A CBOE Skew Index Market Flashes a Warning

A CBOE Skew Index Market Flashes a Warning

U.S.-China trade deal “phase one.” A massive election victory for UK Prime Minister Boris Johnson that removes ambiguity on Brexit. In recent days, a number of the political fog that is hung over markets has lifted.

Investors have responded by putting into riskier assets. Shares in the USA and Europe have reached fresh records amid the euphoria.

However, take a look at choices markets, and a more cautious story emerges. Take the CBOE Skew Index, in any other case, often known as the “Black Swan” index, because it tracks demand for options that might payout if the S&P 500 has been to see a sharp, sudden drop.

That index rose to its highest level in almost 15 months last week. The indicators that investors are searching for protection in case the recent rally goes awry.

The results of the UK election offered a dose of certainty on Brexit, with Prime Minister Boris Johnson now set to take the country out of the European Union by January 31.

It didn’t, however, shine a light on what the Bank of England will do subsequent.

The central bank is expected to maintain rates of interest on hold when it meets Thursday — looking forward to next year, although a lot still needs to play out.

After the UK leaves the European Union, Johnson might want to negotiate a new relationship with the bloc. The prime minister has promised to rush by a trade deal by the end of 2020 — however, that is a very tight timeframe for complex negotiations.

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