Observations & Insight
Derek Sammann, CME Group – The Importance of Electronification and Globalization
“The amount of structural change — driven by market regulations, the implosion of the credit markets, events in Greece, the hangover from 2008/2009 — has created an incredible amount of change that’s wrenching the infrastructure from the moorings of the last four years.”
A booming voice, large stature (did you play college football?), the ability to do math quickly since markets were made in minds — these were qualities Derek Sammann of CME Group recalls firms looking for when he became a trader in 1990. After 25 years, Sammann sees a much different landscape. Electronification shifted priorities from the pits to server rooms. Access to global markets no longer requires a central, physical trading hub. Focus rests less and less on the activities of day-to-day trading, but rather on optimizing infrastructure. With those macro examples in mind, Sammann imparts the valuable lesson, “change will not slow down, change will speed up.”
Europe’s Robin Hood Tax Is a Risky Proposal
It has been called a Robin Hood tax (a term favored by acolytes of British Labour leader Jeremy Corbyn) and a Tobin Tax, after the Yale economist James Tobin who popularized it. Whatever the name, a tax on financial transactions first proposed in 1936 by John Maynard Keynes may soon become a reality in 11 European countries…
The idea that the tax would be stabilizing for markets or help avert another financial crash sounds appealing, but doesn’t hold up. The tax wouldn’t have much effect on mortgage bonds or complex derivatives, which trade infrequently and which were largely responsible for exacerbating the credit crisis. Instead, it would mostly apply to currencies, equities, futures and options, which trade more actively.
Volkswagen Chief Warns on Existential Threat of Cheating Scandal
Volkswagen AG’s designated Chairman Hans Dieter Poetsch warned managers that the diesel-emissions scandal could pose “an existence-threatening crisis for the company,” as it pleaded for public trust with full-page ads in national newspapers.
Glencore shares jump 71% in Hong Kong
Matthew Curtin – MarketWatch
Shares in commodities giant Glencore have jumped higher again, opening up 15% in London after even bigger gains in Hong Kong earlier, continuing a recent pattern of volatile trading as management seeks to deflect worries about the group’s finances amid falling commodity prices.
A rise of as much as 71% in the group’s share price in heavy trading in Asia on Monday triggered a statement from Glencore to assure investors there was no new announcement on its part to explain the gains.
Traders Stung by VW, Glencore See More Pain for European Stocks
Investors don’t need proof that 2015 is a rough year for stocks. In Europe, traders are preparing for it to get worse…
It all triggered a record $462 million in weekly outflows from an exchange-traded fund tracking European stocks after months of inflows. In the options market, the volume of contracts hedging against losses last month jumped to its highest level in more than a year relative to bullish wagers.
Automatic market stabilisers at risk of failure
Mohamed El-Erian – Financial Times
With US stocks experiencing their worst quarterly performance since 2011 (7 per cent losses for the major indices), equity investors — including in the emerging world where the financial carnage has been notable — now find themselves underwater for the first nine months of the year.
Central Banks Lose Bond-Market Credibility as Woes Mount
Andrea Wong and Anchalee Worrachate – Bloomberg
More and more, bond traders are drawing the same conclusion: central bankers globally are coming up short in their attempts to combat the world’s economic woes.
Even after hundreds of interest-rate cuts and trillions of dollars in quantitative easing, the bond market’s outlook for inflation worldwide is approaching lows last seen during the financial crisis. In the U.S., Europe, U.K., and Japan, those expectations are now weaker than they were before their respective central banks began their last rounds of bond buying.
Uncertainties around China, Fed tightening prospects create an inflection point – GMO Q4
Press Release – Russell Investments
Russell Investments’ global team of investment strategists today released the 2015 Global Market Outlook – Q4 Update, offering a summary of the economic insights and market forecasts that help to guide the firm’s multi-asset portfolios and services. The outlook is dominated by uncertainties around China and the prospect of U.S. Federal Reserve tightening, and the strategists describe the markets as ‘struggling to find direction” to underscore the importance of separating ‘market noise from signal’. Volatility reached its highest level in four years in August when the Volatility Index (VIX) spiked to 40 as markets around the world pulled back, including 10% in the U.S., and around 15% in the U.K., Europe, Australia and Japan. However, the U.S. economy is viewed as robust and the strategists do not believe China will derail the global economy.
Dollar gains against safe-havens on greater risk appetite
Sam Forgione – Reuters
The U.S. dollar rose against the safe-haven Japanese yen and Swiss franc on Monday on renewed risk appetite in the wake of a disappointing U.S. jobs report, which suggested the Federal Reserve would remain accommodative for longer.
Data on Friday showing a stumble in U.S. jobs growth has led traders to expect that the Fed will delay its first rate hike since 2006 to early next year. While those expectations have kept the dollar from gaining against the euro, they have helped the dollar gain against safe-haven currencies.
