Wall Street’s ‘fear index’ surges to highest level in about 5 weeks as Treasury-yield spike sparks stock-market selloff; A new era of volatility begins, but equity inflows continue: BofA

Mar 5, 2021

$31,126/$300,000 (10.4%)
Kevin Murphy, Ajay Jain

Lead Stories

Wall Street’s ‘fear index’ surges to highest level in about 5 weeks as Treasury-yield spike sparks stock-market selloff
Mark DeCambre – MarketWatch
A closely watched gauge of expected stock-market volatility jumped Thursday to around its highest level since the end of January as a tech-led selloff dragged major benchmarks sharply lower. The CBOE Volatility Index is known by its ticker symbol “VIX”, rose 5.07 points to 31.44, a gain of nearly 18%.

A new era of volatility begins, but equity inflows continue: BofA
Thyagaraju Adinarayan – Reuters
Investors poured billions of dollars into high-flying stocks even as the ongoing bond market rout led to sharp losses on Wall Street and kicked off a “new era of volatility”, BofA said on Friday.
Hovering close to 1.6%, U.S. 10-year Treasury yields have risen close to 45 basis points in the last month, triggering a sell-off in equities, which have lost $4 trillion in market value since the mid-February peak.

Momentum Quants Will Unleash the ‘Most Turbulent Rebalance Ever’
Justina Lee – Bloomberg
One of the decade’s most successful quant strategies is poised for a dramatic March makeover that threatens fresh volatility for a stock market already reeling from the turmoil in technology shares.
Almost a year after the S&P 500 hit the Covid-spurred low, momentum investors are set to pare exposures to lockdown favorites — mega-caps and stay-at-home companies — to join the boom in cyclical equities.
Think less Zoom Video Communications Inc., more Exxon Mobil Corp.

Goldman Made $200 Million Off the U.S. Deep Freeze, at Least on Paper
Sridhar Natarajan, Naureen S. Malik and Donal Griffin – Bloomberg
Traders across Wall Street are poised for significant profits from the freeze that roiled energy markets and left swaths of the U.S. without electricity last month. That is, if they can collect.
Goldman Sachs Group Inc. could gain more than $200 million from the physical sale of power and natural gas and from financial hedges after spot prices surged across much of the U.S., according to people with knowledge of the matter. Morgan Stanley’s gains could come in under $200 million, according to a person familiar with the matter, and Bank of America Corp. stands to rake in profits as well.

Global Credit Markets Stumble in One of This Year’s Worst Weeks
Ameya Karve and Priscila Azevedo Rocha – Bloomberg
Corporate borrowing costs and gauges of credit risk rose around the world after Federal Reserve Chair Jerome Powell stopped short of detailing how he might tamp down a spike in rates.
The Markit CDX North American Investment Grade Index, which investors use to hedge against losses on company notes, widened to a four-month high. Equivalent European measures for both investment-grade and high-yield corporate debt rose for the third consecutive day to the highest in about a week.

Oil Curve Shows Traders Fretting OPEC+ to Overtighten the Market
Alex Longley – Bloomberg
With headline crude futures hitting $65 a barrel, the broader oil market is booming.
From futures spreads watched by hedge funds to swaps tied to North Sea oil, swaths of the market were sent spiraling by Thursday’s surprise announcement that the OPEC+ group will keep output largely in check next month.

Energy Hedge Fund Deep Basin Returning Capital After Retail Rout
Michael Tobin and Katherine Burton – Bloomberg
Energy hedge fund Deep Basin Capital LP is returning capital to investors after retail traders drove market volatility to extreme levels, overwhelming the fund’s positions, according a letter to investors reviewed by Bloomberg News.
“I do not believe that risk markets are functioning properly and am deeply concerned about the immediate investment climate,” Matthew J. Smith, managing partner of the Stamford, Connecticut-based fund, wrote in the letter. “Further, the market structure has changed and become more dangerous in ways that at this point are difficult to quantify and understand, and I cannot fully study these changes while taking risk with partner capital,” he wrote.

Exchanges and Clearing

ICE Announces Update on Global Environmental Complex as the ICE Global Carbon Futures Index Hits Record High and EUA Options Reaches Record Volume; Global Carbon Futures Index serves as a benchmark for the global price of carbon
Intercontinental Exchange, Inc.
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, today announced an update on its global environmental complex, as the ICE Global Carbon Futures Index value (ICECRBN) reached a record on February 12, 2021, with a weighted average price of $39.08/tonne, and ICE EU Carbon Allowance (EUA) Options reached records in February for total volume traded of more than 412,000 contracts, and for Average Daily Volume (ADV) of more than 20,500 contracts.

