| November 17, 2016 | | | | | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Lead Stories | | | Ding-dong the VIX is dead (but risk is rising)
James Saft - Reuters
The VIX, the so-called fear gauge, is dead but the real risk-appetite index is falling. The dollar is the new and true North Star of global markets, according to a study released on Tuesday by the Bank for International Settlements, with a rising dollar coinciding with falling risk tolerance. This just in time for the Trump era, widely expected to bring with it rising inflation and interest rates driving a rising dollar.
/goo.gl/UckqBt
****SD: Maybe people always inferred too much from the VIX? Whatever the case, the punditry's perception of the VIX at least does appear to be evolving. (And thanks a lot Mr. James Saft, now I've got that darn Munchkinland song in my head. Guess it's time to listen to Israel Kamakawiwo'ole's "Somewhere Over the Rainbow." RIP Iz.)
Europe is 'unlikely' to seize euro-based clearing from London, says S&P
Marion Dakers - The Telegraph
Europe is "unlikely" to force London to give up its right to clear trades denominated in euros, despite calls from some continental politicians for the City to forfeit this market after Brexit, according to analysts at the S&P ratings agency. Euro-clearing in London has become a battleground for the financial services industry following the EU referendum, with recent research by EY forecasting that a shift could cost up to 83,000 British jobs.
/goo.gl/hqlM5D
****SD: Yeah, 'cause nothing else "unlikely" happened this year.
Yellen Signals Fed Remains Likely to Raise Rates Next Month
Binyamin Appelbaum - NY Times
In her first public remarks since the presidential election, Janet L. Yellen, the Federal Reserve chairwoman, said the economy remained in good health, suggesting that the central bank was likely to raise its benchmark interest rate at its next meeting, in December. Ms. Yellen's appraisal of economic conditions before the Joint Economic Committee of Congress on Thursday closely echoed her last assessment before the election, indicating that Donald J. Trump's victory had not shifted the Fed's short-term plans.
/goo.gl/8d3kJh
Volatility Update: Post-Election, Term Structure, Sector Volatility
Frederic Ruffy - The Ticker Tape
When the dust had settled on the U.S. election results Wednesday, November 9, the S&P 500 opened modestly lower (although S&P 500 futures were down 5% overnight) before turning positive and scoring a two-day 28-point uptick. The advance capped a four-day rally that resulted in a nearly 3% gain for the S&P 500, which pushed it to within striking distance of record highs. Yet, while stocks advanced in the days after the election, sector performance was not equal. The volatility landscape changed as well.
/goo.gl/5MMeea
ICAP's Spencer Reboots Market Stalwart With Bet on Digital
Edward Robinson and John Detrixhe - Bloomberg
Michael Spencer -- tycoon, Tory, oenophile -- is making the biggest trade of his career. For decades his brokerage, ICAP Plc, has helped turn the wheels of the capital markets by trading trillions of dollars in derivatives, currencies and other securities on behalf of global banks. Its legion of voice brokers wielding telephones embodied the hurly-burly of a marketplace where relationships and instincts mattered.
/goo.gl/UCWCsc
****SD: Always nice to see another Spencer (even if it is a last name).
Emerging markets: Reversal of fortune
The Economist
For much of 2016, things seemed to be going well in emerging markets. A pickup in commodity prices signalled that the global economy (and China's, in particular) was more robust than feared as the year began. In the manufacturing sector, the average level of the purchasing managers' index in developing countries ticked up from 49 at the start of the year (indicating contraction) to 51 (expansion) by October, according to Goldman Sachs.
/goo.gl/Y5A4Bm
****SD: One EM bright spot - Indian rupee seen weathering dollar surge better than most in emerging FX
| | | | | | Exchanges and Clearing | | | Extension of the Transitional Periods Related to Own Funds Requirements for Exposures to Central Counterparties
OCC Comment Letter
As an update to its application to be recognized as a Qualifying Central Counterparty, OCC submitted a comment letter on November 16th to the European Commission supporting their draft regulation to push back the effective date of the EU Capital Requirements Regulation from December 15, 2016, to June 15, 2017. The proposed delay would afford the EC and the U.S. Securities and Exchange Commission more time to negotiate an equivalency determination for the SEC's CCP regulatory regime. Without the delay, OCC's clearing members affiliated with European banks or other European financial institutions would be subject to significantly higher capital charges under the EU Capital Requirements Regulation.
/goo.gl/tWB6Uq
FIA and GFMA submit feedback on proposed QCCP extension
FIA
On 15 November 2016, FIA and GFMA jointly submitted supportive feedback on the European Commission's published Draft Implementing Regulation and feedback request on the extension of transitional period related to own funds requirements for exposure to CCPs in the Capital Requirements Regulation (CRR).
/goo.gl/gegrRg
CBOE, C2 and CFE Trading Schedule for the Thanksgiving Day Holiday
CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) today announced the following trading schedule for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2) and CBOE Futures Exchange (CFE) in observance of the Thanksgiving Day holiday.
