China to launch rubber, cotton and corn options on Jan 28
China will launch options for rubber, cotton and corn on Jan. 28, the country’s securities regulator said at a press briefing on Friday, adding to the tools available to hedge on price risks in the world’s largest agriculture market.
***SD: A bit confusing as it isn’t “China” launching three contracts, it’s the three big Chinese exchanges each launching one – cotton at Zhengzhou Commodity Exchange, corn for Dalian Commodity Exchange and the Shanghai Futures Exchange has rubber. I just so happen to have written about China’s existing options on futures contracts in December – A Look at Nascent Chinese Commodity Options
AQR founder says blaming quants for market turmoil is ‘insane’
Robin Wigglesworth – Financial Times (SUBSCRIPTION)
AQR, one of the world’s biggest hedge fund groups, has suffered its worst year since the financial crisis, but its founder Clifford Asness says investors who blame the recent market turmoil on quantitative strategies are “insane”.
The Greenwich-based investment group, which manages $226bn, has climbed to the top of the hedge fund industry thanks to its systematic “quant” approach, which uses financial research and algorithms to systematically exploit durable market signals.
Japan’s top FX official warns against excessive yen volatility
Stanley White – Reuters
A top Japanese finance ministry official on Friday said the government would respond to wild swings in currency markets if needed, in comments analysts say were aimed at talking down the yen after its surged to a nine-month high this week.
****SD: Also from Reuters, Yen’s surge is a red flag for world markets
Fed chief Jerome Powell says he would not resign if Trump asks
Fred Imbert – CNBC
Federal Reserve Chairman Jerome Powell said Friday he would not resign from his post if President Donald Trump asked him to.
****SD: You’d think he wouldn’t want to touch this topic with a 10-foot pole, but whaddya know… For other Powell news, see Bloomberg’s Jerome Powell Pledged Allegiance to Data and Some of It Looks Grim. Meanwhile, Cleveland Fed President Mester said the central bank could stop hiking if inflation doesn’t rise.
Dow surges 700 points after Powell says the Fed will be patient with rate hikes
Fred Imbert – CNBC
Stocks rallied on Friday after Federal Reserve Chairman Jerome Powell said the central bank will be patient in raising rates, quelling fears of tighter monetary policy in the near future.
The Dow Jones Industrial Average rose 700 as Boeing, UnitedHealth and 3M outperformed. The S&P 500 rallied 3.2 percent, with the tech sector gaining more than 4 percent. The Nasdaq Composite climbed 4.1 percent.
****SD: Probably just another “glitch.”
Why a ‘veil of uncertainty’ is causing global market volatility
PBS NewsHour (Video and Transcript)
Global markets dropped after Apple CEO Tim Cook announced unforeseen sales declines for iPhones in China. Why is the Chinese economy so important to American business, and what’s at the root of global market volatility? Diane Swonk, chief economist with Grant Thornton, talks to Judy Woodruff about trade tensions, data delayed due to the government shutdown and investors’ “veil of uncertainty.”
****SD: Ready to get (S)wonkish?
Volatile Markets Raise Heat Ahead of Trade Talks
Daniel Ten Kate – Bloomberg (SUBSCRIPTION)
With the trade war starting to wallop global markets, U.S. and Chinese negotiators will face increased pressure to show progress next week in Beijing.
Exchanges and Clearing
‘As Good As It Gets’ For Exchanges
Shanny Basar – MarketsMedia
CME Group reported record volumes as analysts at German bank Berenberg said increased volatility has led to robust volume growth across most products for exchanges around the globe.
The US exchange said today that average daily volume for last year reached a high of 19.2 million contracts, 18% higher than in 2017. Last year 91 trading days also exceeded 20 million contracts, more than double the 34 days in 2017. CME highlighted that average daily volume records were reached across a range of products – interest rate; metals; foreign exchange and options.
Ice Clear Europe posts $1.2bn margin breach in Q3
Alessandro Aimone – Risk.net (SUBSCRIPTION)
Ice Clear Europe reported a peak margin breach of $1.2 billion in the third quarter of 2018 – the largest since public disclosure began in 2015.
Intercontinental Exchange – Intercontinental Exchange Reports Record Futures & Options Volumes in 2018; 4Q’18 ADV +20% y/y
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported December, fourth quarter and full year 2018 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website at http://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.
