Taleb talks; Trade tensions; Commodity crunch

Nov 6, 2018

Taleb talks; Trade tensions; Commodity crunch

Nov 6, 2018

Observations & Insight

Will midterm elections spark a boom in overnight trading?
William Watts – MarketWatch
Billionaire investor Carl Icahn famously bragged about his election night trading prowess in 2016 when he stepped away from Donald Trump’s victory party to scoop up temporarily beaten down stocks.

****SD: A boom? Ehhh. Increased activity? Now that I’ll buy. As a Bloomberg story pointed out yesterday, people have learned their lesson from 2016 about being caught wrong-footed based on expectations going in. Since 1990 (when VIX data began to be disseminated), midterm elections have, on average, led to negative returns one day after (-2 percent), one week after (-6 percent), and one month (-4 percent) after the vote.

Lead Stories

The ‘Black Swan’ Author Just Issued a Powerful Warning About Global Debt
Frank Holmes – Forbes
The world is more fragile today than it was in 2007. That’s the opinion of former derivatives trader Nassim Taleb, whose bestseller, The Black Swan, is about how people make sense of unexpected events, especially in financial markets. True to form, he made a whole lot of money after predicting the global financial crisis more than a decade ago.

****SD: I think Taleb is the president of his own fan club. But I suppose he needs to be able to hype himself up pretty well as he’s really into deadlifting and working out.

Supply Crunch Looms in Commodities Markets; Some investors expect dearth of investment to tighten supplies, pushing metal prices to new records
Amrith Ramkumar and David Hodari – WSJ (SUBSCRIPTION)
A prolonged period of underinvestment by commodity producers is setting the stage for large price increases in raw-materials markets, say bullish investors who focus on the metals and energy industries.

China’s Trade Olive Branch Can’t Dispel Fears of Clash With U.S.
David Tweed, Enda Curran and Alfred Cang – BloombergQuint
A top Chinese official’s offer of trade talks with the U.S. on Tuesday did little to assuage concerns that the world’s two largest economies were headed for a confrontation that could disrupt the global order.

Shale Boom Changes Way U.S. Gas Traders Buy and Sell
Naureen S Malik – Bloomberg (SUBSCRIPTION)
Volumes climb at Southeastern, Texas hubs, exchange data show; Natural gas production has surged in Permian and Appalachia
North American natural gas bets are moving closer to the nerve centers of the shale boom in the U.S. East.

Powell’s Monetary Policy Gets Muddled by Jittery Markets, White House
Rich Miller – BloombergQuint
There’s what you think you said. There’s what you actually said. And perhaps most importantly for the steward of the world’s largest economy, there’s what people heard.

U.S. natural gas prices surge on cold weather forecast
John Kemp – Reuters
U.S. natural gas prices have jumped to their highest in nine months as forecast cold weather across much of the country has reminded traders of the risks posed by low gas inventories going into winter.

****SD: “Many hedge fund managers have been buying futures and options linked to natural gas prices on the assumption that cold spells would force prices at least temporarily higher.” Nat gas prices expected to go up when it’s cold? Unbelievable.

New Sundheim, Cohen, Gelband Hedge Funds Strike Out in October
Katherine Burton – Bloomberg (SUBSCRIPTION)
In a major test for the big three who started hedge funds this year — Dan Sundheim, Steve Cohen and Michael Gelband — none of them made money in October.
Sundheim’s D1 Capital Partners fared the worst last month, losing 5.9 percent. Cohen’s Point72 Asset Management was down 1 percent while Gelband’s ExodusPoint Capital Management was flat, according to people familiar with the returns.

Exchanges and Clearing

Cboe Global Markets Reports October 2018 Trading Volume
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today reported October monthly trading volume and average revenue per contract (RPC)/net revenue capture data at www.cboe.com/monthlyvolrpc.

****SD: Cboe’s options volumes were up 61 percent month-over-month (!) and year-to-date options volumes are 14.1 percent higher than in 2017.

HKEX Monthly Market Highlights
…The average daily turnover of futures and options for the first 10 months of 2018 was 1,216,095 contracts, an increase of 47 per cent when compared with the 829,037 contracts for the same period last year.

Euronext Announces Volumes for October 2018
…In October 2018, the overall average daily volume on derivatives reached 602,169 contracts, up +21.0% compared to October 2017 and up +4.7% compared to the previous month. In detail:

LME bets on new contracts to force steel industry change: Andy Home
Andy Home – Reuters
It’s been almost a decade since the iron ore market abandoned the annual benchmark system of pricing.
The Global Financial Crisis (GFC) caused such dislocation between annual and spot prices that even sceptics such as Brazil’s Vale joined the revolution.
Ten years on and the iron ore market is a changed landscape, producers now selling most of their product basis spot, monthly or quarterly prices.


Wait for Major Overhang to Pass, or Just Short Vol: Taking Stock
Arie Shapira – Bloomberg (SUBSCRIPTION)
Volatility has appeared to have stalled ahead of tonight’s midterm elections.
Monday’s volumes for the consolidated tape were the lowest in two weeks and some of the weakest since the beginning of October. The 26-handle range on the S&P 500 was the tightest range in nearly a month and well below the ~50-point swings that we’ve become accustomed to (and futures this morning are down a relative smidge). Plus the VIX has made a clear move back toward ~20 after hovering around the 25 mark multiple times throughout the October sell-off.

This market feature has coincided with every stock-market bottom since 2016 – and it’s flashing now, analyst says
Mark DeCambre – MarketWatch
Has the stock market hit rock bottom after a rough October?
According to at least one technical analyst, the worst is over for U.S. equity benchmarks after an October that chopped substantial year-to-date gains from the S&P 500 index SPX, +0.23% and the Dow Jones Industrial Average DJIA, +0.39% and knocked the Nasdaq Composite Index COMP, +0.26% into correction territory, usually described as a decline of at least 10% from a recent apex, for the first time since 2016.

****SD: “John Kosar, the chief market strategist at Asbury Research, said the ratio between bullish and bearish bets via options on the S&P 500, in recent history, has offered one of the clearest signals that a bottom in the market has been achieved.”

Fund Managers Say Don’t Count on the Midterms to Revive Gold
Susanne Barton and Ranjeetha Pakiam – Bloomberg (SUBSCRIPTION)
October’s rally has stalled on the dollar, rebound in equities; Higher rates, growth will weigh on bullion prices, Pictet says

Goldman Says Hedge Funds Dove Right Back Into Tech at Rout’s End
Lu Wang – Bloomberg (SUBSCRIPTION)
The crowd has yet to disperse.
At the end of the worst month in seven years, hedge funds showed few signs they’ve soured on the technology and consumer stocks at the heart of the sell-off. The opposite, in fact: Goldman Sachs data show those groups were the most heavily bought in the last five days of October.


Two years in, Trump holds stock market bragging rights
Noel Randewich – Reuters
U.S. President Donald Trump has taken credit for the stock market’s gains during his nearly two years in the White House, and those claims are reasonable given the impact of tax cuts and pro-business policies on investor sentiment.

Theresa May to Set Out Brexit Options to Her Divided Team, Sources Say
Tim Ross – Bloomberg (SUBSCRIPTION)
U.K. Cabinet ministers expect to be locked in a room to study the latest options for a Brexit deal in strict secrecy on Tuesday as Theresa May redoubles efforts to get a deal this month, according to people familiar with the matter.

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We visit more than 100 websites daily for financial news (Would YOU do that?)

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