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Notable trends and dislocations (Europe)
European equities ended the week lower mainly due to a tech-driven sell-off on 12-Jun during which the SX8P (European tech sector) witnessed its largest 1-day decline since the UK's EU referendum. Nevertheless, implied vols across European indices remained mostly unchanged near 2 year lows.

• European intra-sector correlation continues to decline while inter-sector correl has hit a floor: The average EU intra-sector 3m correlation is near a 10-year low currently. In contrast, the average 3m inter-sector correlation reached a 10-year low in Mar-17 driven by post US election reflation trades but is now rising off its lows likely driven by an unwind of reflation trades.

• SX7E implied-realised correlation near 5-year highs: SX7E 6m implied correlation fell since Mar-17 but the implied-realised correlation spread remains in the 88th 5-year percentile driven by even lower realised correlation.

• ESTX50 3M put skew is near 5 year highs, in stark contrast to SXEP (European Oil & Gas equity) put skew which is close to 5 year lows.

• The overall seasonality in ESTX50 realised volatility since 1987 has been one of relatively lower vol during the summer months vs. autumn. In particular, May stands out as the lowest vol month across most 10 year horizons, and this also appears to be the case so far this year.

EU Intra-sector correl continues to decline while inter-sector correl is supported
The average European intra-sector 3m correlation is near a 10-year low, partly driven by divergence within the personal & household goods, utilities, real-estate, autos and insurance sectors (Chart 18 and Table 3). Interestingly, the average 3m inter-sector correlation reached a 10-year low on 14-Mar-17 (as the 8-Nov-16 US election led to the outperformance of sectors sensitive to inflation) but inter-sector correlation now seems supported likely driven by the unwind of reflation trades (Chart 18).

Bank of America
Merrill Lynch
Global Equity Volatility Insights | 20 June 2017 11
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