Oslo Bors lures rival bids amid Euronext’s EUR625m offer for acquisition; Oslo Bors has invited bids for its acquisition with a new offer process due to take place this month.
Hayley McDowell – The Trade
Norwegian exchange operator Oslo Bors VPS has invited rival bids following news of Euronext’s plans to offer EUR625 million to acquire the company.
CME Group Announces 2019 Annual Meeting Date
CME Group Inc. (NASDAQ: CME), the world’s leading and most diverse derivatives marketplace, today announced that its 2019 Annual Meeting of Shareholders will be held at 10:00 a.m. Central Time on Wednesday, May 8, 2019, in the Auditorium at CME Group, located at 20 South Wacker Drive, Chicago, Illinois.
The presentation will be broadcast live over the Internet and can be accessed via the exchange’s web site at http://investor.cmegroup.com. Additional information about the Annual Meeting will be contained in the company’s Proxy Statement for the Annual Meeting, which will be made available to shareholders of record prior to the Annual Meeting.
Regulation & Enforcement
A balancing act: the case for macroprudential margin requirements
Cian O’Neill and Nicholas Vause – Bank Underground Blog
Certain policy actions require a high level of precision to be successful. In a recent paper, we find that using margins on derivative trades as a macroprudential tool would require such precision. Such a policy could force derivative users to hold more liquid assets. This would help them to meet larger margin calls and avoid fire-selling their derivatives, which could affect other market participants by moving prices. We find that perfect calibration of such a policy would completely eliminate this fire-sale externality and achieve the best possible outcome, while simple rules are almost as effective. However, calibration errors in any rule could amplify fire-sales and leave the financial system worse off than if there had been no policy at all.
If the Stock Market Has a Problem, His Job Is to Fix It
Stephen Gandel – Bloomberg (SUBSCRIPTION)
Brett Redfearn of the SEC has a full plate: IPOs, high-frequency trading, exchange fees and the price of data.
FDIC chair says no concerns about U.S. bank health amid market turmoil
Pete Schroeder – Reuters
A top U.S. bank regulator said on Thursday she had no concerns that volatility in the equities and futures markets posed a threat to the banking system, telling Reuters the country’s lenders have plenty of capital to weather further market swings.
When Stock Market Volatility Means Opportunity; We offer principles to provide some ballast to the tumult that should define 2019’s market.
Steven M. Sears – Barron’s
It’s the start of a new year, and it’s hard to know what to expect aside from sharp volatility. This is a dramatic divergence from a year ago. when it could be said with confidence that volatility was perhaps the world’s most attractively priced asset. The S&P 500’s realized volatility was far below its long-term average of 16%, a level that has existed since 1929.
Since then, volatility has normalized and then some, and what happens next is truly anybody’s guess.
2018 – A Year Of Volatility For Precious Metals
2018 is within a few hours of the record books as this article is being written, so let us take the opportunity to review the year in the global markets, and to see how precious metals fared in the mix.
Hedge fund DE Shaw eyes new ‘risk premia’ strategies
Robin Wigglesworth – Financial Times (SUBSCRIPTION)
DE Shaw, the $50bn-in-assets hedge fund founded by the reclusive computer scientist David Shaw, is planning to open up a new ” risk premia” strategy for investors, as it expands its suite of products into a hot area of asset management.
The Bad Stuff That the Stock Market Worried About Is Starting to Happen
Sarah Ponczek and Vildana Hajric – Bloomberg (SUBSCRIPTION)
All of a sudden, the fundamentals aren’t looking as strong.
First it was Apple Inc.’s $5 billion revenue miss, hints of which lopped 30 percent from its stock over three months. Now it’s a closely watched gauge of U.S. factory activity, which dropped to a two-year low and missed every estimate in a Bloomberg survey.
Two-year yield dips below key Fed rate for first time since 2008
Kate Duguid – Reuters
The U.S. two-year Treasury note yield US2YT=RR briefly dropped below 2.4 percent on Thursday afternoon, reaching parity with the federal funds effective rate for the first time since 2008.
****SD: Also see the WSJ’s What Happens When Bond Markets Get Weird
Major Exchange OKEx Adds 7 New Pairs to Crypto Derivative Product
Major cryptocurrency exchange OKEx has added multiple new crypto derivative pairs to its platform, according to a press release shared with Cointelegraph Jan. 3.