Observations & Insight
CME’s Options Electronification Boom and Global Participation
CME Group’s deal to acquire NEX and become a Treasury behemoth grabbed recent headlines, overshadowing the fact that the exchange group’s options franchise has been growing like gangbusters on the screen and globally.
Recent records – there are a slew – are no happy accident.
In this video, Derek Sammann, CME’s senior managing director, global head of commodities and options products, covers the catalysts behind this multi-year growth story.
Can Options Market Activity Predict Economic Growth?
Rob Isbitts – Forbes
What’s going to happen with the economy? This is a common question among investment professionals and anyone handling their own investment management, running a business or working for one. Traditionally, we tend to focus on what everyone else was looking at: figures released by government agencies or private research groups, which surveyed or otherwise accounted for measures of production and other items. Now, a new study by a group of European researchers shows evidence that the future pace of the U.S. economy can be forecast by looking at a less-obvious place: the options market.
As eerie calm returns to markets, have investors given up hedging?
Jamie McGeever – Reuters
Perhaps the most remarkable aspect of what has been a bumpy ride for world financial markets this year is how stubbornly low volatility is. It’s as if investors have given up on hedging, which is exactly what appears to be happening.
Benchmark measures of implied volatility across major stocks, bonds and currency markets are historically low, despite the ECB preparing to join the Fed in tightening policy, Italy’s bond market in turmoil and surging global trade war fears.
It Takes a Lot to Shock the Market at This Point: Taking Stock
Arie Shapira – Bloomberg
The market didn’t put a whole lot of weight behind the G-7 being an impactful event, and rightfully so as we’re seeing zero reaction in the futures so far this morning — and that’s even with Trump coming out of the summit swinging against Trudeau (“very dishonest & weak”) and trade adviser Peter Navarro lashing out, saying there’s a “special place in hell” for the Canadian Prime Minister.
Wall Street edges higher ahead of Trump-Kim meet
Sruthi Shankar – Reuters
U.S. stocks edged higher on Monday, helped by gains in Facebook (FB.O) and a handful of healthcare stocks ahead of a highly anticipated meeting between President Donald Trump and North Korean leader Kim Jong Un.
Why Trump’s trade tirade won’t get in the way of S&P 500 hitting 5,000
Barbara Kollmeyer – MarketWatch
Investors couldn’t really ask for a more-action-packed week — or more stress — and that’s what’s headed our way.
The North Korea summit, a Federal Reserve rate call and possible QE unwinding news from the ECB are all jammed into the next five days. That’s after a whirlwind weekend of President Trump pretty much annoying every other G-7 leader, with no signs of a slowdown in the barbs as he readies for his meeting with Kim Jong Un.
How global markets may react if North Korea summit succeeds…or fails
Evelyn Cheng – CNBC
A successful outcome of U.S. talks with North Korea could give a boost to Chinese stocks and a U.S. exchange-traded fund that tracks them, according to a study looking at financial market reactions to past milestones regarding the rogue nation.
A disappointing outcome could hurt European stocks, the study showed.
Market volatility back at ultra-low levels despite geopolitical risks
Tom Rees – The Telegraph
Volatility on markets has slumped back to ultra-low levels at a record pace despite the first shots of a trade war being fired and anti-EU populists seizing power in Italy.
The Vix index, a widely-used measure of future volatility expectations known as The Fear Gauge, has tumbled to below 12 points, its level before February’s stocks sell-off, from above 50 in just 83 trading days.
The signs of a potential market crash are now appearing
Natasha Turak – CNBC
Despite a generally sunny economic outlook stemming from strong earnings, a global recovery and low unemployment levels in developed markets, trouble may be lurking around the corner, according to one asset manager.
That trouble is set to come in the form of a market crash that may be sooner rather than later, says Francesco Filia, the chief executive at Fasanara Capital who accurately predicted the dramatic market correction of early February.
Exchanges and Clearing
Cboe Reports May Highlights for Cboe Europe Equities
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, today reported highlights from May 2018 for Cboe Europe Equities, including record average daily notional value (ADNV) traded for its block trading platform, Cboe LIS, as well as its Periodic Auctions book.
Regulation & Enforcement
Goldman Sachs’ Short Selling Volume on May 30 Estimated at Over 10 Million Shares
Michael Herh – Business Korea
Goldman Sachs, a global investment bank that has been suspected of carrying out naked short selling, has been found to have attempted to short sell 350 KOSPI and KOSDAQ stocks on the day of short selling. This means that the short sale volume of a single foreign brokerage is large enough to negatively affect the entire Korean stock market.
SEC official: Clamp down on officials who cash in on stock buybacks
Jeff Cox – CNBC
Corporate executives are using tax cuts and share buybacks to pad their own compensation, a top regulator said Monday.
Companies have announced a record-breaking level of share buybacks since Congress passed the Republican-backed tax reduction in December. Critics of the $1.5 trillion measure had worried that it would lead to big rewards for shareholders and only limited benefit to the broader economy.
CFTC moves forward with crypto price probe, demands info from exchanges
Erik Gibbs – Coingeek.com
In a move that could have played a role in this weekend’s substantial decline in cryptocurrency prices, the U.S. Commodity Futures Trading Commission (CFTC) has contacted several cryptocurrency exchanges, ordering them to turn over trading data. The order is part of an ongoing investigation into possible price manipulation on the exchanges.
Nasdaq Expands Hong Kong Presence with Data Center Connections
Nasdaq (Nasdaq:NDAQ) today announced that it is establishing connectivity to three data centers in Hong Kong to increase its service to the Asia-Pacific (APAC) region through a Nasdaq Point of Presence (POP), helping to provide more efficient, cost-effective access to Nasdaq financial data in the region.
In July, Nasdaq will begin to offer easy access to data from the U.S. financial markets via POP services in the following Hong Kong data centers: HK1 Equinix, Mega-i, and HKEx. The Nasdaq POP is designed to enable firms to access market data and trading applications, as well as APAC financial web portals, with real-time U.S. equity and index/ETF information from a local center. This new, cost-effective service provides firms low latency connectivity in a resilient and secure environment.
The S&P levels to watch amid a huge week for the market
Keris Lahiff – CNBC
Pick your potential stock market mover this week. The Trump-Kim summit could forge diplomatic ties between the U.S. and North Korea, meetings from the Fed and ECB will dictate changes in global monetary policy, and a decision on the Time Warner-AT&T deal sets precedent for any future M&A activity in media.
Bond supply and unwinding QE should push yields, volatility higher
Larry Berman – Bloomberg
This week, global fixed-income markets will get hit with a few blows to the head and one wicked upper cut.
U.S. supply totals $193B on Monday and Tuesday with the Fed expected to hike rates 25 bps on Wednesday. Supply in the long end of the curve will be particularly interesting to watch for who the buyers will be. Increasingly, the Street will need to take down more paper as QE unwinds. This takes liquidity out of the market and adds a notable degree of volatility to the bond market. Our first chart this week looks at the volatility index of US 10 year yields (yes, there is a VIX for everything!)
Momentum’s Minsky Moment?
Tim Edwards – Indexology Blog
U.S. equity funds following momentum (or relative strength) strategies have generally performed well recently, and their performance has been rewarded with inflows. This is important because momentum, uniquely among investment styles, is self-reinforcing – until it isn’t.