LONDON — Market volatility jumped as traders reacted to growing tensions between the USA and North Korea despite US Defence Secretary James Mattis saying that any conflict between the two nations would be “catastrophic.”
The VIX, a measure designed to track stock market fear, has jumped from its lowest level in 24 years to hit a level not seen since April this year, climbing 45% in a single day, marking its eighth largest one-day jump in history.
The chart below illustrates that spike:
“The VIX index struck its most extreme levels since Donald Trump won the US election. In another sign of investors shunning riskier areas of the market, US junk bonds have suffered the worst two-day decline this year,” Jasper Lawler, Head of Research at London Capital Group wrote in an email on Friday morning.
As volatility spikes, global markets continue to drop, with an overnight sell-off in Asia extending into Europe during Friday morning trade. All of Europe’s major stock indexes are lower after around 40 minutes of trading, with losses peaking at around 1% as of 8.40 a.m. BST (3.40 a.m. ET).
“Love or loathe him, Trump isn’t one to back down from a confrontation so its perhaps not a surprise that things have escalated. North Korea responding with a threat to US territory after Trump warned them not to threaten the US was never going to go down well,” Lawler writes.
“We assume markets will move on if it remains purely a war of words but the sell-off looks durable. With earnings season almost over, worry over North Korea may have ignited a well-overdue period of greater market volatility.”
Of the continent’s biggest indexes, Britain’s FTSE 100 is the biggest faller right now, dropping close to 0.9%, as the leaderboard below illustrates: