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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

US investors are paying the biggest premiums since October to protect their portfolios against market gyrations as mounting tensions in the Middle East and reduced expectations of interest rate cuts fuel a surge in volatility.

The Vix index, Wall Street’s so-called fear gauge, hit 19.6 this week, its highest level since October 20, two weeks after the Hamas attack that triggered Israel’s war in Gaza.

The metric measures the price of options that enable investors to profit from swings in the S&P 500.

As of the end of Wednesday in the US, the index had receded slightly to about 18.2, still far above its late-March level of 12.6.

Market turmoil has also affected US bonds, with the ICE BofA Move index, which tracks volatility in US Treasuries, hitting 121, its highest level since early January and up from 86 in March.

Alex Kosoglyadov, managing director in global equity derivatives at Nomura, said a surge in demand in put options — which act as a form of insurance against stocks falling — marked a stark contrast with earlier this year.

He argued that investors were previously more concerned about missing out on potential stock market gains than protecting their portfolios against a sell-off.

“Investors were buying upside exposure as their hedge,” Kosoglyadov said. “The risk was that the market would keep rallying and that they’d underperform.”

The market has been rocked by the confrontation between Israel and Iran since Tehran signalled last week it was planning an attack in response to a presumed Israeli strike on its consulate in Damascus.

Vix option volumes hit a six-year high on Friday, according to Mandy Xu, head of derivatives market intelligence at Cboe Global Markets, which operates options and securities exchanges.

The Middle East tension has since escalated, with Iran on Saturday firing more than 300 armed drones and missiles at Israel, which is now considering its retaliation.

Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, said investors were buying “downside protection” in light of the geopolitical tensions.

Investors are also reassessing their strategies after the shift in expectations in interest rates provoked by the strength of the US economy.

The S&P 500 fell sharply on Monday following bumper retail sales figures, with the fallout spreading to markets around the world on Tuesday.

US Federal Reserve chair Jay Powell said on Tuesday it was likely to take “longer than expected” for inflation to fall to the central bank’s target level and make rate cuts appropriate.

While the Fed has indicated that it intends to make three quarter-point cuts this year to interest rates, investors now expect just one or two reductions. In January, they had anticipated six.

The shift in rate expectations has hit bond markets, with yields, which move inversely to prices, rising sharply. That in turn has made equities less attractive to investors, since they can now earn a higher return than before from ultra-safe US Treasuries.

The House on Wednesday approved a bill that would limit how the government can purchase data from third parties — legislation that scored a vote after negotiations with a group of GOP colleagues who briefly tanked a vote on warrantless spy powers.

Dubbed the Fourth Amendment is Not For Sale, the legislation passed 219-199. It requires law enforcement and other government entities to get a warrant before buying information from third-party data brokers who purchase information gleaned from apps.

Division over the bill forged familiar fault lines to those seen in the debate over Section 702 of the Foreign Intelligence Surveillance Act (FISA), linking both conservatives and progressives who want greater privacy protections and pitting them against members from both parties who fear such protections could undercut an important law enforcement tool.

Those in favor of the bill argue the government should have to get a warrant before buying the commercially available information to carry out law enforcement activities.

“If the government wants to track a suspect today, they could go through the trouble of establishing probable cause and getting a warrant. Or federal law enforcement could simply purchase data from a third party about the target of their operation,” House Judiciary ranking member Jerry Nadler (D-N.Y.), a co-sponsor of the bill, said during debate.

“If that purchased data included location data for their subject, they would have no need for checks and balances, no need for a warrant, and during an ensuing criminal trial, no obligation even to tell the court how they obtained the initial data in the first place.”

“We have the Fourth Amendment for a reason,” Nadler continued. “If law enforcement wants to gather information about you, they should first obtain a warrant.”

Rep. Warren Davidson (R-Ohio), the sponsor of the bill, pegged it as a reinforcement of Fourth Amendment protections against unreasonable searches and seizures.

“The reality is the technology today effectively puts the government everywhere we go. We all essentially have a digital ID, a phone number. And we carry it with us. It’s tracked. It goes to your car. Your car spies on you as well. This data is being collected,” he said.

“Nothing in this bill would prohibit a search paid for or otherwise of public information. It would, however, restore privacy protections, grossly infringed by current practices.”

Still, it garnered pushback from House Intelligence Committee members, the White House and voices in the law enforcement community.

“It generally would prohibit the intelligence community and law enforcement from obtaining certain commercially available information — subject only to narrow, unworkable exceptions. It does not affect the ability of foreign adversaries or the private sector to obtain and use the same information, thus negating any privacy benefit to U.S. persons while threatening America’s national security,” the White House wrote in a statement of administrative policy.

“Responsible access to, and use of, commercially available information is critical to scores of vital missions carried out on behalf of the American people.”

House Intelligence Chair Mike Turner (R-Ohio) argued the bill was poorly written, with broad language and few exceptions.

“The bill bans law enforcement from paying for information available to any willing buyer in all contexts. There is no exception. Zero. There is no exception to even allow law enforcement to pay for stolen information to investigate and solve identity theft, data theft, data breaches, ransomware attacks. The bill will not make people safer,” he said.

