The VIX closed at 15.04 on Wednesday, up 0.03, while the S&P/TSX Composite stood 1.54% lower at 35,099.42 as of 2:46 PM ET, the latest timestamped print available at the 4:00 PM publish time. The volatility index that prices fear in U.S. large-cap options barely registered the move, because the S&P 500 lost only 0.22% to close at 7,801.74. This was a Canadian rate repricing, and the VIX was not built to see one.
The Fear Gauge Read the Wrong Market
The Behavioural desk showed this morning how habituation sets the price of fear, with the VIX at 15.01 inside a 14.21 to 17.84 range across 21 sessions. Wednesday fits that range exactly, and that is the point. The index held its habit while the Dow fell 0.66% to 51,179.87, the Russell 2000 fell 1.32% and the TSX fell more than 1.5%.
The September record shows how unusual the silence is. On the three earlier sessions this month when the TSX fell more than 1%, the VIX rose 1.19, 1.38 and 0.97 points. Wednesday delivered a TSX decline of the same size and a VIX change of 0.03.
The two largest TSX declines of September, on September 10 and September 23, each came with a 15 basis point jump in the five-year yield and a VIX rise of at least 0.97 points.
The TSX also fell 1.07% on September 8, when the VIX rose 1.19 points. The five-year Government of Canada yield rose 15 basis points on both September 10 and September 23.
Where the Stress Went Instead
It went into the sectors a rate repricing reaches first. The U.S. 10-year yield reached 5.36% at 10:14 AM, its highest since April 2002, and the Federal Reserve minutes released at 2:12 PM said most participants saw another rate increase as likely appropriate by year end. At midday the TSX was down 1.6% at 35,083.56, with gold and materials each off 2.8% and financials off 2%. RBC fell 1.8% to 274.29. Energy producers rose, with Brent near $100 to $101 a barrel.
The U.S. session recovered and the Canadian one did not. The S&P 500 moved from a 0.59% loss at 9:34 AM to 0.22% at the close, while the TSX was down 1.52% at 11:59 AM and 1.54% at 2:46 PM. Since August 26, the TSX is down 4.66% as of 2:46 PM, against gains of 1.64% for the S&P 500 and 5.39% for the Nasdaq.
The TSX stood 5.0% below its August 25 record at 35,099.42 as of 2:46 PM ET, below every close since September 1, with the two 15 basis point jumps in the five-year yield marking the two sharpest earlier declines.
The final point is the 2:46 PM ET print, drawn dashed because the official close was not available at publication. The record close of 36,957.60 was set on August 25.
What the Calendar Tests Next
The market is pricing at least one 25 basis point Bank of Canada increase by year end, with the overnight rate at 2.25% and the five-year Government of Canada yield at 3.59% on October 6, the latest Bank of Canada reading available at publication. The Economy desk put that yield 96 basis points above its pre-war level on October 5. Wednesday added equity pricing to a move the bond market had already made.
Three dates now carry the weight. The Labour Force Survey arrives October 9 at 8:30 AM, after August unemployment of 6.4% and a loss of 41,700 jobs. CPI follows October 19, with headline inflation at 3.0% and CPI-trim at 1.9%. The Bank of Canada decision and Monetary Policy Report land October 28 at 9:45 AM, the same day as the Fed at 2:00 PM, where traders priced about a 17% chance of an October hike as of Wednesday.
The prescribed rate of 3%, held for a sixth straight quarter against a 2.40% three-month bill, is the Tax desk figure that a Bank of Canada hike would eventually move.