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Market volatility back at ultra-low levels despite geopolitical risks

Volatility on markets has slumped back to ultra-low levels at a record pace despite the first shots of a trade war ­being fired and anti-EU populists seizing power in Italy.
The Vix index, a widely-used measure of future volatility expectations known as The Fear Gauge, has tumbled to below 12 points, its level before February’s stocks sell-off, from above 50 in just 83 trading days. 
The slide has smashed the previous record of 227 days, stoking concerns that investors have been lulled back into a sense of false security despite rising geopolitical risks.
The index surged above 50 in February in the biggest one-day move ever when investors dumped stocks amid fears that the Federal Reserve, the US central bank, would raise interest rates quicker than initially anticipated. But last Thursday it pulled back to a low of 11.64 points, well below the long-term average of around 20.
Market volatility back at ultra-low levels despite geopolitical risks

Volatility has returned to ultra-low levels despite the threat of a trade war
Markets are pushing on to “new all-time highs in spite of headline risks, both old and new” but the recent climb in stocks “does not feel as relentless”, Stewart Cook at Berenberg explained.
Despite the slump in volatility back towards ultra-low levels, he warned that “less active support” from the world’s central banking elite, the end of the short-volatility trade – a bet on volatility remaining subdued that “had suppressed larger moves” – and the growing belief that “we are moving ­towards the end of this bull market” have dampened the market’s “buy-the-dip mentality”.
The index has remained restrained in recent weeks despite trade tensions between the US and its allies escalating. Donald Trump announced last month that the US will impose tariffs on steel and aluminium imports from the EU. The bloc announced its retaliation to the measures last Wednesday, slapping tariffs on a range of US ­imports including Harley-Davidson motorbikes and Levi’s jeans. 
Meanwhile, the populist Five Star Movement and the League parties in Italy finally seized control and put the country on a warpath with the EU, but that has also met a muted response on markets beyond its borders. 
The FTSE MIB, Milan’s blue-chip index, has suffered a 13pc slump since this year’s peak in May, but the tumble has largely been contained to Italian markets only.
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