VIX falls before earnings reports

‘Downside Risks’

Investors will be gauging the effects of Europe’s debt crisis on U.S. results. Some “downside risks to the euro-area economic outlook have materialized,” Draghi said last week after ECB policy makers lowered the main refinancing rate to a record low of 0.75 percent and took the deposit rate to zero.

Global economic growth needs to improve for the VIX to remain at its current level, said Sequent Asset Management LLC’s Tim Hartzell. The volatility gauge is 17 percent below its 22- year average of 20.53.

“For the VIX to stay low we need to see a better China, a better Europe, better emerging markets leading to a better American economy,” Hartzell, who oversees about $350 million as chief investment officer at Sequent in Houston, said yesterday in a phone interview.

Economy Watch

The People’s Bank of China last week allowed banks to offer bigger discounts on loans, stepping up efforts to reverse a slowdown in the world’s second-biggest economy. The moves coincided with the ECB’s decision to reduce borrowing costs to a record low and the Bank of England’s expansion of asset purchases.

The U.S. economy is forecast to strengthen for the next two years, with gross domestic product rising 2.2 percent in 2012, 2.4 percent in 2013 and 2.8 percent in 2014, according to the median estimate from economists surveyed by Bloomberg.

Traders are speculating that lockstep moves among S&P 500 stocks will ease as more than half of the companies in the S&P 500 are due to announce quarterly profits this month. The CBOE S&P 500 Implied Correlation Index, a gauge that uses options to measure expectations about whether the 50 biggest S&P 500 stocks will move in unison, has lost 12 percent to 66.01 since a four- month high on June 13, data compiled by Bloomberg show. The index touched its lowest level since April on July 3.

The U.S. unemployment rate held at 8.2 percent in June, according to a Labor Department report last week. The Citigroup Economic Surprise Index for the U.S., which measures how much reports are missing or beating the median estimates in Bloomberg surveys, was at minus 62.50 on June 6, close to a 10-month low of minus 64.80 reached on June 21.

“It’s going to be a very uneven quarter,” Max Breier, a senior equity derivatives trader at BMO Capital Markets Corp. in New York, said in a July 6 phone interview. “I don’t think we’re out of the woods.”

Bloomberg News

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