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A relatively quiet day overall followed the morning volatility crash, with no new developments in the Israel-Iran conflict over the weekend, making it relatively easy for IV to drop sharply.  Mostly, it felt like standard operating procedure in the market: as soon as the VIX found its floor, the S&P 500 hit its ceiling.

Additionally, implied correlation and volatility fell during the session, while my proxies indicated that realized correlation and volatility increased. This ties back to last week’s conversation about the market’s ability to produce big upward moves in the SPX without driving implied volatility higher, essentially limiting further downside in implied volatility at this stage.

Tonight is the Bank of Japan meeting, and it’s an important one. It will set the tone for long-end rates—not just in Japan, but globally. Japan has long served as the global anchor for low rates, but lately, rates there have risen significantly. While markets don’t anticipate a change in the overnight rate, they do expect the BOJ to discuss potentially slowing the pace of its tapering in long-end bonds. The 40-year bond has attracted the most attention recently, and for good reason—making the BOJ’s commentary tonight particularly impactful.

It will also matter for U.S. rates because global bond yields often move in tandem. Based on today’s session, it looks like the U.S. 30-year yield has broken out from another bull flag pattern, suggesting it could move higher from here.

Given that we’re discussing Asia, it’s also worth noting the continued strength in the Taiwan dollar. This matters because many investors in Asia remain unhedged against dollar movements, and Taiwan appears to have some of the most exposure. Examining the chart, it seems reasonable to conclude that the Taiwan dollar likely has further room to strengthen from its current levels.

Looking at the S&P 500 today, after breaking the rising wedge on Friday, we came back and retested that breakdown level, and so far, it has held. Additionally, today’s move filled the gap from Friday’s open. If the rising wedge pattern is valid, the index should start declining tomorrow and continue downward essentially uninterrupted. If this doesn’t occur, it would suggest that a different pattern or scenario is unfolding.

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