The World Cup started this past week as Brazil continued to dominate their rival Croatia with a 3 to 1 victory in Sao Paulo. I’m not 100% sure if there is a link here, but Brazilian stocks also rallied almost 3% last week as measured by the iShares Brazil Capped ETF (EWZ – 49.64). I believe one of the big investment banks predicted a 3% move up in stocks if Brazil won the World Cup. Maybe this past week’s move was an endorsement of Brazil’s chances to bring home (I guess keep at home) the cup. Despite the rally in stocks, VXEWZ ticked up slightly last week, which can be partially attributed to US market volatility moving up as well.
Despite the strong market in Brazil the iShares Emerging Markets ETF (EEM – 43.61) was basically unchanged on the week. And volatility was slightly higher. We can point to a low VXEEM and again US implied volatility moving up a bit as having an influence on this move.
The term structure curves followed the lead of the respective indexes and didn’t display much movement. The front month futures (with 2 trading days remaining until expiration) narrowed the gap between the indexes with the Jun VXEEM future unchanged and VXEWZ contract losing a little value. I continue to be fascinated at the premium that exists on Fridays before expiration. Before this statement prompts tweets and emails I am very aware of the Friday effect on volatility indexes, but I do not think that attributes to the all of the premium. I believe my summer intern should be prepared Monday for a project involving the last few days of trading for VXEEM and VXEWZ futures relative to the index.