Trump is expected to break the American historical record again! Affected by three major factors, VIX hit a new high!
The U.S. government shutdown has dragged on to its 20th day. Not only has the political deadlock that began on October 1 not relaxed, it has moved further and further towards breaking the historical record.
The previous record for the longest downturn was the 35 days of Trump's first presidential term, when because of the budget on the border wall with Mexico, this round of downturn is now about to throw the record behind.
On the predictive market platform Kalshi, traders have shifted their expectations for the shutdown time to 41 days—three times as fast as they predicted two weeks ago, upwards from the original ten days, and the markets seem to have no hope of a two-party breakdown at all.
The root cause of the deadlock is that the two parties are too fierce. The Senate has voted on interim appropriations bills ten times, but it has stumbled every time. Democratic leader Schumer accused the Republican Party of deliberately creating a medical crisis, saying that the other party would not even open the door to negotiations; the Republican Party was clinging to budget cuts and demanded a 10% cut in annual expenses before signing.
More importantly, polls show that voters blame the two parties almost halfway, 38% blame the Democrats for refusing to compromise, and 36% blame the Republicans for deliberately messing up, a situation of equal responsibility that leaves both parties without a sense of necessity for concessions.
The shock of the shutdown has long spread from the administrative department to every corner of society. even the U.S. federal court can not withstand, the first time in thirty years to make a shutdown, more than 30,000 employees are not forced to leave the work, that is, have to pay hard to work, people in the job on October 24th can get the last salary, then have to rely on savings to spend the day.
The number of federal employees applying for unemployment benefits rose to 7,244 last week, more than 12 times the number before the shutdown, up from a few hundred a week earlier.
Economic losses are even more visible to the naked eye. For every additional week of shutdown, the GDP of the United States will be reduced by 0.1 to 0.2 percentage points. Originally, the foundation of the U.S. economy was empty, and the growth rate in the first two quarters was already declining. After such tossing, the losses will definitely be bigger than expected.
Panic Index rises: Stop market anxiety under the mist
The government shutdown has not ended, and the panic of the markets has been directly ignited, and the VIX index, known as the “panic index”, has recently surged, directly surpassing its high since April 7.
To know that the day of April 7th, the US stock futures collapsed sharply, the S&P 500 index fell by 2.3%, and the VIX index rose by more than 50%, this time to exceed that high, see how panicked the market.
Although VIX dropped slightly at the time of closing, it is still stable at a relatively high level in the year, which is actually behind investors' strong concerns about market volatility in the coming month.
The algorithm of this index is not complicated to say. It is calculated based on the price of S & P 500 index options. To put it bluntly, the value is a "barometer" of market confidence: the higher the number, the more uncertain everyone is, and the lower the number, the more stable the market.
This time VIX went up, essentially the chain of uncertainty caused by the shutdown crashed into the capital market. The most direct problem is that investors do not even see the key economic data - - CPI, non-agricultural employment these indicators are all postponed release, can not know exactly where the economy is going, only by the panic sentiment to price the market.
What's even more difficult is that the VIX could rise to this high was not caused by the shutdown alone. The shutdown is at best a tipping point. What really makes the market uneasy is the triple risks that come together.
This matter is like a domino. The shutdown first destroyed the market's confidence in U.S. governance capabilities, and then the trade war, the bank explosion, and the AI bubble questioning were all stepped on, and several forces stirred together to push the VIX to a high point of the year.
This kind of multi-risk resonance situation is much more terrible than a single crisis. Investors dare not easily invest their money for fear of stepping on a pit.
Triple Storm Overlay: The Real Boost of VIX High Runs
The first thing that caught the market is that the fire of the trade war burned again.China and the United States just opened the economic and trade talks in Madrid in a few days, the United States immediately threw out 20 measures of pressure on China.At the end of September, a transparent export control rule, equals to pull thousands of Chinese enterprises into the "entity list", whether it is direct supply or indirect cooperation, as long as the border is limited.
By October 14th, the Chinese ships were officially charged a port service fee, each ship paid more than tens of thousands of dollars. The Chinese side naturally would not sit and watch no matter, and then tightened the export controls of rare earth, as the threshold of "China ingredients 0.1%", as long as the Chinese ingredients in products accounted for more than 0.1% must be approved, and directly sanctioned 14 US entities.
Both sides struggle, the global industrial supply chain is following the tension, the market is the worst thing is this bigger and bigger, and eventually the global trade growth rate goes down.
In mid-October, the Zion Bank Group, which owns $89 billion in assets, discovered that two related loans were fraudulent and that the borrower not only made false statements, but also allegedly counterfeited mortgages, and the bank was immediately forced to raise $60 million in allocations, and had filed lawsuits against each other in California.
This hasn't stopped yet, and the West Union Bank, which has $87 billion in assets, has exploded again, saying it has suffered from lender fraud, and Citi analysts estimate that the bank will have to recover $100 million in funds to stop losses.
As soon as the two banks were in trouble, the market immediately panicked. The KBW regional banking index fell 6.3% that day to close at 62.4 points, the lowest level since June and the most severe decline since April. The S & P 500 index was also dragged down by 0.6%.
JPMorgan Chase CEO Dimon's famous saying just goes to the heart of the market: "If you find a cockroach, there may be more." What everyone is afraid of is not that there will be problems with these two banks, but that the credit risk behind the fraud will spread. After all, the shadow of the collapse of Silicon Valley Bank last year has not yet dissipated.
The third stone in the heart of the market is the AI industry’s bubble questioning.The AI circle with OpenAI as its core has recently looked bustling, and the reality is all hidden.
OpenAI has just signed an agreement with Nvidia for hundreds of billions of computing power, and it has finalized a plan with AMD for a 6gigawatt computing power card. It has also engaged Oracle and Broadcom to create a cooperation with a total scale of more than one trillion US dollars. The valuation has rushed to US$500 billion, but the company has not made any money so far, and its loss expanded by 30% last year.
What's even worse is that this industry is full of closed-loop games of "investment for orders": Nvidia invested in OpenAI, OpenAI went to buy Nvidia's GPU, and the funds turned around and went back; AMD is more direct, using equity to offset chip money. If the stock price falls, this cooperation may be yellow.
Both Goldman Sachs CEO and former CEOs of Intel publicly blasted: this is the bubble. This situation of valuation and performance completely disconnected, so that many investors began to sell AI-related stocks, the light of the days in mid-October, the SMP 500 information technology index fell by 2.1%, further stirring the market.
These three risks are like three fuses. If the government shuts down, it is equivalent to pouring gasoline on the fuses, and finally pushing the VIX index all the way up.
What the market is most worried about now is that if the shutdown really drags on for 41 days, coupled with the fermentation of these three risks, the U.S. economy may suffer a harder impact-corporate financing costs will rise, consumer confidence will decline, and even the Federal Reserve's interest rate hike decision will be affected.
These concerns, in turn, will keep VIX high and fall into a vicious cycle: the longer it stops, the more panicked the market, the higher the VIX, the greater the resistance to the economic recovery.
Source of information:
For the first time in 30 years, the U.S. court system has also been involved in a shutdown, with more than 30,000 employees either dismissed or empty!
Financial: Trade Tensions Heat Up!Wall Street "Panic Index" Bounces to New Highs in Nearly Five Months