For anyone nourished on volatility, the famine in global markets is worsening.
With the French election ending in a victory for Emmanuel Macron, one more thing said to threaten global stability has made a quiet exit. For investors already looking at record-low price turbulence, the defeat of far-right candidate Marine Le Pen means even more risk removed from the table.
European stock volatility measured by the Euro Stoxx 50 Volatility Index fell to the lowest since March on Monday, even as a two-week advance in both the euro and global stocks in the lead-up to the final vote left little room for a relief rally. At the same time, the CBOE Volatility Index decreased 7.6% to 9.77, the lowest since 1993.
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"Complacency has returned in such quick fashion that it's starting to feel like 2005-06, when nothing seemed to faze the broader markets," George Goncalves, a fixed-income strategist at Nomura, wrote in a note to clients.
Volatility in the U.S. equity market has dissipated as stock investors whistled past geopolitical unknowns from populist politics to heightened threats from North Korea. While trade agreements, tax reform and the future of financial regulation may hang in the balance, investors have instead focused on one of the best global earnings seasons in a decade and signs of economic growth.
Calm has blanketed other markets as well. Volatility in U.S. Treasuries is down 24% since last month and fell to the lowest since October, according to a Merrill Lynch index that gauges volatility from options prices. In the currency market, a JPMorgan Chase & Co. index of volatility in G-7 currencies is at its lowest in more than two years.
The VIX is down 32% since the first round of French voting two weeks ago. Swings in the S&P 500 have also narrowed this year, with the benchmark gauge moving an average 0.31% each day, compared with 0.58% throughout 2016, according to data compiled by Bloomberg.
That's happened as global equity markets rally 9% so far this year, buoyed by double-digit percentage gains in European markets, led by surges in French and German shares.
The explanation may lie in economic data, both in the U.S. and abroad, that has either kept up with analyst expectations or exceeded them. While the rate at which U.S. economic reports beat estimates has fallen the last month, it's roughly equal to where it began the year, judging by Bloomberg's Economic Surprise Index.
Meanwhile, the Federal Reserve has brushed aside signs of weakness in the world's largest economy. Central bankers left benchmark rates unchanged at their meeting last week but signaled they're still on track to hike two more times this year, an expectation shared by market participants betting on the path for rates.
"Risk-taking began to deteriorate earlier this year as ambiguity brought about by the 'Politics of Rage' dampened strategic risk-taking," Barclays Plc analysts led by Giovanni Paci wrote in a note Sunday. "Resolution of near-term risks, with no other clear themes or major risk events to trade tactically, is likely to take activity and volatility further down."
Bloomberg News
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