Death of European Bond Volatility; BOE No-Deal Planning Won’t Stop Market Volatility – Cunliffe

Mar 6, 2019

Observations & Insight

Wednesday Miscellany
Spencer Doar – JLN

MIAX Emerald opened for trading on March 1 with IBM as the only symbol to start. Per the OCC, through March 5th 403 contracts have traded.

According to FactSet, analysts in the first two months of 2019 lowered earnings estimates for S&P 500 companies by an aggregate 6.5 percent.

Alphacution’s infographic depicting the Top 100 Participants in U.S. Listed Market Structure received some significant attention. Check it out here.

The U.S. trade deficit reached a record high. Funnily, that includes a record amount of goods from China.

Lead Stories

Death of Bond Volatility Has Pimco Fearing for Europe’s Future
John Ainger and Sid Verma – Bloomberg (SUBSCRIPTION)
Europe’s bond volatility is grinding to a halt, leading investors including Pimco to fear the region’s economy and markets are spiraling toward their own version of Japan’s lost decade.
“There’s a strong probability that what happened in Japan two decades ago is currently unfolding in the euro zone right now,” said Andrew Bosomworth, a money manager at Pacific Investment Management Co. “It probably means the Japanification of capital markets — lower yields for a longer time. Maybe forever.”

****SD: More like fearing for its trading opportunities in Europe.

BOE No-Deal Planning Won’t Stop Market Volatility, Cunliffe Says
David Goodman – Bloomberg (SUBSCRIPTION)
The Bank of England’s efforts to ensure financial stability in the case of a no-deal Brexit won’t prevent market volatility, according to policy maker Jon Cunliffe.
A disorderly Brexit is the biggest risk facing the U.K. financial system, and would likely lead to a correction in British assets and losses for banks, Cunliffe, the BOE’s Deputy Governor for Financial Stability, said in a speech in London Wednesday.

****SD: “Everyone has a plan until they get punched in the face.” -Mike Tyson- And Brexit sounds like a lot more than just one punch to the face.

Neiman Marcus Does Some CDS Stuff Too
Matt Levine – Bloomberg (SUBSCRIPTION)
…When can FX traders lie to customers?
In 2011, Hewlett-Packard Co. (now HP Inc.) bought a British software company called Autonomy Corp. To hedge its foreign-currency risk before the deal closed, HP went to Barclays Plc and bought 6 billion pounds of cable options, that is, options that gave it the right (but not the obligation) to buy 6 billion pounds for a fixed number of dollars.

****SD: The above excerpt comes from the second section of Levine’s column (after the extensive look at Neiman Marcus’ CDS). Unlike some of the other coverage of Barclays, he actually gets into the mechanics, rather than leaving it at “Robert Bogucki made a trade ahead of executing a client’s trade.” But the real takeaway from the whole affair is that prosecutors botched the job. (It was dismissed even before Bogucki offered a defense.)

Inside Volatility Trading: March 5, 2019
Cboe Blog
The Cboe Volatility Index futures term structure flattened at the end of February due to some sizeable spread trades. These trades appear to be positioned to benefit from a shift in the term structure curve from contango to backwardation, which tends to happen when there is a volatility spike.

Factors that have propelled Chinese stocks to nine-month highs
Luoyan Liu and Andrew Galbraith – Reuters
Chinese stocks have staged a robust rebound this year, unexpectedly recouping much of 2018’s sharp losses, buoyed by hopes Beijing will roll out more support measures for the slowing economy and signs of progress in Sino-U.S. trade talks.

Exchanges and Clearing

Cboe Global Markets Reports February 2019 Trading Volume
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today reported February monthly trading volume.

****SD: YTD volume down 26.3 percent, February 2019 over February 2018 volume down 33.8 percent. But hey, it is hard to beat year’s vol-pocalypse.

Australian Regulatory Approval Granted for CME Group to Pr ovide Clearing Services to the FEX Global Futures Exchange
FEX Global
FEX Global today announced that it has received regulatory approval for a variation to its Australian Market License that will allow for the clearing of its futures market by CME Group.

