How low can the VIX go?

STOXX Europe 600 down 0.1%

*

China sees higher Q2 growth

*

Lagarde: no rate peak call in near term

*

U.S. stock futures inch higher

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at

HOW LOW CAN THE VIX GO? (1035 GMT)

Wall Street’s “fear gauge”, an index that measures equity options volatility, is not far off its lowest since pre-COVID in early 2020.

Last week, the CBOE Volatility Index slipped to its lowest since Jan. 2020 at 12.73. It's around 10% above there right now, but it does raise the question of whether the VIX will resume its decline and by how much further could it drop?

According to BofA, the VIX at this level is "ultimately unsustainable" given the backdrop of much higher macro volatility and surging rates.

Tactically, the U.S. bank likes "using steep VIX term structure to help offset the cost of longer-term VIX upside, for example, buying the VIX Sep 15/17 put spread + the Nov 25/35 call spread for an upfront cost of ~$2 but potentially flat-to-positive carry over the next ~2 months," BofA says.

(Joice Alves)

IT'S HEDGING TIME: WHAT ABOUT BITCOIN OR QARP STOCKS? (1025 GMT)

Technicals and market dynamics seem to be offering no clear support anymore and Berenberg strategist Jonathan Stubbs says it's time for investors to consider "crash protection" and hedge portfolios against possible drawdowns in the coming months.

"There is a clear waning of positive macro momentum in Europe and China, USD liquidity support is stalling and appears unlikely to turn around quickly, rate expectations have tightened meaningfully... and credit headwinds, commercial real estate risks and political/geopolitical risks need close observation," he writes.

So, what kind of crash protection should investors look at?

Stubbs' recommendations range from plain cash or gold to so-called quality at a reasonable price (QARP) stocks.

"Flexible investors have more options away from cash equities, both in derivative markets and in real/alternative assets, where we hold an unconventional 40% in our asset allocation framework; this includes exposure to cash, gold and Bitcoin," he says.

"In Europe, we make the case for both energy and telecoms relative to technology. We also see energy relative to industrials as an interesting 'crash protection' hedge with support for energy from valuation, FCF yields and strong balance sheets," he adds.

Lastly, in the QARP screens, Stubbs singles out some European and U.S. names that score well: Shell, Total, Solvay, Stellantis, Roche, Merck, Alphabet, Cisco, Qualcomm and PayPal.

(Danilo Masoni)

EUROPEAN SHARES GET SHORT-LIVED LIFT BY CHINA'S OPTIMISM, ECB IN FOCUS (0810 GMT)

European shares pared some of the earlier rise on hopes of more policy support from China as investors quickly shift their focus back to risks around interest rates and Russia.

China's Premier Li Qiang said the country's economic growth in the second quarter would be higher than in the first and was expected to reach the annual economic growth target of around 5%.

But investors are also focusing on comments from European Central Bank (ECB) President Christine Lagarde at a conference in Sintra, as she said the ECB is unlikely to call a peak in interest rates in the near future and it should not waver in its fight against inflation.

The pan-European STOXX 600 index is up 0.1%, after falling for six sessions in a row.

Supporting the index, shares of London-listed Wise surge 20% after the money transfer company said it sees its FY24 income growing by 28-33%.

Capping the enthusiasm, JD Sports Fashion shares are down 4.5% to the bottom of the STOXX after the company flagged some softening in trade in its North American business in June.

(Joice Alves)

CHINA LENDS SUPPORT TO EUROPEAN FUTURES (0640 GMT)

European futures are getting a lift from assurances that Beijing would support flagging growth in the world's second-largest economy, which helped investors shift their focus away from risks around interest rates and Russia.

Premier Li Qiang said economic growth in the second quarter would be higher than the first and that Beijing would roll out more effective policies to expand domestic demand and open markets.

The Chinese yuan also perked up significantly as central bank guidance sent a clear warning to traders that authorities were becoming less tolerant of the currency's recent weakness.

In the UK, water industry regulator Ofwat gave its go ahead to schemes totalling 2.2 billion pounds ($2.80 billion) for starting work on infrastructure in the next two financial years and tackle problems such as storm overflows.

EUROSTOXX futures are up 0.5%, while futures on the DAX and FTSE 100 are also both up 0.5%.

(Joice Alves)

CHINA GETS WEARY OF A WEAKENING YUAN (0635 GMT)

The U.S. dollar's protracted smile is making China and Japan uncomfortable. China, unencumbered as it is by global pacts and commitments on market rates, has reacted swiftly this week. State banks have sold dollars to slow the yuan's decline, and the mid-point for daily trade has also been adjusted.

The next cab off the rank is Japan's finance ministry, and top yen diplomat Masato Kanda is "not ruling out any" options to fix a rapid and one-sided yen decline.

Both countries have not done much since mid-May as the dollar cruised higher, gaining 8%-10% against their currencies and for any number of reasons - the yields, the flailing Chinese economy and the health of banks.

But it's time to get twitchy when the yuan is closing in on the 7.3-per-dollar levels last seen in November and, before that, in 2008. Likewise, when it's around the 145-150 levels, the yen tips the cost-benefit balance for Japan too. Japan's yen has weakened against the dollar so far this year significantly more than its regional counterparts.

The yuan has slid more than 4% against the dollar so far this year. One factor that might be worrying Chinese authorities, analysts say, is that the yuan's value against its major trading partners has fallen 2.16% this year, according to Reuters calculations based on official data.

Meanwhile, as we wait to see when Japan intervenes, it helps to remember Japan always goes for big. Think September and October 2022, when it spent upwards of $60 billion as the yen fell to 32-year lows. Those with short yen positions hoping to time a perfect trade need only look at the yen chart, and its 14 yen rally over 3 weeks for a tip.

Key developments that could influence markets on Tuesday: Britain house prices, ECB's Sintra conference kicks off.

(Vidya Ranganathan)