Why Markets Have Lost Their Cool; Stock Sell-Off Is a Wake-Up Call for Investors

Dec 4, 2019

Lead Stories

Why Markets Have Lost Their Cool
Jon Sindreu – WSJ
Ray Dalio was onto something with his $1.5 billion insurance policy against a market selloff. In today’s markets, calm is treacherous.
On Tuesday, the Cboe Volatility Index or VIX, also known as Wall Street’s “fear gauge,” closed at 15.96—an eight-week high—after hitting its lowest level in more than a year just a week ago. Recent comments by President Donald Trump have dented hopes of a U.S.-China deal and ended a month of steady rallies for the S&P 500.

Stock Sell-Off Is a Wake-Up Call for Investors
Mohamed A. El-Erian – Bloomberg
The three-day sell-off in U.S. stocks, which has wiped nearly 2 percent off the value of the S&P 500 Index, is a timely reminder to investors that they need to temper a bias toward short-term optimism with the recognition of unusual uncertainties stemming from the global system. It also raises interesting questions as to the best tactical response to what I believe will be increased volatility leading up to the 2020 elections, if not beyond.

****JB: For what it is worth, as I write this, the S&P 500 is up 21.50 points (about 0.70%).

Hedge funds pile into petroleum on rosier economic outlook
John Kemp – Reuters
Hedge funds resumed heavy buying of crude oil and petroleum products last week, with the previous week’s bout of profit-taking halted by increasing optimism over the global economy and hopes for more output cuts by Saudi Arabia.
Futures and options equivalent to 144 million barrels in the six major petroleum contracts were purchased by hedge funds and other money managers in the week to Nov. 26, the most in a single week for more than two years.

****JB: See also The Wall Street Journal’s story Oil’s Volatile Stretch Continues Ahead of OPEC Decision

Pound jumps above $1.31 to seven-month high on expectation of Conservative majority
Tommy Wilkes and Dhara Ranasinghe – Reuters
Sterling surged above $1.31 and hit its highest level in about 2-1/2 years against the euro on Wednesday, lifted by growing expectations that Britain will avoid a hung parliament after next week’s election and a broader pullback in the U.S. dollar.

Exchanges and Clearing

Cboe Global Markets Reports November 2019 Trading Volume
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today reported November monthly trading volume

Miami International Holdings Reports November 2019 Trading Results for MIAX Exchange Group
Miami International Holdings
Miami International Holdings, Inc. (MIH) today reported the November 2019 trading activity for its three fully electronic options exchanges – MIAX, MIAX PEARL and MIAX Emerald (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 35.8 million equity option contracts in November for a combined average daily volume (ADV) of 1,794,001 contracts, representing a total U.S. equity options market share of 10.03%.

Special Executive Report: Amendments to the Singapore Fuel Oil 380cst (Platts) Brent Crack Spread (1000mt) Average Price Option Contract
CME Group
Effective Wednesday, December 18, 2019 for trade date Thursday, December 19, 2019, and pending all relevant CFTC regulatory review periods, New York Mercantile Exchange (“NYMEX” or “Exchange”) will amend the Singapore Fuel Oil 380cst (Platts) Brent Crack Spread (1000mt) Average Price Option contract (Rulebook Chapter 252; Commodity Code BCO) (the “Contract”).

Regulation & Enforcement

Wall Street Notches Win Versus EU Derivatives Clearinghouses
Alexander Weber and Silla Brush – Bloomberg
Wall Street banks and the world’s biggest money managers are starting to make headway in their campaign for tougher requirements on the clearinghouses that handle trillions of dollars of derivatives.
Diplomats from the European Union’s 28 member states said Wednesday that they’re in favor of a clearinghouse using a chunk of its own resources to cover the losses from a defaulted trade before resorting to financial contributions from its members.

Derivatives industry asks regulators to clarify Libor phase-out terms
Huw Jones – Reuters
A global derivatives industry body said on Wednesday it would try again to find consensus on helping regulators ditch the tarnished Libor benchmark – but only after regulators spell out exactly what they have in mind.
Investment banks have been fined billions of dollars for trying to rig Libor, or the London Interbank Offered Rate, an interest rate benchmark used to price contracts worth about $300 trillion from home loans to credit cards.


OCC’s Transformation: Enhanced Efficiency and Agility
Bill Raczyk – OCC
In an age of ever-more-rapidly evolving technology, businesses need to engage in constant reinvention to remain relevant. OCC, the world’s largest equity derivatives clearing organization, is no different.
As a Systemically Important Financial Market Utility (SIFMU), we understand the need to re-assess and enhance our risk management, clearing and data systems to better serve the users of the U.S. equity derivatives markets.

Mobile-Trading App Robinhood Now Has More Than 10 Million Accounts
Donna Fuscaldo – Forbes
The online trading industry is in a state of flux and it has fintechs to thank. One in particular, which just surpassed the 10 million mark in terms of customers, is Robinhood. The Menlo, California-based mobile app and desktop trading platform that launched in April of 2013 has been able to amass millions of customers. It has more users than E*Trade, pioneered commission-free stock and ETF trading and doesn’t require any account minimums. It has leveled the playing field for regular investors and turned the industry on its head.


Webinar: Volatility Analysis for Options Investors
Anyone who follows the markets knows that volatility is talked about a lot, whether it’s trending higher or lower. But why does volatility matter, and specifically, how does it affect options pricing? On Dec. 4, join The Options Industry Council and Dan Passarelli, Founder and CEO of Market Taker Mentoring, for a free webinar, Volatility Analysis for Options Investors, so that you can better understand what changes in volatility may mean for options.

*****MR: Keep in mind, this webinar is today at 3:30 PM CST, but if you register you can replay it on demand.


The Euro Is the Currency No One Wants to Own, Deutsche Bank Says
Charlotte Ryan – Bloomberg
The euro is encroaching on the dollar’s territory as the world’s currency of global borrowing, but that doesn’t mean anyone wants to keep hold of it.
“No one wants to hold euro cash as an asset anymore but everyone wants it as a liability,” George Saravelos, Deutsche Bank AG’s global head of currency research, wrote in a note. As a result, the euro zone “is emerging as the new global provider of liquidity to the international financial system, slowly replacing the dollar,” he said.

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