****SD: FEX does have options on futures products for Asian coal, multiple types of Asian crude, power, and iron ore.

TMX Group Consolidated Trading Statistics – February 2019
TMX Group Limited today announced February 2019 trading statistics for its marketplaces – Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange (Alpha) and Montréal Exchange (MX).

****SD: Derivatives volume on MX are up month-over-month and, surprisingly, up year-over-year, too. Open interest is up MoM and YoY as well.

BOX Options: Daylight Saving Time Change
Due to the Daylight Saving Time (DST) change scheduled for this weekend, connection to the BOX Exchange (“BOX”) Trading System will NOT be available Sunday, March 10, 2019.


Europe’s AI start-ups often do not use AI, study finds
Financial Times (SUBSCRIPTION)
Two-fifths of Europe’s artificial intelligence start-ups do not use any AI programs in their products, according to a report that highlights the hype around the technology.

****SD: Putting the “artificial” in AI!


Deutsche Bank’s ex-head of U.S. equity sales to join mystery hedge fund
Any Deutsche Bank insiders concerned for the future of Craig Bench, the irrepressibly good-natured co-head of U.S. equity sales who mysteriously left yesterday, can be reassured: Bench seemingly has a new job to go to.

****SD: According to an anonymous equity trader, Bench is joining “some guys from Surveyor Capital” that are launching a fund. Surveyor Capital is one of Citadel’s four key equities businesses.

Credit Suisse picks European electronic trading chief
Samuel Agini – Financial News
Credit Suisse has picked an 18-year veteran of the Swiss bank to lead electronic trading in Europe, where new regulations have increased competition among brokers in the battle for fund managers’ business.


Watching the Global Flows Explains Why Dollar Won’t Be Kept Down
Liz McCormick – Bloomberg (SUBSCRIPTION)
The dollar’s resilience after what some have categorized as the most dovish Federal Reserve turnaround in history comes as little surprise to Exante Data’s Jens Nordvig.
U.S. President Donald Trump may be looking to jawbone the greenback. But for Exante, it’s still all about the grab for yield, with rates on dollar-denominated assets remaining more attractive relative to the painfully low or negative ones found in Europe and Asia. The firm’s analysis of the holdings of global asset managers suggests that isn’t going to change anytime soon.


The Thrive Questionnaire With Dan Nathan
Thrive Global
Dan Nathan is the principal of RiskReversal Advisors. He has spent the better part of the last 20 years as a proprietary equity & options trader at hedge funds and within the equity derivatives group of Merrill Lynch. He has been a regular panelist on CNBC’s Options Action since its inception in Q1 of 2009, and a regular panelist on CNBC’s Fast Money since 2011.

****SD: Generally speaking, I don’t know if 20-yr trading veterans are the best sources for a health and wellness blog…

Research Unbundling in the US Leaves Buy Side, SEC in a Quandary
Larry Tabb – TABB Forum
While MiFID II is a European mandate, it has driven global buy-side firms to attempt to unbundle their research bills in the US and beyond. But even if large US brokers were willing to change their business models and unbundle research and execution, most are prohibited from receiving direct hard dollars for research unless they register as investment advisors, which comes with additional rules and compliance challenges. This leaves US buy-side firms looking to unbundle in a quandary, as they may not be able to pay their US brokers. TABB Group founder and research chairman Larry Tabb looks at the SEC’s possible solutions and the challenges to each approach.

Banks face squeeze as Libor replacements fall short -BIS
Huw Jones – Reuters
Replacements for the tarnished Libor interest rate benchmark could squeeze bank funding, with the costs borne by customers, the Bank for International Settlements said on Tuesday.
The London Interbank Offered Rate (Libor) is based on polls of selected banks, and lenders were fined billions of dollars for trying to manipulate their submissions during the financial crisis a decade ago.
Financial contracts ranging from home loans to derivatives and worth about $400 trillion referenced Libor in major currencies in mid-2018.

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