IMF says China can manage slowdown, needs to communicate policy
China has the capacity to manage its economic slowdown but needs to communicate policy more effectively and guard against potential spillovers, the International Monetary Fund said on Monday.
In a report, the Fund – whose annual meeting starts this week in Peru – said that it viewed China’s currency exchange rate to be in line with “medium term” fundamentals after what it said was a depreciation of around three percent in the yuan in August.
Signs Of Bullish Hope – Weekly Market Outlook
Price Headley – CBOE Options Hub
Despite the bearish start to the week on Monday and a bearish initial response to Friday morning’s employment report for September, the bulls managed to reversal course Friday afternoon to hammer out a big gain for that day and even a small gain for the week. A couple of the key indices even managed to climb back above their short-term moving average lines.
There’s still work to be done — from both sides of the table — if we’re ever going to get out of this rut. But, a bullish break out of the rut is once again a possibility.
The Week in Russell 2000 Trading – 9/28 – 10/2
Russell Rhoads – CBOE Options Hub
For the second week in a row large cap stocks outperformed small cap stocks by about 1.5%. The big difference this week was that the Russell 1000 (RUI) was higher while the Russell 2000 (RUT) lost value. The previous week RUI lost less than RUT, but both had pretty lousy weeks. For the year RUI is now down a little more than 5% while RUT has lost just over 7.5%.
CME Europe’s COO Feltes set to leave
Alice Attwood – Futures & Options World
CME Europe is set to part ways with David Feltes, chief operating officer of the European exchange, marking the latest in a wave of senior departures.
London-based Feltes is set to leave the Merc in the coming weeks, according to market sources, after serving as COO of CME Europe since 2012. He joined CME…
LME introduces measures to grow options trading on exchange
The London Metal Exchange (LME) is taking steps to boost liquidity on its traded options market, increasing the transparency of data reporting and providing greater protection for participants placing large options orders on the Exchange.
Intercontinental Exchange – Intercontinental Exchange Reports ICE & NYSE September Statistics
Press Release – ICE
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, today reported September exchange traded volume.
ICE’s September 2015 futures and options average daily volume (ADV) decreased 6% compared to September 2014.
Moscow Exchange Active Derivatives Market Client Accounts Surge To Nearly 43 Thousand
Activity on Moscow Exchange”s Derivatives Market continued to grow in September 2015, with more new clients signing up and increased interest from existing clients.
The number of active client accounts reached 42,976 at the end of the month, the highest ever.
Winklevoss Twins’ Gemini Exchange Gets Trust License
Paul Vigna – WSJ
A bitcoin exchange founded by Tyler and Cameron Winklevoss announced on Monday that it received regulatory approval from New York’s financial regulator to operate as a financial-services firm.
New York State Department of Financial Services granted Gemini Trust Co. a limited liability trust charter, holding it to the regulatory standards of a trust bank and allowing it to operate as a regulated financial-services institution.
Bitcoin flounders in Australia as regulatory worries bite
Byron Kaye and Swati Pandey – Reuters
Australian businesses are turning their backs on bitcoin, as signs grow that the cryptocurrency’s mainstream appeal is fading.
Concerns about bitcoin’s potential crime links mean many businesses have stopped accepting it, a trend accelerated by Australian banks’ move last month to close the accounts of 13 of the country’s 17 bitcoin exchanges.
Regulation & Enforcement
Bernanke: More execs should have gone to jail after financial crisis
Sara Sjolin – MarketWatch
Former Federal Reserve Chairman Ben Bernanke has said more people involved in the financial crisis should have faced legal actions, rather than placing the responsibility on the financial firms.
In an interview with USA Today that published on Sunday, Bernanke said more individuals should have gone to jail, but that the efforts by the Justice Department and others more were centered on indicting or threatening to indict financial institutions.
Must-Watch Levels as the Market’s Wild Ride Continues
Bernie Schaeffer – Schaeffer’s Investment Research
In late August, the choppy sideways action that characterized the spring/summer 2015 market action devolved, in a matter of mere days, into an abrupt crash lower. In the five sessions between the Aug. 18 close and the Aug. 25 close, the benchmark S&P 500 Index (SPX) lost 10.9% of its value, while volatility gauges spiked higher.
Since this unceremonious bump lower, however, the S&P appears to be reestablishing its preferred mode of transportation (albeit at a reduced elevation) — a primarily horizontal chop, offering bulls and bears alike equal measures of vindication and frustration.
August Accident Aside, Overbought VIX Trade Still Works
Adam Warner – Schaeffer’s INvestment Research
What if we had a CBOE Volatility Index (VIX) spike and nobody showed up? That’s what seemed to happen last week, when VIX actually nudged into overbought territory on Monday, as Mr. Market made a lower low. And then a funny thing happened: We rallied. And then rallied some more. All told, the SPDR S&P 500 ETF (SPY) popped 1.1% on the week, which doesn’t sound like a lot … until you consider we started the week down 2.57%.