/goo.gl/jNIX4q
ICE Clear Netherlands announces Goldman Sachs International as a new general clearing participant
ICE
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that Goldman Sachs International has joined ICE Clear Netherlands as a General Clearing Participant.
| | | | | | Regulation & Enforcement | | | Israeli binary options firm to repay money it fleeced from 4,000 American victims
Simona Weinglass - The Times of Israel
An Israeli binary options firm has been ordered to pay a total of $1.7 million by the US government for misleading its customers and causing virtually all of them to lose their money.
/goo.gl/OWFhvr
| | | | | | Technology | | | Speed Bumps - Beyond Good and Evil
Nick Savona - Trader's Magazine
A study of TSX Alpha Exchange's speed bump made headlines last week. Coincidentally, the study was released the same week that RBC hosted a talk with Brad Katsuyama of IEX, recently approved by the SEC as an exchange despite virulent opposition to its speed bump. I had an opportunity to ask Brad about how IEX intended to maintain its competitive advantage, given the expected proliferation of speed bumps now that the SEC has given its blessing. Brad rightly pointed out that not all speed bumps are created equal. The devil is in the details, as the TSX Alpha study reveals.
/goo.gl/syr6qf
****SD: I doubt speed bumps have an opinion on objective truth. I wouldn't be surprised if Katsuyama did though.
Euromoney TradeData unveils US tax service
Julie Aelbrecht - FOW
US reforms will impose a 30% withholding tax on certain derivatives trades
Euromoney TradeData has launched a data service that flags contracts bound by the new US Withholding Tax on derivatives regime set to take effect early next year. The data firm said the new service will offer customers the "efficient and timely identification of affected contracts to focus withholding tax work flows". The new tax, called IRS Section 871(m) will come into effect on January 1 and will impose US withholding tax on certain amounts from derivative transactions over US equities when those amounts are paid to a non-US person. US withholding tax is generally 30%.
/goo.gl/2grHXB
How blockchain and AI will influence finance
Evan Peterson - CME Group, OpenMarkets
We hear a lot these days about bitcoin and blockchain, but how and how soon we are all using digital currencies is not well understood. Brian Forde, Digital Currency Director at MIT's Media Lab boils down the promise of bitcoin and crypto currencies for consumers this way: "What public blockchain-based applications like bitcoin can do is cheaply and easily allow transactions to happen digitally, almost instantaneously."
/goo.gl/Zk5z3F
| | | | | | Strategy | | | Riding the Trump Rally In Financial Stocks
Steven M. Sears - Barron's
Donald J. Trump has made bank stocks great again, and the options market thinks they will soon be really, really great - especially into March. In anticipation that the president-elect will roll back financial-crisis-era regulations, and that the yield curve will retain its profitable postelection shape, investors are buying upside call options on bank stocks like they've never heard of Dodd-Frank.
/goo.gl/TVZwCD
****SD: For some more on financials, check out TradingFloor.com's Cash-secured Put in Bank of America
Block Trade Analysis - Bearish RUT Broken Wing Butterfly
Russell Rhoads - CBOE Options Hub
I got a heads up this morning about a pretty darn interesting trade that came into the Russell 2000 (RUT) pit this morning. With RUT around 1300 there was a put butterfly that is looking for the small cap benchmark to be about 100 points lower on January 20th of next year. Not only is that standard option expiration date it is also the day we will inaugurate our next president.
/goo.gl/b1L0qm
The Trump trade: companies not yet priced for a tax cut
John Authers - Australian Financial Review
A week on from being trumped, what are the markets pricing and why? The speed with which the stock market recovered from its Brexit-like sell-off, and then went on to close in on record territory, combined with the sustained sell-off for Treasuries and emerging markets, came as a surprise to almost everyone (me included).
/goo.gl/j9ZfIm
This Quant Model Says Buy The S&P
Seeking Alpha
Technicals: S&P is above its 200-day moving average, NYSE margin debt has grown over the past year, and we're outside of the historically positive FOMC drift window. Sentiment: CBOE's total put/call ratio is elevated, VIX futures curve went back into contango. Rates: TED spread is high, Treasury yield curve has significantly steepened as long-term rates have exploded higher. Macro: S&P earnings are negative YoY, and the unemployment rate is at a critical juncture.
/goo.gl/Bj8NNk
Hedge Funds Had These Trades On Pre-Trump
Seeking Alpha
Bonds: Hedge funds nailed the short trade in 5-year Treasury futures. Commodities: Money managers bought a massive amount of copper futures and shorted WTI crude, producers & users locked in prices for their future cotton production by selling futures. Currencies: Hedge funds carried big short positions in both the Euro and British pound against the USD. Stocks: Everybody's bearish on the Nikkei, hedge funds were very long the S&P 500 and very short VIX futures leading up to the election.
/goo.gl/OYsIiL
| | | | | | Miscellaneous | | | Europe at risk of collapse; France, Germany must lead - French PM
Michelle Martin and Joseph Nasr - Reuters
The European Union is in danger of breaking apart unless France and Germany, in particular, work harder to stimulate growth and employment and heed citizens' concerns, French Prime Minister Manuel Valls said in the German capital on Thursday. Valls said the two countries, for decades the axis around which the EU revolved, had to help refocus the bloc to tackle an immigration crisis, a lack of solidarity between member states, Britain's looming exit, and terrorism.
/goo.gl/zEDqDk
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