Dead Calm as Fed Vows No Action; No-Deal Brexit Possibility Comes Alive; Short and Distort?

Mar 21, 2019

Lead Stories

Dead calm in markets unsettles Wall Street as Fed vows no action
Peter Wells and Robin Wigglesworth – Financial Times (SUBSCRIPTION)
Volatility across several major asset classes has fallen to its lowest level in years as both the Federal Reserve and European Central Bank indicate they will hold off from raising interest rates in the face of waning economic momentum.
The level of calm has been particularly pronounced in the US government bond market, where measures of volatility for short-term Treasuries have sunk to their lowest level in more than three decades.

****SD: Playing with recent expectations vs current expectations via CME’s FedWatch tool is a fun way to kill 10 minutes. Other sources on the Fed’s decision – Reuters, Mohamed El-Erian in Bloomberg, Barron’s, NYT, and Marketwatch. As for positioning, see Bloomberg’s Traders’ Rate-Cut Bets Shift Goalposts for Fed Playing Catchup.

No-Deal Brexit Possibility Suddenly Comes Alive for the Markets
Charlotte Ryan – Bloomberg (SUBSCRIPTION)
Pound investors are ripping up their Brexit playbooks as the chance of a no-deal exit flares once again.
Sterling is the only major currency to fall against the dollar this week as U.K. Prime Minister Theresa May gambles on getting her plan over the line with just over a week to go before the exit. Option traders are betting on further losses and increased currency swings, while fund managers are seeking help from constitutional experts to assess the potential fallout.

****SD: Business Insider has Traders shunning UK because of Brexit are in for pound ‘tsunami.’

Short & distort? The ugly war between CEOs and activist critics
Lawrence Delevingne – Reuters
On the morning of July 11, Paul Pittman was on a corn farm in Western Illinois, unaware his company had taken a devastating hit.
Just before the stock market opened, an anonymous short seller named “Rota Fortunae” posted on Twitter and financial website Seeking Alpha that Pittman’s small real estate investment trust, Farmland Partners Inc, had engaged in dubious transactions and risked “insolvency.”

****SD: Lots of good stuff in here, but this line takes the cake I think – “Columbia Law School securities expert Joshua Mitts said in a working paper that he had looked at 1,720 pseudonymous short idea posts on Seeking Alpha between 2010 and 2017 and found that 86 percent were preceded by ‘extraordinary’ options trading.”

CAT Opens Reporting Registration
Rob Daly – MarketsMedia
Industry members and third-party trade-reporting providers who have an SRO membership and handle quotes or orders in NMS equities securities, OTC equities, or listed options have until June 27 to register as CAT reporters.

****SD: Don’t be late to the party!

Breakingviews – Traders’ brave new world shrinks to same old story
Christopher Thompson – Reuters
Albert Einstein defined insanity as endlessly doing the same thing while expecting a different result. By that yardstick, global investment banks are off their rockers. New year optimism about rising rates and greater volatility boosting markets revenue has been summarily dashed. Instead, trading arms will continue to disappoint.

****SD: But is it the same old song, too?

Deconstructing Citadel and Why It Matters
Paul Rowady – Alphacution Research Conservatory
In my mind, memories of the childhood home are dominated by those of vast spaces. A colossal stairway, a living room like a grand ballroom, the front and back yards both like baseball stadiums. My father is there – like a giant sitting at the head of the kitchen table – savoring his freshly unscrolled newspaper. And yet, upon visiting this place as an adult, it presents itself as your basic 3-bedroom layout – barely 2,000 square feet – with postage stamp yards. It turns out, my memories are somehow locked in when I was the size of a toddler. Perhaps, you share the experience of this illusionary twist of perspective…
Recently, listed markets have started to mimic this duality of perspective for me. There was a time when the totality of stocks and options and all other listed securities in between seemed endlessly vast, much like the horizon of an ocean.

‘Japanification Effect’ Means Treasuries Should Be This Sleepy
Luke Kawa – Bloomberg (SUBSCRIPTION)
Concern is swelling on Wall Street that sleepy markets are setting a trap for investors betting on continued tranquility.
But in the bond market – – the most soporific of them all – – it’s perfectly appropriate for volatility to be plumbing record lows, according to TD Securities, based on how little yields have been swinging.

****SD: Also from Bloomberg – Powell Aims to Dodge Japan Deflation Trap With Dovish Fed Tilt

R.J. O’Brien Ranked Number One Broker for Oil Options and Structured Products in Europe in Energy Risk Commodities Rankings 2019
Press Release
Chicago-based R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, today announced that R.J. O’Brien was the top-ranked broker in Oil Options and Structured Products in Europe in the 2019 Energy Risk Commodities Rankings issued by Energy Risk, a publication.