The bill was a top priority of GOP privacy hawks in the House, who negotiated a stand-alone vote for the legislation after failing to attach it to the broader legislation reauthorizing FISA 702. 

But Rep. Jim Himes (D-Conn.), ahead of its separation from FISA 702, said the fast-tracking of the bill left for little consideration of something that would have sweeping consequences.

“What are we going to do? We’re going to prohibit the CIA from buying data without ever having a hearing in Intel?” Himes said last week before it was clear the provision would get its own vote on the House floor.

“It’s very saddening because it’s a super interesting topic. We probably should regulate it maybe more than we are today. But it just should not be brought out of nowhere.”

Senior administration officials said the measure would blind U.S. intelligence outfits from getting information easily purchased by foreign intelligence operations. 

“In practice, these standards make it impossible for the [intelligence community], law enforcement to acquire a whole host of readily available information that they currently rely on,” an administration official said.

“Covered customer records as defined in the bill is very broad and includes records pertaining to any U.S. person or indeed any foreigner inside the United States. And as a practical matter, there’s often no way to establish whether a particular individual was in the U.S. at a particular time a piece of data was created. Unless you did one thing, which is paradoxically to intrude further into their privacy just to figure out whether you could obtain some data.”

“It can be impossible to know what’s in a data set before one actually obtains a data set,” the official continued. “So you’d be barred from getting that which you don’t even know.”

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The US House of Representatives is expected to vote on sending additional aid to Ukraine and Israel on Saturday evening, in a move that could provide $95bn in critical support to American allies and end months of congressional inaction.

Mike Johnson, the Republican Speaker of the House and ally of Donald Trump, told fellow party members on Wednesday that he would publish draft legislation on three bills with additional military funding for Israel, Taiwan and Ukraine.

House members will have 72 hours to study the legislation, setting the stage for a final vote on all three measures on Saturday evening that will be watched closely by US allies in Europe.

Johnson’s gambit comes at a critical time for Kyiv in its war against Russia’s full-scale invasion, and follows months of lobbying by US allies who have warned that Ukraine’s defences could be overrun by far superior Russian firepower without fresh military aid from Washington.

But the decision to send the legislation to the House floor comes with considerable political risk for Johnson. Rightwing opponents within his party have vowed to eject him as Speaker if he allows a vote on the aid, and Johnson is expected to need Democrats’ support to get the funding passed — and to stay on as Speaker.

Momentum to reintroduce the aid packages picked up after Iran’s weekend attack on Israel, with President Joe Biden calling it a “brazen” and “unprecedented” attack on one of the US’s closest allies in the Middle East.

The possible breakthrough on US funding for its allies follows months of inaction in the Republican-controlled House, which has refused to take up a Senate-approved $95bn national security supplemental aid package that included $60bn in funding for Ukraine, as well as billions of dollars for Israel and Taiwan.

US allies in Europe have been alarmed at the deadlock in Congress over more support for Ukraine, where Russian forces have threatened to gain more territory two years after Vladimir Putin launched the full-scale invasion.

The Russian military has stepped up its bombardment of Ukraine in recent weeks as well, amid fears that Ukraine’s aerial defences are growing weaker.

While the EU has scrambled to put together stop-gap military funding packages in recent months, European diplomats admit they lack the defence capabilities and manufacturing capacities to replace the US.

The frozen funding stream has also spooked some European capitals that fear it is a harbinger for US policy towards Ukraine under a potential Trump presidency, should he win back control of the White House in November’s election.

Jens Stoltenberg, Nato’s secretary-general, said on Wednesday he was “encouraged by indications that the US Congress may take up further aid to Ukraine in the coming days”.

“My message is clear: Send more to Ukraine,” he added.

Johnson’s plan, unveiled on Monday, splits the aid into three separate bills, including a $60.8bn Ukraine aid bill, a $26.4bn measure in support of Israel, and an $8.1bn package to send aid to Taiwan and other countries in the Indo-Pacific intended to deter Chinese aggression.

Johnson has said he will also publish a draft of a fourth bill that would seize Russian assets, impose additional sanctions on Russia, China and Iran, and ban TikTok from app stores unless its Chinese owner divests ownership of the video-sharing platform. A fifth bill would seek to boost security on the US-Mexico border.

But passage of the bills is not guaranteed. Republicans control the House by a tiny margin that will shrink to just one vote on Friday, when Wisconsin Republican Mike Gallagher is expected to step down from the chamber.

The White House and senior Democrats have reserved judgment on Johnson’s plan, saying on Tuesday that they were awaiting more details before taking a position.

Johnson’s leadership has been on shaky ground for weeks, since the firebrand Republican congresswoman Marjorie Taylor Greene threatened to call a vote of no confidence in his speakership. On Tuesday, Thomas Massie, a Republican from Kentucky, said he would join Greene’s effort and called on Johnson to resign.

But Johnson vowed to fight on, telling reporters it was an “absurd notion that someone would bring a vacate motion when we are simply here trying to do our jobs”, He said he considered himself a “wartime Speaker”, adding: “I didn’t anticipate this would be an easy path.”