Russia-Ukraine war concerns push asset price volatility

Volatility soared across markets on Monday, with a gauge of potential swings in the euro-dollar exchange rate at the highest since November 2020 and a key measure of equity swings rising to the highest in more than two weeks.

Markets took fright late on Friday after a US warning that a Russian invasion of Ukraine could come “any day”. On Sunday, the US said Russia might create a surprise pretext for an attack. Stock markets fell heavily on Monday, while oil prices headed towards $100 a barrel. Assets such as government bonds and the Swiss franc caught a bid.

The VIX equity volatility measure — often known as Wall Street's ‘fear gauge’ — rose to the highest since Jan. 28 at 32 points, having fallen below 20 points last week. Its European counterpart hit its highest since January 24 to trade above 33 points.

A one-month volatility gauge for Germany's DAX index, particularly vulnerable to an escalation in the conflict due to its constituent companies' reliance on Russian gas, rose above 39 points for the first time since November 2020. It was last up 16 points on the day at 38.2.

The volatility surge enveloped currency and bond markets too, with euro-dollar one-month implied volatility at 7.6 per cent. It had been below 6 per cent at the end of January. As the euro fell against the safe-haven Swiss franc, euro-franc one-month implied volatility jumped to 5.7 per cent, the highest since May 2020.