Observations & Insight
HKEX and LSE, A Capitalist’s Conundrum
Jim Kharouf, JLN
Today’s bid by Hong Kong Exchanges & Clearing (HKEX) to buy the London Stock Exchange Group for $36.6 billion is a conundrum in what otherwise would be a continuation of global consolidation among exchanges. But it is muddied by the geopolitical backdrop that could make the London Stock Exchange off limits to certain suitors, especially those under the control of the Chinese government.
To read the rest of this commentary, go here.
****JB: Also see the article listed in the Exchanges section below.
A Giant Bet Against Natural Gas Is Blowing Up
Ryan Dezember – WSJ
A popular wager in the energy markets is backfiring.
Hedge funds and other money managers in August built up a big bet that natural gas prices would decline—their most bearish position in the futures market in over a decade—only to have prices shoot up 25%.
Energy’s recent rally is just a head fake, say options traders
Tyler Bailey – CNBC
Oil’s three-month-long roller-coaster ride still isn’t over.
On Tuesday, it looked like crude was on its way to its first five-day winning streak since July, but then President Donald Trump fired national security advisor John Bolton – a well-known Iran hawk – and black gold immediately fell into the red.
Yen’s near-record period of calm masks pent-up pressures
Eva Szalay, Colby Smith and Leo Lewis – Financial Times
The yen’s long slumber continues.
At about ¥107.3 against the dollar on Tuesday, little changed on the day, the currency was as placid as it has been for much of the past year.
Volatility in the yen, judged by swings over the past 260 trading days, touched its lowest level in more than 40 years at the end of May, and has risen just a little since then.
But still waters run deep.
U.S. corporate bond, IPO markets heat up as recession fears persist
David Randall – Reuters
Corporate America appears to be rushing to get the most out of the decade-long bull market in stocks and bonds before a possible recession and election-year stock market volatility slam the IPO and credit windows shut.
Seed CX Subsidiary Adds Crypto Derivatives Settlement for Institutions
Nikhilesh De – Coindesk
Crypto derivatives platform Seed CX is launching support settlement services for bilateral crypto derivative transactions.
Specifically, Seed CX subsidiary Zero Hash – the company’s custodian and settlement service provider – will now support derivatives transactions, the firm announced Wednesday, opening the door for institutions to settle derivatives on its platform.
According to a press release, Zero Hash will support back-office settlement functions for bitcoin forwards contracts initially, but will add support for options at a future date.
Exchanges and Clearing
Hong Kong Exchange Makes Surprise $36.6 Billion Bid for LSE
Kiu Yan Wong and Viren Vaghela – Bloomberg
Asian bourse operator was considering a deal for many months; LSE recently agreed to purchase Refinitiv for $27 billion
Hong Kong Exchanges & Clearing Ltd. made an unexpected $36.6 billion bid for London Stock Exchange Group Plc, a bold move that would upend the U.K. bourse’s combination with Refinitiv.
Cboe RMC Europe: Day Two in Munich
Ed Tilly, Chairman, President and CEO of Cboe Global Markets, opened day two of Cboe RMC Europe with an update on the volatility market and Cboe’s products. Tilly introduced the conference keynote speaker, who discussed Brexit and its implications. Attendees then turned their attention to a panel discussion about equity volatility trading with representatives from Societe Generale, Legal & General Investment Management, Aviva Investors and Fulcrum Asset Management. The panelists discussed their hedging strategies when equity and bond correlations rise and highlighted some of the most attractive volatility strategies for today’s market, such as dispersion. They agreed that while volatility selling is becoming crowded, there’s still value in the trade.
ESMA report on trends, risks and vulnerabilities no. 2 2019
High liquidity risk uncovered by “isolated events” – this was observed by the European Securities and Markets Authority (Esma) according to its second Trends, Risks and Vulnerabilities Report for 2019. Systemic risk remained high, driven by increased levels of interconnectedness between different segments of financial markets. It is further amplified by the low-yield environment and associated incentives for risk-taking. Overall the report identifies a deteriorating outlook for the asset management industry and a continued very high market risk.
Derivatives exchange of the year: SGX
Strong performance in Singapore Exchange’s derivatives business has helped it to achieve its most profitable year in more than a decade, with net profit rising 8% year-on-year to stand at S$391.1 million for the year ending June 2019.
Underpinning these results is a robust multi-asset framework that seeks to evolve and adapt in line with clients’ needs.
Equity derivatives house of the year: UBS
Turbulent equity markets, particularly in the first half of 2019, have not made it easy for product structurers, many of which have been forced to rethink their business models and scale back operations in light of shifting client sentiment. Against this backdrop, UBS has reinforced its position as a leading equities powerhouse in Asia, seeking out new innovative products to best meet client needs and support the evolution of markets across the region.
Investors Find Comfort in Data Science in Unpredictable Markets
Liz McCormick and Anchalee Worrachate – Bloomberg
The Phillips Curve is in doubt, the bond market is distorted and a tweet from President Donald Trump can shift the trajectory of global markets in a matter of seconds.
In a world where traditional touchstones of fund strategies are being challenged by unprecedented economic-policy uncertainty, investors are seeking information not tapped before or better ways to sift through it. Some are stepping up the use of machine-learning to capture market sentiment on everything from the trade war to recessions. Whether these strategies are more effective than conventional methods remains to be seen, but they’re already paying off for some funds.
Bond Wizards Find Exotic Ways to Profit From Negative Yields
Yakob Peterseil – Bloomberg
It’s the bond market equivalent of alchemy: converting negative interest rates into a bonanza of yield via the magic of derivatives.
In a $15 trillion world of sub-zero debt, investment banks are creating exotic solutions for investors looking to bet on everything from ever-lower rates to the bullish credit cycle.
Powered by swaps and options, these racy structures seek to quench a thirst for returns which is only set to grow as the European Central Bank preps fresh stimulus this week — a move that could drag yields even lower across the euro area.
JPMorgan’s Kolanovic Says Flight From Momentum Is Just Starting
Lu Wang – Bloomberg
So much economic and geopolitical fear has been built into U.S. equity portfolios that the rotation out of momentum stocks into value is likely to persist for a while, says Marko Kolanovic, the quant guru who foresaw the style reversal just two months ago.
VIXY: Short The Contango Roll In VIX Futures
As seen in the following momentum table from Seeking Alpha, shares of the ProShares VIX Short-Term Futures ETF (VIXY) have turned decisively red for the year after a brief pop earlier this month.