Breaking News

A big short growing in Italian debt; Asian exotics desks need to slash risk

Observations & Insight

Bringing Nasdaq’s Derivatives Franchises Together
Spencer Doar – JLN
Kevin Kennedy now has two jobs. Formerly just the head of U.S. options for Nasdaq, he’s now also the head of the Nasdaq Futures Exchange (NFX), a post left open by the departure of Rick Beaman.
Kennedy inherits a still nascent endeavor – it was formed in 2015 – that is largely focused on energy products. Despite its youth, NFX has hit some home runs. NFX’s natural gas options have plenty of traction and the exchange’s open interest in energy products represents 11.5 percent of overall U.S. energy product open interest.
The challenge now is to grow NFX’s participatory pool.

Lead Stories

A big short growing in Italian debt
Abhinav Ramnarayan, Saikat Chatterjee – Reuters
A surge of interest in Italian bond futures may be a sign of a substantial short position building up in the derivatives market as tensions rise over budget negotiations between Rome and Brussels.

Asian exotics desks need to slash risk
Narayanan Somasundaram –
It is becoming increasingly clear that record volumes of Asian structured products over the past two years have come at a price. Exotics desks have gorged on risk to chase market share, but with uncertainty looming, it is time to unwind.

****SD: Not paywalled.

Capitalab announces record Compression and Initial Margin Optimisation results
PRNewswire via MarketWatch
Capitalab, a division of BGC Brokers L.P., an entity within BGC Partners, Inc, a leading global brokerage and financial technology company, today announced record Swaptions compression and rates Initial Margin Optimisation results. In the last two months, Capitalab compressed over $700 billion of Swaptions, Caps and Floors notional across combined Options and cleared Swaps cycles, with over $2 billion of rates Initial Margin (IM) savings in one October IM run alone, across over 25 legal entities and one CCP.

Marijuana Derivatives Still `Way Off,’ CFTC’s Giancarlo Says
Paula Sambo and Benjamin Bain – Bloomberg (SUBSCRIPTION)
U.S. Regulator says country needs to legalize cannabis first; Pot futures will be introduced once social policy catches up

****SD: Not ready for futures on a federally illegal commodity? Oh, how surprising.

Nassim Nicholas Taleb: “Skin in the Game”
Talks at Google – YouTube
American essayist, scholar and former trader Nassim Nicholas Taleb, whose work focuses on problems of randomness, probability, and uncertainty, discusses his latest book “Skin in the Game”.

Greed Isn’t So Good Right Now for U.S. Stocks, Cantor Says
Luke Kawa – Bloomberg (SUBSCRIPTION)
Cecchini cites normalization of VIX futures curve as signal; Short, medium-term stock outlooks at the firm now dovetail
Cantor Fitzgerald is calling time-out on the S&P 500’s rebound off recent lows.
Fictional “Wall Street” character Gordon Gekko may have said greed “is good,” but Cantor’s Chief Market Strategist Peter Cecchini sees it as a sign that markets may have gotten overextended.

Fed Leaves Rates Unchanged For Now, But Market Sees Another Rate Hike Next Month
JJ Kinahan – Forbes
The table appears set for one more Fed rate hike this year after the central bank elected Thursday to keep interest rates unchanged for now. The economy continues to fire on most cylinders, according to the Federal Open Market Committee (FOMC), though the FOMC’s statement did note that business investment has begun to moderate.

Oil drops for a 10th day, longest losing streak since 1984
Tom DiChristopher – CNBC
U.S. crude prices fell Friday for a 10th consecutive session, sinking U.S. crude futures deeper into bear market territory and wiping out the benchmark’s gains for the year.
The 10-day decline is the longest losing streak for U.S. crude since mid-1984, according to Refinitiv data.

Exchanges and Clearing

NZX says mutualised default fund will better protect dairy derivatives market
Scoop NZ
NZX says a new mutualised default fund will better protect its dairy derivatives market and allow for further market growth.


Turning Bullish on China Again
Gunjan Banerji – Barron’s
Options traders have been overwhelmingly bullish on China in recent days. But it’s an especially tricky time to wager on the country’s shares.
One of the biggest exchange-traded funds tracking Chinese companies has started to rebound after a tumultuous year. The $5.6 billion iShares China Large-Cap ETF (ticker: FXI) is up about 4% in November after a rocky few months.

Buy `Cheap’ Yen Before Its Big 2019 Awakening, SocGen Says
Sydney Maki and Robert Fullem – Bloomberg (SUBSCRIPTION)
Pause in Fed hikes or expectation of tighter BOJ seen as fuel; ‘Overvalued’ U.S. currency may turn into a loser next year

Why You Should Stick With ‘Buy and Hold’
Barry Ritholtz, Bloomberg via Financial Advisor
Beware of those who claim they have a strategy to capture the upside of market volatility and avoid the downside.

****SD: Can you “hodl” equities?

Swedroe: Carry Trade Caveats
Larry Swedroe –
The carry factor is the tendency for higher-yielding assets to provide higher returns than lower-yielding assets. A simplified description of the carry trade is the return an investor receives (net of financing) if an asset’s price remains the same.


China: Is the Trade War’s Impact Overblown?
Erik Norland – CME Group
For all the deliberation on the China-U.S. trade dispute, there is scant evidence that the tit-for-tat tariffs are having any significant impact on China’s growth. The country’s official growth rate did slow down from 6.7% to 6.5% in Q3, but it was just 0.1% below the consensus estimate. The Li Keqiang Index, an alternative barometer of China’s economic performance based upon rail freight volumes, electricity consumption and growth in bank loans, shows that growth is much stronger – closer to 9% year-on-year — although it too has slowed slightly (Figure 1).

Just a growth wobble or the beginning of the end?
Balazs Koranyi – Reuters
Two of the world’s biggest economies probably shrank last quarter, further proof that global growth is now past its peak and the risk of a downturn is rising.

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Graduate of University of Minnesota School of Journalism and Mass Communication