Global equity markets turning increasingly slump-proof; Demand from yield-starved institutional investors propping up stock prices
Takenori Miyamoto – Nikkei Asian Review
Tokyo — Massive corrections have largely become a thing of the past for global stocks as institutional investors dissatisfied with paltry bond yields flock to the riskier asset.
International equities have been so robust of late that one asset manager at a Japanese insurance provider reported no longer buying put options due to the steady returns from stocks. Although the financial administrator does not deny the need to hedge against steep market declines, such events “are not to be found, so paying for options is a waste.”
****SD: “No hurricanes for a while? Then why do I need hurricane insurance?” – Soon-to-be homeless Floridian
Stock market is moving wildly after earnings
Joe Ciolli – Business Insider
Earnings season is growing in significance for money managers amid bigger price fluctuations and deeper risk to the downside.
Much of the blame is being assigned to the rise of exchange-traded funds.
Investors aren’t yet effectively positioned to benefit from this new volatility regime.
****SD: Christmas comes 5 times a year for options traders.
VIX Call Options Crazy as Fear Gauge Breaks Records
Karee Venema – Schaeffer’s Research
With U.S. stocks treading deeper into uncharted waters, the CBOE Volatility Index (VIX) has been on a record-setting mission of its own. Following the expiration of a massive number of July VIX call options on Wednesday, the market’s “fear gauge” closed south of 10 for the fifth straight session — a first for the index. Nevertheless, VIX options trading was accelerated in Wednesday’s session, with most of the activity occurring on the call side of the aisle.
Around 768,000 VIX calls changed hands yesterday — 1.6 times what’s typically seen in a single session, and more than triple the number of puts that traded
****SD: Meanwhile XIV hit all-time highs.
Stock market volatility is more than VIX shows
Akin Oyedele – Business Insider
The stock market went quiet long before the summer slowdown.
In its boring grind higher, the S&P 500 has gone more than a year without a 5% pullback, the longest streak since 1995, according to LPL Financial. And, Wall Street’s benchmark gauge of market activity — the CBOE Volatility Index — fell to a 24-year low last week Friday.
Is Managed Futures Now Mainstream?
Managed Futures, once an outsider in the financial space, sure seems like it is in the mainstream these days – a full 8 years after the financial crisis. Sure, the industry might still get criticized for “pushing the markets,” or poor performance over the last couple of years, but it’s not stopping big names like AQR from raising assets, and other large firms as seeing the asset class acceptable enough to open up their own ETFs.
Game of Twister Awaits T-Bills as Debt-Ceiling Anxiety Deepens
Alex Harris – Bloomberg
U.S. Treasury bills, a sleepy $1.7 trillion corner of the fixed-income universe, are about to be pulled into the spotlight.
Investors in the shortest-maturity U.S. obligations, a parking spot for the world’s cash, are going to have to navigate two major challenges with a potentially contradictory impact: The looming government debt-ceiling impasse and the long-awaited start of the Federal Reserve’s unwinding of its massive balance sheet.
***JB: A game of Twister with the Federal Reserve Board and/or Congress does not sound like fun at all.
Exchanges and Clearing
Nasdaq Adds Four New Data Sets to Enhance its Analytics Hub
Aziz Abdel-Qader – Finance Magnates
Global exchange operator Nasdaq has added four new data sets to its Analytics Hub which provides statistical expertise for clients ranging from hedge fund managers through to algorithmic traders.
Dalian Commodity Exchange Supports Enterprise Training Activities In Foshan
On July 15, supported by Dalian Commodity Exchange (DCE) and organized by Galaxy Futures, the second event of the “Sending Options to Enterprises – Deepening Cultivation in Foshan” activities was held in Foshan City, Guangdong Province.
****SD: Good to see Dalian with the educational efforts. Confidence equals participation. Getting commodity options stable/liquid/off the ground is the next step for Chinese derivatives markets (well, one of them – some regulatory issues need dealing with).
Regulation & Enforcement
Blog: MiFID II could put a dampener on your holiday
John Bakie – The Trade News
Normally this time of year is characterised by slowing market activity, longer than usual lunches and partially deserted office buildings. Soon enough, you too will be off to sit on a meditteranean beach or taking the kids to enjoy Florida’s theme parks.
How not to approach FinTech regulation
Joshua Satten – The Trade
European regulators are not aligned with their global counterparts and could be holding back the potential of blockchain technology with their misunderstandings and misconceptions, says Joshua Satten, director, FinTech Practice, Sapient Global Markets.
Machines Poised to Take Over 30% of Work at Banks, McKinsey Says
Sarah Ponczek – Bloomberg
New technologies are poised to sweep through investment banks, relieving many rank-and-file employees of roughly a third of their current workload, according to McKinsey & Co. The shift, already stoking angst on Wall Street, may take only a few years.
Cognitive technologies — applications or machines that perform tasks once requiring human thought — are now cheap enough that banks can deploy them across operations facilitating trades or other capital-markets business. In a report Thursday, McKinsey said automating tasks will “free up capacity” for staff to focus on higher-value work, such as research, generating new ideas or tending to clients.
KCG Europe boss departs as takeover completes
Samuel Agini – Financial News
Phil Allison, who became chief executive of KCG’s European business in 2014, is in line for a parachute payment of $7m
CBOE Morning Call – 7/21/2017
Russell Rhoads – CBOE
Two big themes to watch going into next week. We get the brunt of 2Q 2017 earnings reports next week which creates some trading opportunities (for the short-term people here) and also gives us some insight into what companies think about the second half of this year (for those of us in the long game). Also, we do get an FOMC announcement on Wednesday. The fixed income futures market is pricing in a 96.9% chance that rates remain unchanged and the odds of a December hike recently moved below 50%.
Options Traders Are Bullish on the Rupee
Kartik Goyal – Bloomberg
Options traders are bullish on the rupee, betting that the Indian currency is better prepared to endure a selloff when major central banks start paring stimulus.
With the current account gap narrowing significantly, inflation at a record low and reserves at all-time high, India is less exposed to the risk of outflows when authorities raise rates, according to Mizuho Bank Ltd. That’s a contrast from 2013, when the Federal Reserve’s hint of an end to stimulus sent the rupee tumbling along with other emerging-market currencies.
That was fun; now comes the slowdown
Jeremy Gaunt – Reuters
For all the talk of world economies rising in sync, there does not seem to be an abundance of optimism about how long it will last.
****SD: Ehhh, I’d wager only a few thought it was “fun.”
Nobody told the euro that Mario Draghi was dovish
William Watts – MarketWatch
If Mario Draghi was trying to talk down the euro, it didn’t go so well.
****SD: It’s a red shell! Jump Mario, jump!
Britain Hasn’t Been This Politically Risky in 40 Years
Charlotte Ryan and Eddie Buckle – Bloomberg
Britain is having a flashback to the 1970s, and it’s not flared trousers making a comeback.
As Parliament breaks for the summer, Prime Minister Theresa May needs to come up with answers to the political drama unfolding at home and threatening her Brexit strategy as investors predict more trouble on the horizon for a country once seen as the stable counterpoint to European turmoil.