Goldman Says Wall Street Hedging Strategies Added to Oil Rout
Javier Blas, Jack Farchy and Catherine Ngai – Bloomberg
Dealers sold futures to cover to producer hedges, bank says; Mexico’s annual oil hedge has helped roil the market before
Wall Street’s been abuzz for the past 24 hours about the epic plunge in the oil market Tuesday. And a bit perplexed about its causes. Analysts at Goldman Sachs Group Inc. say they think they’ve uncovered one of the main culprits: a rush by Wall Street banks to cover their exposure to oil producers’ hedges.
****SD: Hmm, so as more sovereigns look to get into the hedging space, can we expect more of these feedback loops? I’d wager yes.
Bull Cases in Trouble Everywhere as Oil Adds to Stock Stress
Luke Kawa, Vildana Hajric and Elena Popina – Bloomberg (SUBSCRIPTION)
Fund managers broadsided by the tumble in megacap tech stocks have a new reason to stress out: oil’s epic losing streak.
West Texas Intermediate futures have fallen a record 12 sessions, including Tuesday’s 7 percent tumble, leaving them down nearly 30 percent from early October to hit $55.69 a barrel at yesterday’s close. Energy stocks were the biggest drag on the S&P 500 Index on Tuesday as the benchmark gauge reversed a gain of more than 1 percent to finish in the red. Crude looks set to pare some of this damage on Wednesday, with futures pushing above $56 a barrel as of 8:22 a.m. in New York.
****JB: Also read Bloomberg story, Oil Snaps Record Losing Streak as Stronger OPEC Cuts Seen Likely
****SD: Never before has OPEC had so much competition from non-members, including the U.S. OPEC certainly isn’t the cartel it used to be.
Pound Volatility Surges as Traders Look to Next Brexit Hurdles
Charlotte Ryan – BloombergQuint
Volatility in sterling increases across short-dated tenors; Uncertainty may ‘cap appetite’ for the pound – Credit Agricole
Volatility in the pound jumped as traders looked ahead to the next hurdles on the path toward a Brexit deal.
****SD: More on Brexit in our “Regulation” section.
Minerd Says Investment Grade `Slide and Collapse’ Has Begun
James Crombie – BloombergQuint
The selloff in GE bonds isn’t isolated, tweeted Scott Minerd, Guggenheim Partners chairman of investments and global chief investment officer. “The slide and collapse in investment grade credit has begun,” Minerd tweeted.
Investment grade corporate debt has dropped more than 3.5 percent so far this year and is on track for its worst year since 2008, when it lost almost 5 percent. The market fell by about 1.5 percent last month, its biggest October loss in a decade.
****SD: There was heavy GE options activity earlier, as Trade Alert’s Henry Schwartz pointed out on LinkedIn. Big put purchases at the $8 strike created what he called a “gamma well” as dealers hedged. Gamma well is a cool term that he admits he stole, err, “appropriated” from Dean Curnutt of Macro Risk Advisors.
Which Hedge Funds Got `Whale Rocked’ in October?: Taking Stock
Arie Shapira – Bloomberg (SUBSCRIPTION)
Today is the deadline for 13Fs, where funds of all kinds will disclose what stocks they bought and which ones they sold in the third quarter.
But this filing period is a bit different than others because the quarter ended just days before a rout in the market began: The Nasdaq plunged 9.2% in October, its largest monthly decline since November 2008, while the S&P 500 fell almost 7%.
****SD: “I try all things, I achieve what I can.” – Herman Melville in “Moby Dick”
Exchanges and Clearing
CME Group Announces Henry Hub Natural Gas Futures All-Time Daily Volume Record, Surpassing 1.2 Million Contracts
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it reached a daily trading volume record of 1,232,635 contracts for Henry Hub Natural Gas futures on Tuesday, Nov. 13, 2018, surpassing the previous record of 1,022,858 contracts set on Jan. 12, 2018.
****SD: A record 994,030 energy options contracts; a record 794,990 electronic energy options contracts; and a record 693,975 WTI Light Sweet Crude Oil options contracts
CBOE acquisition of former BATS Global doesn’t slow growth
James Dornbrook – Kansas City Business Journal (SUBSCRIPTION)
CBOE Global Markets Inc. has increased its presence in Lenexa from 140 people to 200 since acquiring BATS Global Markets Inc. for $3.4 billion in February 2017.
The Lenexa facility serves as the company’s technology and operations center and is its second-largest office behind the Chicago headquarters. Chris Isaacson, executive vice president and chief information officer for CBOE, gave an update on the company’s progress at a meeting of the Association for Corporate Growth in Kansas City.
***SD: I guess somebody lost Cboe’s press style guide from after the acquisition. In today’s age of kooky caPitaliZations, speling and punc.tuation, where branding is paramount, these things become more important.
Public Quantitative Disclosure Global Statistical Bulletin Newsletter
The Global Association of Central Counterparties (CCP12) publishes the quarterly Public Quantitative Disclosure (PQD) Global Statistical Bulletin Newsletter to present a panorama of the CCP industry to market participants, relevant authorities and the broader public. The analysis is based on PQD reports published by central counterparties (CCPs) globally under the Principles for Financial Market Infrastructures (PFMI) requirements set by Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (CPMI-IOSCO).
****SD: Quite a bit of good information in this. For example, did you know that equity derivatives accounted for 20.2 percent of all total required initial margin in Q2 2018?
Equity Index Highlights – November 2018 edition
October saw 10-year US treasuries confirm the technical breakthrough of the psychological 3% yield barrier. This confirmation was a cue for a global decline in equity markets and a spike in realized volatility. Amongst past month’s noise, there were some clear themes with volume hotspots across several products: iShares Physical Gold ETC options, Total Return Futures, Banks Sector derivatives, and DAX family benchmark derivatives.
Wanted! Derivatives for Nigeria Stock Exchange
Chris Ugwu – New Telegraph
Developing derivatives will help to reduce the current problem of lack of breadth in the capital market, which has remained predominantly equities-driven. There have been arguments, though, to the effect that the Nigeria Stock Exchange (NSE)’s product offering has only reflected the domestic economy’s financing needs.
****SD: Will another regional exchange ever come to compete with JSE?
Regulation & Enforcement
Special report – UK and EU withdrawal agreement text confirmed
The UK and the European Union have today confirmed the provisional text for the Brexit withdrawal agreement. This sets out plans for addressing a range of key issues including citizens’ rights, customs arrangements, the UK’s financial settlement to the EU and a transition period out to the end of 2020.
****SD: For a market guide, see this Bloomberg piece. For a general take, see Reuters’ Britain agrees Brexit divorce deal with EU, May’s opponents vow to thwart it. The Financial Times has The winners and losers in the Brexit deal.
Pressure cranked up on big commodity traders’ dealmaking
Neil Hume and David Sheppard – Financial Times (SUBSCRIPTION)
Campaign groups have cranked up the pressure on the world’s biggest commodity traders, asking regulators to investigate the use of middlemen and well-connected individuals to secure lucrative oil deals in resource-rich countries.
What is the purpose of a French law ISDA master agreement?
Derivatives transactions (forwards, swaps, futures or options on financial instruments, currencies, interest rates, commodities, etc.) between two parties are usually documented under a master agreement supplemented for each transaction by a confirmation.
HPR Launches Omnibot – the Capital Markets’ First Application-Aware Network Switch – Setting a New Standard in High Performance Electronic Trading
HPR (Hyannis Port Research), provider of advanced capital markets infrastructure (CMI) technologies, today announced the launch of Omnibot, a first-of-its-kind networking device that integrates market access, risk management, data and latency capture functionality into a multi-application switch. Through the combination of FPGA-based risk hardware and a network switch within a single device, HPR has introduced a “net-zero” latency solution by performing risk checks in parallel with switching.
****SD: I was unaware that the Kennedy Compound was stocked with computer engineers.
History Says Don’t Sweat the Recent Pullback
Andrea Kramer – Schaeffer’s Investment Research
After a brutal October, U.S. stocks kicked off November with a bang. Specifically, the S&P 500 Index (SPX) enjoyed two straight weekly gains of at least 2% — something we haven’t seen in more than three years. Below, we take a look at what these signals could mean for both the stock index and Wall Street’s “fear barometer,” if history is any indicator.
Since 2003, there have been just 11 times where the SPX enjoyed back-to-back weekly gains of 2%, the last occurring in February 2015. Prior to that, you’d have to go back to October 2014, which was the first signal of its kind in two years. Most of the signals (four, to be specific) happened in 2009, after the March bottom, per data from Schaeffer’s Quantitative Analyst Chris Prybal.
****SD: History also says the trend is your friend, don’t try to catch a falling knife, and a whole bunch of other things that can be applied any which way depending on your bias.
Preparing investors for more volatility in markets
Eugene Philalithis – FT Adviser
As we enter into the closing stages of 2018, we will inevitably start seeing the regular ‘year in review’ and ‘year ahead’ commentaries.
But the tone of the conversation is different this year, and the exceptionally low volatility market that commentators were reflecting on in 2017 is no longer the main topic of discussion.
E*TRADE Financial Corporation Reports Monthly Activity for October 2018
E*TRADE Financial Corporation ETFC, -2.67% today released its Monthly Activity Report for October 2018.
The Buy Side and Outsourced Trading
Andrew Walton, Tourmaline Partners – TABB Forum
For many investment firms, managing their trading infrastructure can be a costly and complex challenge. But buy-side firms can improve execution and save costs by outsourcing all, or parts, of their trading operations. Andrew Walton, head of European business at Tourmaline Partners, shares his experience and observations.
Bank of Canada sees slightly higher perceived risk to financial system
The overall perceived risk to the Canadian financial system has increased slightly over the last six months but confidence in its resilience remains high, the Bank of Canada said on Wednesday.
****SD: How does a booming and volatile marijuana sector play into their calculations?