US bond market volatility hits highest level since 2009; Europe’s stock volatility gauge hits record levels, beats 2008 highs

Mar 16, 2020

Lead Stories

US bond market volatility hits highest level since 2009
Tommy Stubbington – Financial Times
Volatility in US government bonds has reached its highest level since the 2008 financial crisis as coronavirus ricochets through markets.
The wild swings in Treasuries have fuelled concerns about the proper functioning of the world’s most liquid debt market. The Federal Reserve on Friday signalled it was accelerating its purchases of Treasuries in a bid to ease those strains, before announcing an additional $700bn of asset purchases on Sunday as part of a sweeping package of crisis-fighting measures.

Europe’s stock volatility gauge hits record levels, beats 2008 highs
Julien Ponthus – Reuters
The volatility gauge for euro-zone stocks, widely known as ‘Europe’s fear index’, surged on Monday to record highs, beating the levels it hit at the height of the 2008 financial crisis.

SEC Chief Rejects Speculation Markets Should Be Shuttered
Benjamin Bain – Bloomberg
U.S. Securities and Exchange Commission Chairman Jay Clayton said Monday that stock markets should continue to operate when asked in a CNBC television interview whether exchanges should suspend trading because of volatility triggered by the spreading coronavirus.
“Markets should continue to function through times like this,” Clayton said in the interview conducted by telephone. “We’ve been in contact with the various institutions” across Wall Street, he said.

These Charts Show How Markets Are Reacting to the Fed Bazooka
Cormac Mullen – Bloomberg
The massive emergency move by the Federal Reserve to blunt the economic impact of the rapidly spreading coronavirus sent a now-familiar surge of volatility through financial markets Monday.
Treasuries surged, U.S. equity futures tumbled and currencies swung as traders gauged the likely impact of the action across asset classes.

‘Bazookas’ cannot stop coronavirus becoming a financial crisis
Patrick Jenkins – Financial Times
A big question looms. We know that the coronavirus will spread, possibly infecting the majority of the global population in time. We know that the economic disruption it may cause has spooked every stock market in the world. And we know that in an effort to conquer the panic, the world’s most powerful policymakers have fired off “bazookas” by the bucketload.
What no one knows — after one of the worst ever weeks in financial markets — is whether Covid-19 will move from a health emergency and resultant market slump into a full-blown financial meltdown.

GOLDMAN SACHS: US stocks could plunge another 20% after falling into a coronavirus-led bear market
Ben Winck – Markets Insider
After three weeks of intense volatility fueled the stock market’s fastest ever dive into bearish territory, Goldman Sachs sees plenty more room to fall before prices bottom out.
The S&P 500 can plunge as low as 2,000 before recovering through the rest of the year, the investment bank wrote Friday. The level is the benchmark index’s lowest since early 2016 and implies a 20% decline from Monday’s open. Such a tumble would also place the index more than 40% below its February 19 peak.

How far can stocks fall? Coronavirus market turmoil has investors asking what’s priced in
William Watts – MarketWatch
After a week that killed the longest bull market in history and saw stocks post the biggest one-day plunge since the crash of 1987, investors are struggling to come up with clear-eyed assessments of the damage the COVID-19 outbreak will do to the economy, and what financial markets have already priced in.
Calls for a U.S. recession already appear to be the consensus view, noted analysts at Jefferies, in a Saturday note.

Wall Street’s Fear Gauge is Flashing Again With VIX Jump Past 75
Yakob Peterseil – Bloomberg
A measure of fear in U.S. stocks surged on Monday as an emergency move by the Federal Reserve to ease policy did little to calm markets over the spreading coronavirus. The CBOE Volatility Index jumped as high as 76.3 in early trading, according to data compiled by Bloomberg. That was just shy of its highest level since the 2008 financial crisis, which it posted during last week’s turbulence. Futures contracts on the gauge that expire on Wednesday also hit a historic 72.8.

Australia orders trading cutback as exchanges start to struggle
Philip Stafford – FT
The ability of the world’s biggest stock and futures markets to cope with huge trading volumes while many employees work remotely has come under further scrutiny after Australia ordered its most active traders to step back a little in order to ease the pressure. On Monday Asic, the Australian markets watchdog, told the most active equity traders to trade up to 25 per cent less than they did on Friday, saying that higher volumes would put too much strain on the exchange and banks carrying out the deals.

Exchanges and Clearing

Cboe Options Exchange Temporarily Shifts to Fully Electronic Trading – SEC Enables Immediate Effectiveness of Proposed Rule Change to Facilitate Continued Operations in Light of Temporary Suspension of Cboe Physical Trading Floor
The U.S. Securities and Exchange Commission noticed for immediate effectiveness a proposed rule filing submitted by Cboe Exchange, Inc. to facilitate the continued operation of Cboe’s options exchange in light of Cboe’s decision to temporarily suspend open outcry trading on its Chicago trading floor.