Euronext announces volumes for February 2021
Euronext, the leading pan-European market infrastructure, today announced trading volumes for February 2021.

February 2021 monthly figures at Eurex
OTC Clearing continues strong performance in February
The positive trend in OTC clearing at Eurex continued in February. Notional outstanding volume grew by 10 percent year-on-year to EUR 19,903 billion in February 2021 while average daily cleared volume increased by 15 percent across the same period. Longer dated interest rate swaps saw the largest increase, up 44 percent – from EUR 12 billion in February 2020 to EUR 18 billion in February 2021.
European interest rate derivatives also continued their positive trend with a 7 percent year-on-year increase in February. In contrast, equity and equity index derivatives declined by 13 percent and 43 percent, respectively. This was to be expected due to the pandemic-related increase in market volatility in February 2020.

Regulation & Enforcement

Fed’s Jerome Powell Can Roil Markets Now With Just a Word
Mohamed A. El-Erian – Bloomberg
Judging from the initial market reaction to remarks by Federal Reserve Chair Jerome Powell on Thursday, he would have been well advised to follow Aaron Burr’s advice to Alexander Hamilton in the hit musical “Hamilton”: “Talk less, smile more.” This is not because he said anything inherently wrong. He didn’t. Rather, it is because whatever he had to say had little chance of resonating well in markets given where they have been and where they wish to go.

SEC Announces Enforcement Task Force Focused on Climate and ESG Issues
The Securities and Exchange Commission today announced the creation of a Climate and ESG Task Force in the Division of Enforcement. The task force will be led by Kelly L. Gibson, the Acting Deputy Director of Enforcement, who will oversee a Division-wide effort, with 22 members drawn from the SEC’s headquarters, regional offices, and Enforcement specialized units.


What to expect from the fintech industry in 2021
Xingjun Ni – Fortune
COVID-19 is completely transforming the way people live, work, and interact with one another. As more and more day-to-day activities take place online, demand for digital finance and other forms of financial technology services has increased simultaneously. The new normal created by the pandemic brings huge opportunities for the industry. Fintech will have to focus on a few important priorities in 2021 as we work toward serving more users and gaining widespread acceptance.


SoftBank’s strategy chief leaves after three years; Katsunori Sago was once seen as successor to Masayoshi Son
Kana Inagaki and Leo Lewis in Tokyo, Arash Massoudi – FT
SoftBank said on Friday that Katsunori Sago, its chief strategy officer who was viewed as a potential successor to founder Masayoshi Son, will resign after less than three years at the technology conglomerate. The departure of Sago, a top banker who was once tipped as a possible president of Goldman Sachs Japan before he joined SoftBank, is the latest in a string of high-profile exits at a company whose strategy investors said has become increasingly difficult to define. His exit marks the second-time that a high-profile executive has quit after being recruited as potential heir to Son, following the 2016 departure of former Google executive Nikesh Arora. It comes as Son, who is 63, has recently said that he plans to stay as the leader of the group beyond the age of 70.


Registration is open! – FIA Boca 2021

A New Virtual Experience
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.


Government debt will nearly double by 2051 if laws stay the same: CBO
Ben Winck – Business Insider
The federal government’s debt pile is on track to nearly double over the next three decades, according to the nonpartisan Congressional Budget Office (CBO).
Government debt swelled over the past year as lawmakers passed stimulus bills aimed at helping Americans through the COVID-19
recession. The increased spending led federal debt to reach 100% of gross domestic product at the end of 2020.

(Podcast) TWIFO 239: Slumping Silver, Withering Wheat, Crashing Copper and more
This Week In Futures Options – Options Insider Radio Network
Host: Mark Longo, the Options Insider Media Group
FTSE Russell Hot Seat: Catherine Yoshimoto, FTSE Russell
On today’s episode, Mark and Catherine discuss:
The movers and shakers this week in futures options, top volatility movers, equities / Russell 2000 1st quarter IPO additions & reconstitution dates; ggs / wheat; metals / silver and copper; rates / CME Fed watch tool; and much more

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Seeing red: tricky times in the markets

Seeing red: tricky times in the markets

$34,126/$300,000 (11.4%) ++++ Lead Stories Seeing red: tricky times in the markets Stefan Wagstyl - Financial Times As investors we like to think we're acting rationally, even though there are mountains of evidence to show that, all too often, we're not. A successful...

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