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- In the past few weeks, we have seen that while price volatility (VIX) has been gradually testing new lows, the SKEW index, which measures the perceived tail risk of the equity market via the pricing of OTM options, have reached new highs.
- The chart below shows that the SKEW broke above the 150 level to test a new high of 160 this week, the highest level in the past cycle.
- In the past few years, periods of falling VIX and rising SKEW have generally been followed by a correction in equities.
- The contraction in Chinese 'liquidity', rising uncertainty over the global reopening and a slightly more 'hawkish' Fed are all important risk factors to consider in the short to medium term, which could push preference for 'safe' assets.