October Is the Stock Market’s Most-Volatile Month. But Why?
Mark Hulbert – WSJ
There appears to be no fundamental reason why October should be the most volatile month of the stock-market calendar. Yet it often is.
The hard part is trying to explain why.
Corrections Aren’t Always a Harbinger of Doom
Michael Msika and Ksenia Galouchko – Bloomberg
After one of the worst weeks for European equity markets this year, there’s one question on everybody’s minds: was this a short-term correction or the start of a major sell-off? The sell-side seem to be relatively bullish, while the buy-side is cautious. Looking at the overall picture, it doesn’t look too bad.
Hedge-Fund Performance Goes From Bad to Less Bad
Eric Uhlfelder – WSJ
The hedge-fund industry continues to do this year what it has been doing for more than a decade—trailing the stock market big time.
Hedge funds on average generated less than half the returns of the stock market in the first half of 2019, posting a net return of 7.2%, according to industry data tracker BarclayHedge. The S&P 500 returned 18.5%.
Hedge funds sell more oil as economic outlook worsens
John Kemp – Reuters
Hedge funds sold petroleum futures and options for the second week running as the post-attack bounce in oil prices evaporated and attention shifted to the deteriorating condition of the global economy.
Hedge funds and other money managers sold the equivalent of 96 million barrels in the six most important futures and options contracts linked to oil prices in the week to Oct. 1, the largest reduction in nearly four months.
Oil Options Suggest a Jumpy Market
Owain Johnson and Jeff White – CME Group Open Markets
Oil markets are more concerned about another sharp move higher in futures prices than they are about further falls in prices. Traders are anxious to protect themselves against increased volatility and against the potential of further sharp price rises.
Volatility index signals further chaos in US credit markets: DiMartino Booth
Elizabeth Fry – Investment Magazine
A former Dallas Federal Reserve Bank adviser has warned that a spike in bond market volatility and recent chaos in the money market could be indicative of a looming credit crisis.
Wall Street’s most watched bond market volatility index spiked in turbulent trading last week, signalling further turbulence in the credit markets.
Credit market volatility, as gauged by the MOVE index, jumped 16 per cent to 89.4. In the same way that a surge in the VIX Index is designed to flag an equity selloff, MOVE suggests there is a risk of a credit event taking place.
Pound Traders Are Betting on a Positive Outcome From EU Summit
Vassilis Karamanis – Bloomberg
Pound traders are turning increasingly bullish on the currency’s prospects into the Oct. 17-18 European Union summit, derivative prices show. Demand has picked up for options targeting a stronger sterling in the short term — two-week pound-dollar risk reversals, the premium on bullish options over bearish ones, are set for the highest close since May.
Exchanges and Clearing
Miami International Holdings Chairman and CEO Thomas P. Gallagher Elected to MGEX Board of Directors
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX, MIAX PEARL and MIAX Emerald exchanges (collectively, the MIAX Exchange Group), today announced that its Chairman and CEO Thomas P. Gallagher has been elected to serve a two-year term on the Board of Directors of the Minneapolis Grain Exchange, Inc. (MGEX), a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO).
INTL FCStone Completes the Acquisition of the Futures and Options Brokerage and Clearing Business of UOB Bullion and Futures Limited in Singapore
Press Release via Yahoo Finance
INTL FCStone Inc. (INTL) today announced that its Singaporean subsidiary INTL FCStone Pte Ltd (“IFP”) has met all conditions of the Asset Purchase Agreement it entered into on 18 March 2019 (the “APA”), and completed the acquisition of the futures and options brokerage and clearing business of UOB Bullion and Futures Limited, a subsidiary of United Overseas Bank Limited.
Regulation & Enforcement
Global exchanges urge Britain not to ban crypto-linked derivatives
Huw Jones – Reuters
Global exchanges urged Britain’s markets watchdog on Monday not to ban retail sales of derivatives linked to crypto assets such as bitcoin, saying they were well equipped to protect consumers trading on their platforms.
Crypto assets have attracted considerable consumer interest in some cases, holding out the prospect of lucrative new business activity for market participants.
