Traders betting on Bank of England move in early 2016
Published 18/09/2015 | 02:30
From the Federal Reserve to the Bank of England (BoE).
Stock investors are betting that despite the Fed move, the BoE is next.
A gauge of volatility expectations for the FTSE 100 Index has jumped 74pc in the past two months, about as much as the US Chicago Board Options Exchange Volatility Index. Europe's VStoxx Index, in turn, has gained about half of that.
Speculation that the Fed might have raised borrowing costs exacerbated stock swings in recent weeks, and traders are preparing themselves should the UK be no different in the months to come.
Expectations for FTSE 100 volatility for the next six months are near their highest levels of the year relative to European peers.
Like the Fed, the BOE is debating when to start raising its record-low rates as Britain's economy picks up. Its governor said it may need to increase them in early in 2016.
"They're going in lockstep," said Patrick Spencer, equities vice chairman at Robert W Baird & Co in London, referring to the two central banks.
"If the Fed raises interest rates sooner rather than later, the implication is that the UK will have to raise rates. The US market affects the UK in the same way."
The cost of hedging against drops in Britain's shares climbed to its highest level in almost four years this month, relative to bullish options bets. For the Euro Stoxx 50 Index, it's near its annual average.
Rising wages and an unexpected fall in unemployment may be stoking expectations - almost all economists in a Bloomberg survey project the BOE will make a move by the end of the first quarter.