 VIX Short Term (TSX: HVU) has gained almost 50% in the last three trading sessions. The ETF invests in financial instruments that have similar daily return characteristics to two times the S&P 500 VIX Short-Term Futures Index.
