GAFNN.com Blog

The last week we were expecting a drop of the Index in the 2,805 - 2,810 area and effectively so it was. In fact, the market opened at 2,787 moved higher and touched 2,809 on Wednesday, it rallied to 2,818 on Thursday but 2,808 was the settlement price registered on Friday. 

The volatility is around 0.98% - 1% (15.5% - 15.8% annualised) and the TGARCH plot is evidently displaying a curve which is trying to complete a mean reverting process whose run is going to end once the 0.8% support (12.6% in annual terms) is touched.

The drop in volatility and the initial doubtful movement of DJ EuroStoxx50 futures pushed many investors away from the European equity market (obligating them to invest in safer markets such as the Swiss Franc or Bund futures) but the upcoming week should bring some fresh and renewed buying pressure.

The great uncertainty that characterised most of the equity markets pushed many investors and traders towards a safer type of investment and this resulted in increased German Bund futures prices.

The market opened at 125.1 and moved around this value for about 2 days but the final part of the week saw a sharp rise in price which at first brought German Bund futures to 125.5 euro whilst on Friday the price action remained almost unchanged; in fact, 125.59 euro was the final closing price.

The actual volatility is 0.37% - 0.38% (5.8% - 6% annualised) and the curve is now slightly upward sloping but the overall chart is displaying a fairly stable situation which mirrors the short term uptrend which brought futures prices to the 125.5 euro level.

The German Bund futures rose substantially the last week although our forecast suggested a shorting strategy. Particularly, the price opened at 122.5 euro dropped to 122.1 but then rallied to 122.9 on Friday.

The actual volatility is now around 0.41% (6.5% annualised) and the TGARCH plot is showing an upward sloping curve which seems highlighting the fact that more uncertainty could be expected in the upcoming days because the volatility is going to increase.

On the other hand, the volatility curve is now fluctuating within its equilibrium point and, unless there is a breakout of the equilibrium range, the situation could even remain stable with futures moving sideways or heading north again.

German Bund futures rose as we expected and stayed into the 122 euro area for the entire week but it is important to point out that most of the movement was a reflection of the fact that prices gapped up remarkably on Monday

 

Specifically, the closing price was 122.4 on Monday, whilst on the 15^th of April futures closed at 121.2, during Tuesday and Wednesday futures kept decreasing and touched 121.8 but 122.2 was the closing price on Thursday.

The current volatility is now fluctuating around 0.38% (6.03% annualised) which is the mean reverting point as the chart visibly displays. The conditional variance decreased significantly during the last trading days and the fact that it has now touched the bottom could probably imply that more volatility should be expected in the upcoming hours.