Options Trader Alert #2020 – 7 Nasdaq PHLX To Suspend Open Outcry Trading And Operate Fully Electronic
Nasdaq PHLX (PHLX) will suspend open outcry trading on the PHLX Trading Floor (Trading Floor) beginning Tuesday, March 17, 2020. Trading will continue to be available, on PHLX, in an electronic-only trading model until open outcry trading resumes. This decision was made as a precautionary measure to prevent the potential spread of the novel coronavirus (COVID-19) and, currently, there are no known cases of COVID-19 on the PHLX Trading Floor. Nasdaq will be actively monitoring and assessing the situation throughout this period to ensure we can reinstate open outcry trading when, and as appropriate. PHLX will provide at least twenty-four hours notice to participants prior to re-opening open outcry trading on the PHLX Trading Floor.

Nasdaq Statement on North American Operations; All electronic equities, options, and fixed income markets remain fully operational
New listings and Initial Public Offerings continue as scheduled; PHLX Options Market trading floor transitions to electronic-only trading
Nasdaq, Inc. (Nasdaq: NDAQ), issued the following statement regarding its North American operations as part of the company’s business continuity plan in response to the COVID-19 coronavirus:

Equity Index Highlights – March 2020 edition
Markets never liked uncertainty and the fear of an epidemic turning into a pandemic is felt by all. Despite the exceptional bout of volatility, the Eurex market infrastructure and liquidity pools in our benchmark products have proven to be robust. There was a surge in demand for hedging which naturally led to a flight to quality in terms of the choice of hedging instruments, with the largest derivative volumes executed in the EURO STOXX 50 index, Banks sector, DAX, mini-DAX, VSTOXX, STOXX Europe 600, SMI, EURO STOXX 50 dividends and TRFs.

The additional trading session starts later for Derivatives market on 2, 9, 15, 16, 23, 27 and 30 April 2020
Please note that the Derivatives Market evening trading session will begin five minutes later, i.e. at 7:05 pm MSK, on 2, 9, 15, 16, 23, 27 and 30 April 2020, as these are the last trading days for options contracts (in accordance with clause 7.2 of the Rules of organized trading for the Moscow Exchange Derivatives Market).

Bitcoin CME Futures Volume Dropped — Did Institutions Jump Ship?
Marcel Pechman – Cointelegraph
Over the past two years Bitcoin (BTC) futures trading on CME (Chicago Mercantile Exchange) has grown in importance for institutional investors. However, a popular misconception among traders is to attribute an unwarranted amount of importance to futures market activity and its impact of spot prices. It is important to highlight that despite trading under the BTC ticker, CME futures are financially-settled and therefore does not involve the actual exchange of Bitcoins.


Extreme Fear. Is This The Bottom? Charting The Virus With Options Data
ORATS blog
Capitulation and fear in a market can indicate a market bottom. Options volatility information, like implied volatility (IV), options markets bid-ask widths, and put-call slope, are gauges for fear and capitulation. The best example of options information identifying these market emotions was the 2008 global financial crisis levels. When IV, market width, and slope rose to new highs, those peaks coincided with valleys in the stock market.

Bakkt Raises $300M as Crypto Consumer App Coming This Summer
Aziz Abdel-Qader – Finance Magnates
Bakkt, a cryptocurrency platform owned by the New York Stock Exchange owner, announced today a massive Series B funding round from a group of high profile investors and venture capital firms, to the tune of $300 million. Bakkt CEO Mike Blandina revealed the new investment in a Medium post, noting that some big names participated in the capital raising exercise, namely: Microsoft’s M12, PayU, Boston Consulting Group, Goldfinch Partners, the Intercontinental Exchange, CMT Digital, and Pantera Capital.


Wall Street Firm Tabb Group Closes After Coronavirus Hits Conference Circuit
Dawn Lim – WSJ
Wall Street consulting firm Tabb Group LLC is shutting down after 17 years.
The New York research firm decided that the coronavirus’s impact on its conferences would be too difficult to survive. Tabb Group alerted clients it was closing on Friday.


How Long Can Movie Theaters Stay Open?
Rick Munarriz – The Motley Fool via Nasdaq
The good news for Disney is that Onward — the media giant’s latest theatrical release — was the top draw at the box office for the second consecutive week. The bad news for Disney is that the film has also set a new low-water mark for the second week in a row. The $39.1 million in domestic ticket sales that it delivered in its opening weekend was the lowest tally for a Pixar release in more than a decade. This time around, it saw its ticket sales plummet a colossal 73% since the prior week, and the gross receipts of the top 10 films is the movie industry’s lowest sum for this weekend in 25 years.

How Today’s Market Fear Stacks Up, From a Former Hedge-Fund Guy
Al Root – Barron’s
Recent trading action feels unprecedented. Fear is reigning in markets as Covid-19 coronavirus spreads around the globe. Every call for calm appears either ill-timed or ill-informed.
The market has met other historic events with extreme volatility. Perhaps understanding the visceral reaction to those events can help deal with today’s market angst.

Traders Question Value of Stock-Market Circuit Breakers
Alexander Osipovich – WSJ
Decades of little-noticed efforts to build guardrails for wild market moves have gotten a rare workout in recent days as circuit breakers have repeatedly halted trading in all U.S. stocks, most recently on Monday morning.
Have they been effective? The jury is still out.

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