Rare VIX, Rates Anomaly May Be ‘Powerful’ Stocks Buy Signal; Wall Street volatility raises fears of another selloff

Apr 8, 2020

Lead Stories

Rare VIX, Rates Anomaly May Be ‘Powerful’ Stocks Buy Signal
Joanna Ossinger – Bloomberg
The gap between volatility gauges for stocks and Treasuries has climbed to a level that may portend gains in U.S. equities, according to The Leuthold Group.
While the Cboe Volatility Index and the ICE BofA MOVE Index have surged as the hit to growth from the coronavirus pandemic weighs on sentiment, only the Treasuries gauge has significantly dropped since. The VIX remains around its 99th percentile and the MOVE index has collapsed to around its 16th percentile as the Federal Reserve staged a massive intervention, according to analysis going back to 1990 from Jim Paulsen, the firm’s chief investment strategist.

Wall Street volatility raises fears of another selloff
Noel Randewich – Reuters
The evaporation of a rally on Wall Street in the closing minutes of Tuesday’s session shows that many investors fear the U.S. stock market is in danger of a renewed tumble due to uncertainty surrounding the coronavirus pandemic.
Fueled by early signs of the outbreak plateauing in some U.S. hot spots, including New York State, the S&P 500 traded up as much as 3.5% during the session, only to lose ground sharply late in the day to finish down 0.16%. The index, however, remains up 19% from its March 23 low.

Queasy Market Calm Masks Fear of Pandemic Endgame Echoing 2008
Vassilis Karamanis – Bloomberg
An uneasy calm has settled across global markets after last quarter’s rout left a $19-trillion crater in global equities value. Yet, chances are it won’t last as the next phase of the coronavirus pandemic looms.
Volatility across asset classes has eased from March highs on signs worldwide lockdowns may have tempered the intensity of the outbreak, but that’s no guarantee infections won’t flare up again.

Why skeptics say V-shaped Dow rebound unlikely to materialize
William Watts – MarketWatch
Is the U.S. stock market building a V-shaped recovery? History suggests investors shouldn’t count on it just yet, analysts said.
Stocks were putting in an impressive rally this week, with gains tied to signs the COVID-19 pandemic may be peaking in Europe and, perhaps, in New York City, the new center of the outbreak.

Discounting delay risks swaptions mess – Eurex
Natasha Rega-Jones – Risk.net (subscription)
A delay to the switchover of the discount rate for euro-denominated interest rate swaps could cause problems for the pricing of swaptions, according to an executive at Eurex. Central counterparties CME, Eurex and LCH are due to switch the rate used for discounting the future cashflows of swap contracts and paying interest on collateral from Eonia to EURSTR between June 19 and 22.

Exchanges and Clearing

Special Executive Report
CME Group
Effective Sunday, May 3, 2020, for trade date Monday, May 4, 2020, and pending all relevant CFTC regulatory review periods, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will list the Options on One-Month SOFR Futures contract (the “Contract”) (Rulebook Chapter: 461A) for open outcry trading on the CME trading floor1, trading on the CME Globex electronic trading platform, and for submission for clearing via CME ClearPort, as noted below.

CME Group Achieves Record International Average Daily Volume of 7.2 Million Contracts in Q1 2020, Up 57 Percent from Q1 2019
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it achieved record international average daily volume (ADV) of 7.2 million contracts in Q1 2020, up 57 percent year on year, and surpassing the previous quarterly record of 5.3 million contracts traded during the second quarter of 2019. This record, reflecting all trading done outside North America, was driven largely by growth in Equity and Interest Rate products, up 152 percent and 46 percent respectively.

Regulation & Enforcement

A proposal to adopt a new rule of The Nasdaq Stock Market LLC NOM titled Transfer of Positions within NOM Options 6 Section 5


Goldman Tells Rich Clients U.S. Stocks Promise Best Returns
Ksenia Galouchko – Bloomberg
Goldman Sachs Group Inc. is advising its wealthy clients to return to equities and particularly favors U.S. stocks on optimism for a strong economic recovery after the end of the virus lockdowns. “Our own advice to clients is that right now is a good time to get back into markets and take advantage of the decline in equity markets to position for the rebound,” Silvia Ardagna, managing director in the investment strategy group within Goldman Sachs Private Wealth Management, said in a phone interview.


Coronavirus stock-market volatility is creating the largest daily price swings since 1929 crash
William Watts – MarketWatch
Talk about a tough trading environment.
Analysts at Bespoke Investment Group, as illustrated in the tweet below, noted Tuesday that the S&P 500 index’s average absolute daily percentage change over the past five weeks has been plus or minus 4.8% — a historic achievement.

With stock-exchange floor closed, traders and investors grapple with uncertainty
Steven Zeitchik – The Washington Post
At 9:15 on most weekday mornings, Jonathan Corpina could be found pinballing around the floor of the New York Stock Exchange — buying, selling, negotiating. The trader was a suited blur as he toggled between his terminal, other traders and his proprietary NYSE “handheld,” a kind of virtual notepad with all he needed for the 9:30 opening. That opening offered a critical opportunity to react to overseas and after-hours markets and set prices for the day ahead, and Corpina, a senior managing partner at Meridian Equity, sprinted through the room with 500 other traders, sizing up the mood in the cavernous space.

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