11.14.2011
By Terry Flanagan

Macro Issues Continue to Steer Markets

Continuing macroeconomic issues in the global economy has been one of the main factors driving the markets in recent months.

Market tumult looks poised to continue amid macroeconomic uncertainty and fragile investor confidence.

“The economics are the number one reason why the markets are acting this way,” Joe Saluzzi, co-head of the trading desk at Themis Trading, told Markets Media. “What’s going on in Europe as well as here with unemployment, and then housing, are all affecting the markets. Things are stabilizing, but you’ve got to watch the Fed. When the Feds are in the market, it changes things. As long as they’re out there, prices will be distorted. You’ve got to be aware of government intervention.”

Since August, the markets have been highly volatile, with two and three percent intraday swings occurring on a regular basis. The most recent surge came in the wake of the MF Global collapse as well as the ongoing uncertainty surrounding the European debt crisis. The Chicago Board Options Exchange’s Volatility Index, or VIX, reached a high of 48 on Aug. 8, as the markets reacted to the U.S. debt ceiling negotiatons and the Standard & Poor’s downgrade of U.S. debt. It then fluctuated through the mid-30s until spiking up to above 45 in early October, once again as European debt concerns came to a head. In late October, the VIX had declined to about 25. As of mid-day Nov. 14, the VIX was trading at about 32.

“It seems that we have been stuck in same pattern a while now,” added Saluzzi.

As the European debt concerns drag on, any news regarding a potential advancement or setback can single-handedly send the markets into a three percent swing. The markets rallied in late October when investors thought that significant progress was made to rectify the Greece debt situation, with European leaders agreeing to accept a 50% loss on Greek bonds. When former prime minister George Papandreou called for a referendum on the bailout plan, and as rumors flew regarding the failure of MF Global, the markets once again sank and the VIX shot up about 45% in two days.

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