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Volatility drops ahead of Chinese weekend data

Global volatility appears to be on the wane as we approach the end of the week, with fundamental releases somewhat thin on the ground ahead of an absolutely crucial week to come in financial markets.

Chinese stock board
Source: Bloomberg

The FTSE 100 has seen its volatility fall to the lowest level in over two weeks, which is indicative of the 'wait and see' mentality many currently hold, given the release of Chinese data over the weekend alongside the Fed's interest rate decision on Thursday.

The early selloff seen in European indices is certainly a worry, with the recent bounce representing more of a whimper than any sort of recovery. Both the FTSE and DAX in particular are at crucial crossroads, with major support levels being tested this morning. If these are broken, it could lead to a significant rise in bearish volatility. The emphasis of economic announcements is certainly based upon the US, yet from a technical standpoint the European indices certainly hold more potential to spark markets back into life.

The weekend release of Chinese retail sales, industrial production and fixed asset investment numbers means that Monday is likely to start with a bang, and if recent data is anything to go by, it will most likely point towards yet more trouble in the beleaguered Asian powerhouse.

The supermarket battle took another twist this week, with yesterday’s announcement from Morrisons of store closures standing in stark contrast to today’s announcement from Lidl that it seeks to shake off its discount label to move into central London locations. One thing that is clear is that customers want low prices, and if Lidl manages to provide low prices with a perception of quality simply through a rebrand, it seems a no brainer. Whether it can pull it off is another matter.

Goldman Sachs threw its hat into the ring, calling for $20 oil today, sending crude prices lower. However, the flipside to these low oil prices is that output will begin to wane significantly at some point. The IEA speculates that output could fall at to its highest rate in 24 years, with the high-cost producers from the North Sea to Texas leading the shift away from the pump. Recent months have finally seen the lower oil prices and a drop in rigs impact output, which would actually be supportive of prices despite today's announcement from Goldman Sachs.

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