The Lowest Levels of Vol in Over a Month

Daily Updates:

• With yesterday’s trading session being the last for this week in observation of Good Friday, market activity was more muted – the S&P 500 ended the day up 0.17% and the Nasdaq-100 was almost flat. 
• BTC continued to trade yesterday in a tight range of $83K and $85K since the early-April recovery from sub-$75K prices. 

• BTC’s options markets are pricing-in their lowest level of implied volatility in over a month. Options with a 7-day tenor trade with an implied volatility of just 35% after the term structure of implied volatility has steepened significantly from the flat shape it took on just four days ago.
• Despite continuing to price in a premium over BTC, ETH’s front-end implied volatility has trended down too. However, all measures of directional sentiment in derivatives markets indicate increased bearishness for ETH relative to BTC: funding rates are intermittently negative, futures prices trade below spot, and volatility smiles hold a stronger skew towards puts at all tenors.

• The flat moves in equities yesterday come after a steeper drop on Wednesday as Chair Powell’s comments suggested he’s stuck between a rock and a hard place. 
• Powell highlighted on Wednesday that the Fed is likely to be “moving away” from its dual-mandate goals for the “balance of this year or at least not making any progress” given the effects of the new administration’s trade policy. 
• Those comments were echoed by the NY Fed President John Williams on Thursday who said the Fed does not need to adjust interest rates “any time soon”, and should focus more importantly on keeping inflation expectations well anchored. 
• While the Fed is opting for the wait-and-see approach, President Trump expressed his view on monetary policy via Truth Social where he referred to the Chair as “always” being “TOO LATE AND WRONG”. Trump ended that message with the comment “Powell’s termination cannot come fast enough!”. 

• On the tariff front markets faced some good news as President Trump said “there will be a trade deal, 100%” in regards to the tariff negotiations between the US and the EU, though that was caveated with “I fully expect it, but it’ll be a fair deal”. Trump has argued that the EU runs a significant protectionist when it comes to trade with the US. 
• 2023 data from the European Commission shows the total bilateral trade surplus in goods for the EU amounted to €157B, however for bilateral trade in services, the EU had a trade deficit of €109B – suggesting the bloc is not as protectionist when all trade is considered. 

• US treasuries pared their gains on Thursday after a three-day rally, with the yield curve steepening further: the yield on the 10Y and 30Y tenor rose by 5 and 6bps, respectively. 
• April in general has been characterized by highly unusual market behaviour following the announcement and subsequent pause of Trump’s reciprocal tariffs program. 
• The recent positive correlation between US treasuries and risk-on equities was one sign of the unusual behaviour. Adding to that was a simultaneous selloff in the US dollar – typically higher yields in the US result in increased demand for the US dollar, however a break in that relationship (see chart below) has signalled in part at least some diversification away from US denominated assets.

This Week’s Calendar:

Charts of the Day: