Exercising the right to evolve – CME FX options
Craig LeVeille, CME Group
(Editor’s note: This article originally appeared in the “Euromoney FX and Treasury Management Handbook 2014” and is reprinted with permission.)
There has been no shortage of major market influences and central bank actions affecting the FX markets in 2013. Abenomics was one key driving force for the rise in Japanese yen trading, and the continuance of quantitative easing (QE) in the US has made hedgers and speculators realise that currency risk can no longer be an afterthought. Emerging market currencies like the Brazilian real, Indian rupee and South African rand have depreciated in value when talk of QE ‘tapering’ arose, only to be stabilised when Fed remarks indicated that the end of the programme would be at least several months away.
But as many FX venues have seen dramatic decreases in trading volume, CME FX markets have witnessed significant growth in one key area – options. In fact, through early December 2013 our research shows CME FX options volume has grown 48% year over year, with FX open interest 49% higher than levels a year earlier. The growth in options is not too surprising given recent major risk events, like QE tapering discussions and Abenomics. Investors tend to use options as a safer tool to hedge exposures during periods when risks are very difficult to quantify.
However, a closer look at CME’s recent experience suggests that the growth in options may be as much the result of market evolution as it is about volatility. Given the early stage of automation in the global option market, there are strong reasons to be optimistic about future growth prospects.
Click here to read the entire article: http://jlne.ws/1edtOCG (PDF)
Quote of the Day
“There is an obvious tension between using robust fiscal rules to solve this problem, and allowing national fiscal policy to act as a shock absorber. This reinforces the need for fiscal risk-sharing between nations.”
Bank of England governor Mark Carney on how to structure a currency union after Scottish independence.
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Gillian Tett – FT.com
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***DA: Floaters, TIPS and other securities that offer both the full faith and credit, plus some price protection. That should keep some punch in the punch bowl for a while post-taper.
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Joshua Zumbrun – Bloomberg
Five years into the era of quantitative easing pioneered by departing Federal Reserve Chairman Ben S. Bernanke, two economists say they’ve measured how much extra stimulus the bond purchases provide when the main interest rate is already near zero.
Abe Doomsday Risk Prompts Moody’s Warning on JGBs: Japan Credit
Finbarr Flynn and Monami Yui – Bloomberg
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Robin Harding in Washington, John Aglionby and Delphine Strauss in London, Victor Mallet and Amy Kazmin in New Delhi – FT.com
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***DA: All’s fair in love, war and monetary policy.
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LANDON THOMAS JR. – NYTimes.com
With investors on edge following the recent weeks of turmoil in emerging markets, the release this week of updated capital inflow data by the Institute of International Finance could not have been better timed.
***DA: Data is either not as bad as expected, or worse, depending on one’s perspective.
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Nick Timiraos – MoneyBeat – WSJ
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And Here Comes the Turkish Double-Edged Sword
Yeliz Candemir – MoneyBeat – WSJ
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***DA: If I have that wretched Carpenters song stuck in my head all day I may need to remove sharp objects from the room.
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A quiet exit from a noisy world
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Dollar Set for Best January Since 2009 as Spending Tops Forecast
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Martin Wolf – FT.com
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MoneyBeat – WSJ
The pullback from emerging-market currencies continued Thursday, dragging down currencies in central Europe in a development that speaks about a wider malaise across the asset class. The Wall Street Journal’s Europe Markets Editor, Charles Forelle, explains how we got here and what it might tell us about the state of the global economy.
Currency Defense Depleting Official Treasury Stock, Westpac Says
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JPMorgan Extols Virtues of Ruble’s Record Plunge: Russia Credit
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Indexes & Index Products
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Taper Trouble Hits Gold’s Fourth Biggest Buyer
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Lennox Yieke – The Motley Fool
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Russell Investments’ chief economist found dead in Tacoma
The Associated Press (via The News Tribune)
Russell Investments chief economist Mike Dueker was found dead Thursday, and police said it appeared he had taken his own life by jumping from a ramp near the Tacoma Narrows Bridge.