French political risk finally shows in equity markets
Kit Rees – Reuters
A spike in expectations of European equity market volatility around the first round of France’s presidential election suggests investors are belatedly starting to worry about the outcome and potential price swings.
****SD: Bloomberg – Hedging Costs for French Stocks at 5-Year High to Europe: Chart. The election is April 23.
The Best Trump Trade No One Expected
Sumit Roy – ETF.com
What’s the best-performing trade since Donald Trump was elected president? Even today, with the benefit of hindsight, a lot of people might not know. Go back a few months to November, or even earlier, and no one in their right mind would have predicted it. As surprising as it sounds, a bet on declining volatility is the top trade since the elections and of 2017 so far.
****SD: No one thought this would happen, but it did. Seems to fit the current narrative to me.
January Options Volume Remains Anemic Although Market Quality Improves
US listed options volume increased marginally in January on a month-over-month basis but was off significantly from January 2016 levels, a month when investor angst over economic conditions in China and plummeting energy prices spooked investors worldwide. Volume in January 2017 totaled 328.7 million contracts, a 9.9% decline from the year-ago period but up slightly from the December 2016 total of 327.5 million contracts.
The uncertainty paradox
Chris Dillow – Investors Chronicle
It looks like a paradox. On the one hand, investors face massive political uncertainty: about Trump’s policies, the course of Brexit, the possible re-emergence of the eurozone debt crisis, and possible changes of government in France and Germany, not necessarily for the better. Because of these, economists at Stanford University estimate that global policy uncertainty is now at its highest level since their measure began in 1997.
Markets underestimating pace of Fed rate hikes: Lacker
The Federal Reserve will likely have to raise interest rates more rapidly than financial markets currently expect given that any new policies by the Trump administration, while uncertain, will force the Fed’s hand, a hawkish central banker said on Tuesday.
****SD: The New York Times on Yellen speaking here
Exchanges and Clearing
Stock Exchange Conflicts of Interests
Themis Trading Blog
Some products and services offered by the stock exchanges have been at the center of many market structure issues. Colocation, proprietary data feeds, special order types and rebates all seem to favor one class of investor over another and promote an un-level playing field. Since most U.S. exchanges (except for IEX and CHX) are public, for-profit companies, we would expect that they would do everything that they can to increase shareholder value. But is this profit motivation causing significant conflicts of interest?
TMX Group’s quarterly results beat estimates, helped by cost cuts
TMX Group Ltd, which owns and operates the Toronto Stock Exchange, reported better-than-expected quarterly results as the exchange operator reaped benefits from cost cuts.
Credit Suisse flags 6,500 job cuts in 2017 after $2.4 billion loss
Joshua Franklin – Reuters
Credit Suisse will cut up to 6,500 more jobs in 2017, as Chief Executive Tidjane Thiam pushes ahead with a major restructuring which he said on Tuesday might now no longer include floating the bank’s Swiss business.
Regulation & Enforcement
Regulators try to keep up with world’s fastest traders
Samuel Agini – Financial News
European regulators are struggling to keep pace with the market’s fastest players – high-frequency traders. When markets don’t function properly, high-frequency traders usually attract at least some of the blame. Volatility has raised the stakes. Buying and selling securities becomes a riskier game when prices lurch and convulse.
****SD: Maybe regulators can pull one of those tortoise and the hare tricks?
Sebi changes priority for commodity derivatives
Business Standard News
The Securities and Exchange Board of India (Sebi) seems to have changed its priorities regarding opening up of commodity derivatives. Although it had floated a discussion paper about allowing options in commodities first and subsequently allowing more players to enter, some legal snag seems to have emerged.
Exclusive: Yellen brushes off warning, says Fed has authority on global talks
Jonathan Spicer – Reuters
Federal Reserve Chair Janet Yellen, in response to a warning from a U.S. congressman to halt global regulatory talks in the early stages of Donald Trump’s presidency, said in a letter the Fed has the authority and responsibility to consult with its foreign counterparts and does so to benefit the United States.
U.S. regulator gives grace period for swaps collateral rule
Lisa Lambert – Reuters
The U.S. derivatives regulator on Monday gave swaps dealers a six-month grace period to comply with a variation margin rule that becomes effective March 1, saying most companies are unprepared for the change.
Blockchain firm Equichain sets sights on derivatives
Julie Aelbrecht – Futures & Options World
EU regulator Esma said technology could transform market structure providers
Technology firm Equichain said it will look to tackle the derivatives market after introducing a prototype for a blockchain-based solution for cash equities processing at the end of this year. The London-based firm has said it plans to implement a full end-to-end cash equities execution to custody pilot at the end of this year then turn its focus to the derivatives market.
****SD: Here’s some more about Equichain
Quandl Integrates Comprehensive U.S. Treasury Evaluated Pricing and Reference Data From ICE Data Services
Quandl, the leading platform for financial, economic and alternative data, announced today that ICE Data Services’ U.S. Treasury evaluated pricing and reference data is available immediately on Quandl’s platform. ICE Data Services is a part of Intercontinental Exchange, a leading operator of global exchanges and clearing houses and provider of data and listings services.
Don’t Fall for the ‘Porthole Effect’ in the Oil Market
Daniel Dicker – TheStreet
When I was standing shoulder to shoulder with all those other oil day traders on the floor of the NYMEX, once in a while I’d get a very funny feeling. All of a sudden, I’d realize that the position I’d built up for myself was largely shared by just about everyone around the ring — and I also sensed that every other trader had had the exact same realization.
****SD: Business Insider expands on Dicker’s point – A veteran of the New York Mercantile Exchange is sounding the alarm on oil
VIX Cycles Set To Explode — Part 2
Chris Vermeulen – Investing.com
In “Part 1” of this series on VIX cycles I noted that volatility was about to explode. I sincerely hope my readers enjoyed the analysis and I hope it opened up a few questions regarding the potential moves in the US and global markets. Today, we will delve deeper into the concept of the VIX cycle patterns that I’ve identified and use common technical analysis concepts to attempt to identify price target levels as well as support and resistance that may become important in the immediate future.
Neil DeSena, E-Trading Pioneer, Dies at 52
Terry Flanagan – MarketsMedia
Neil DeSena, whose 30-year Wall Street career took him from the back office at a clearing firm to managing director at Goldman Sachs to founding managing partner of fintech merchant bank SenaHill Partners, passed away unexpectedly on Saturday. He was 52.
Mexico Could Retaliate Against US Trade Via Corn
Mexico is ready to hit the U.S. where it hurts: Corn. Mexico is one of the top buyers of American corn in the world today. And Mexican senator Armando Rios Piter, who leads a congressional committee on foreign relations, says he will introduce a bill this week where Mexico will buy corn from Brazil and Argentina instead of the United States.
Neil Staines – TradingFloor.com
Trekkies will be familiar with Kobayashi Maru, the training exercise in the fictional Star Trek universe designed to test the character of starfleet academy cadets in a no-win scenario. A no-win scenario defined by a set of rules that can only be overcome by changing the rules. In many regards, the Eurozone and its member states offer an interesting real-life parody of this iconic, fictional exercise.