SEC reforms will save job creators time and money
I [Ted Budd, a Republican who represents the 13th District of North Carolina and sits on the House Financial Services Committee] led an effort with 27 members of Congress to send a letter to the Securities and Exchange Commission (SEC) Chairman Jay Clayton, asking the commission to ease regulatory burdens on job creators across the country.
Our letter advocates for reform of corporate disclosure frequency to align with our global competitors and to incentivize more companies to invest and expand. There are several potential alternatives to the outdated quarterly disclosure model, such as semi-annual or tri-annual reporting. While we have plenty of options, one thing is clear: we must find a more appropriate balance between informational benefits to investors and the associated compliance burdens for companies.
Min vol is more dangerous than investors realize, says Goldman Sachs
Marley Jay – Business Insider
As investors try harder and harder to protect themselves against growing uncertainty and stock-market volatility, Goldman Sachs says they’re forgetting an old Wall Street rule: “Know what you’re buying.”
Strategist Ben Snider said investors are piling into minimum volatility — or “min vol” — trades, buying stocks or ETFs of stocks whose prices have been stable. It’s a defensive move based on the idea that a stock that’s had a stable price in the recent past will probably have one in the future, and won’t take huge losses in a broad sell-off.
Funds dump CBOT soy shorts on shrinking U.S. supply, China optimism
Karen Braun – Reuters
Lighter U.S. stocks and renewed buying interest from China had speculators quickly changing their minds about Chicago-traded soybeans last week, as they slashed their pessimism toward the oilseed to an eight-month low.
U.S. corn stocks also shocked the market to the downside, but while investors acted accordingly, their views remain steadfastly bearish as Chicago futures are still elevated for the time of year.
How to Spot an “All Clear” for Declining Volatility
Todd Salamone – Schaeffer’s Investment Research
I made the comments above on Monday morning, and at Tuesday’s close the Cboe Volatility Index (VIX – 17.04) was at 18.56, and the S&P 500 Index (SPX – 2,952.01) at 2,940.25, setting in motion a decline that I anticipated. By Thursday morning, the SPX hit a low of 2,855 — my initial target area if the VIX took out 18 and the SPX fell below 2,950 at their respective closes. The catalysts were weaker-than-expected economic data, but the August lows held, setting up a quick rally back to the 2,950 area by week’s end, with market participants taking Friday morning’s September employment data in stride.
CFTC’s Jurisdiction over Fraud in the Cash Markets: Are there any Limits?
10 October 2019 10:00am to 11:00am EDT
The Dodd Frank Act added a Section 6(c)(1) to the Commodity Exchange Act, entitled “Prohibition Against Manipulation.” Section 6(c)(1) authorized the CFTC to promulgate rules and regulations prohibiting any person to use or employ any manipulative or deceptive device or contrivance in connection with, among other things, a contract for sale of any commodity in interstate commerce. Are there any limits to the application of the resulting CFTC regulation parroting 6(c)(1)’s language prohibiting the use of manipulative or deceptive devices in the sale of a commodity in interstate commerce?
What You Trade Can Make A World Of Tax Difference
Robert Green, Great Speculations – Forbes
There’s a bevy of financial products to trade with a wide assortment of tax treatment. Traders have access to U.S. and international equities, futures and other Section 1256 contracts, options, ETFs, ETNs, forex, precious metals, foreign futures, cryptocurrencies, and swap contracts. Broker-issued Form 1099-Bs might not provide the best available tax treatment, and in some cases, there are no 1099s issued.
What’s Next for High Frequency Traders?
Kevin McPartland – Traders Magazine
Call them what you will – non-bank liquidity providers, principal trading firms, high frequency traders, electronic market makers – but this not-so-new-anymore breed of market participants is increasingly important to market liquidity, innovation and competition overall. They are now heavily involved in nearly every liquid and semi-liquid market in the world – equities, options, FX, futures, ETFs, U.S. Treasuries and most recently corporate bonds. And their trading strategies are as diverse as the asset classes and regions in which they deploy them, going much beyond market making and latency arbitrage. This is why calling them high frequency traders doesn’t really work anymore.