Hedge Funds Doing Their Utmost to Defy Volatility Collapse
Ruth Carson and Chikako Mogi – Bloomberg (SUBSCRIPTION)
Macroscope betting on gold, GCI using managed futures; Compression of price moves approaching its limit – Whiz
Hedge funds focused on the $5.1 trillion-a-day foreign exchange market are trying to circumvent the dearth of volatility by going farther afield to find an edge.
GCI Asset Management is tapping managed futures — often leveraged instruments — for Japanese clients willing to invest a small amount of money for higher returns. Macroscope Capital Ltd., founded by former HSBC managing director Manoj Hemrajani, is investing in gold as an alternative to trading the dollar.

****SD: Whiz Partners? That’s a new one.

Exchanges and Clearing

CME Group Inc. Announces First-Quarter 2019 Earnings Release, Conference Call
CME Group
CME Group Inc. will announce earnings for the first quarter of 2019 before the markets open on Wednesday, May 1, 2019. Slides and written highlights for the quarter will be posted on its website at 6:30 a.m. Central Time, the same time it provides its earnings press release. The company will hold an investor conference call that day at 7:30 a.m. Central Time, at which time company executives will take analysts’ questions.

Regulation & Enforcement

ECB scraps clearing powers request in feud with European capitals
Jim Brunsden and Claire Jones – Financial Times (SUBSCRIPTION)
The European Central Bank has scrapped a request for greater powers to tackle financial stability risks in the market for euro-denominated derivatives, warning that a political deal on the plans reached in Brussels earlier this month would do more harm than good.
In a sign of widespread discontent between the region’s monetary policymakers and EU legislators over how regulate the EUR660tn market, the ECB’s governing council on Wednesday unanimously agreed that it would withdraw a request it made in 2017 for a change to its statutes.

****SD: Meanwhile No-Deal Brexit Means a Hard Border for 6,000 Company Stocks

Allison Lee Is Said to Be Pick for SEC’s Vacant Democratic Seat
Benjamin Bain, Robert Schmidt and Jennifer Jacobs – Bloomberg (SUBSCRIPTION)
Ex-enforcement lawyer was aide to former commissioner Stein; Trump may announce selection in the coming weeks, people say
President Donald Trump is preparing to name Allison Lee in the coming weeks to fill the open Democratic seat on the U.S. Securities and Exchange Commission, according to people familiar with the matter.

Banks progress on adhering to stricter international rules
Claire Jones – Financial Times (SUBSCRIPTION)
Banks are making progress towards meeting globally agreed standards, set after the financial crisis to ensure lenders can handle future bouts of market turmoil.
The Basel Committee on Banking Supervision reported that banks had met initial standards on globally agreed capital and liquidity rules. The survey of 189 banks found that all banks were complying with the so-called Basel III rules, agreed in 2010 and which are due to be fully phased in by 2027.


Exablaze named ‘Hardware Product of the Year’ finalist by Network Computing Awards
Leading global provider of ultra-low latency network devices Exablaze has been named a finalist in the ‘Hardware Product of the Year’ category by the Network Computing Awards. The company’s ExaNIC V5P and Firmware Development Kit (FDK) was shortlisted, underlining the company’s market-leading position and the exceptional benefit its products provide to clients.


The Carry Trade: Benefits and Risks
Talton Capital Management
I’ve gone from thinking that categorizing strategies was useful to thinking it is essential. Dividing trades into inefficiencies or risk premia helps when deciding how aggressive to be in sizing and also how suspicious to be about its decay in effectiveness. I’ve found the model based or situational dichotomy helpful with sizing decisions.

Beware the Fed’s Feedback Loop in Emerging Markets
The Federal Reserve’s shift away from raising interest rates has once again driven investors toward juicy returns in emerging markets. They need to be careful of a dangerous feedback loop: The very fact that money flows into these countries makes them look safer.

‘Golden cross’ for stocks doesn’t always glitter
Chuck Mikolajczak – Reuters
The Dow Jones Industrial Average triggered a technical signal on Tuesday that many investors believe could portend more gains for stocks in the short term, known as the golden cross. The chart pattern comes about when a short-term moving average moves above a longer-term moving average. Moving averages are popular trend indicators used by technical analysts.


The shift away from Libor could threaten stability
Megan Greene – Financial Times (SUBSCRIPTION)
Global regulators are cheering a transition from Libor, the now infamous London interbank offered rate that underpins $370tn in financial contracts, to a slew of new benchmark rates. The US part of the process reminds me of my hometown’s American football team, the New England Patriots. Its star quarterback, Tom Brady, has been a driving force for years. When he leaves, it will almost certainly be destabilising. Similarly, the shift from Libor to a new reference rate may seriously undermine financial stability.

On optionality
Investors Chronicle
For a long time, I’ve been thinking of getting a new patio. And yet the job remains undone. This isn’t simply because I’m lazy. It’s because of an economic idea that should influence our thinking not just about our investments but also life generally – the notion of optionality.

Morgan Stanley takes top spot in ranking of commodities banks
Morgan Stanley brought in the most revenue from commodities of any of the major investment banks in 2018, data from analytics firm Coalition showed on Thursday.

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