TRADING THE WEEK: Risk Remains in Focus
Risk – whether it be geopolitical or interest rate – is still the first thing on traders’ minds as April draws to a close.
William Mingione, head of equities at Drexel Hamilton, said that U.S. markets continue to digest quarterly earnings results, geo-political issues and France’s presidential election. Optimism continues to wane as investors still have concerns on the validity of Trump policies and the ability of the White House and Congress to work together, he added.
“Also, earnings season is off to a strong start; nonetheless we did see several blue chip names disappoint (Goldman Sachs and IBM). Over 75% of the 95 S&P companies that reported beat estimates. French presidential election is held over 2 rounds; the first one will be held Sunday and the second on May 7,” Mingione said. “Uncertainty around the election has grown over the past month as concerns over a victory from far-right candidate Marine Le Pen rose after a shooting in Paris in which she has repeatedly said she’d pull France out of the European Union and the euro zone. However, polls still indicate pro-European candidate Emmanuel Macron is still the favorite to win.”
Mingione also said that with Congress reconvening Monday, he senses the market has exhausted these current levels and will eventually break and test the next level.
“Another signal we’re watching is the 10yr, which concerns us more. Cautious money has moved over to bonds, with the 10 year Treasury breaking 2.3% level, as it sure feels like it wants to test 2%,’ he said. “ As confidence around policy change in Washington wanes, French elections upon us, we remain cautious until we get some validity on Trump policies. We will also have to keep a watchful eye on the north Korean situation as they tried to test a missile again this week and it failed. It was rumored on the trading desks that the US had actually jammed their launch.”
Given the continued focus on geopolitical risk in the markets, other traders are tempering earlier calls for at least three interest rate hikes this year back to two. Last week’s weak retail sales and inflation data have tempered expectations and according to one floor trader, Fed Funds are only pricing a hike in September. Looking further out the curve, another trader said a final interest rate hike could be seen by the end of the year, but there was only a 20 percent chance of it.
“Despite criticism of the Fed’s March rate hike, they certainly now look very prudent to have put at least one rate hike on the books this calendar year before the series of risks and economic headwinds picked up,” the BMO strategists Ian Lyngen and Aaron Kohli wrote in a note to clients last week.
Trading this week was slow with only 6.21 billion shares changing hands, according to Bats Global Markets.
And as reported first by Bloomberg, one gauge of market stress and anxiety for global asset classes has been pushed to this year’s high. Bank of America Merrill Lynch’s Global Financial Stress Index climbed to 0.24 last week, meeting the peak reached in February and rebounding from a low at the end of March.
In other market news, KCG Holdings has agreed to Virtu Financial’s unsolicited $1.3 billion bid, its leadership announced during its first quarter earnings call.
“KCG’s Board of Directors concluded that the proposal from Virtu provides compelling value for KCG’s stockholders,” said Charles Haldeman, KCG Holding’s non-executive chairman. “Further, the combination of Virtu and KCG will create a true industry leader with greater diversification and scale.”
The deal is not the first time that Virtu has acquired a competitor. Virtu bought fellow electronic market maker Madison Tyler Holdings in 2011.
Virtu and KCG Holdings expect to close the all cash sale sometime in the third quarter after KCG stockholders vote to approve the transaction and the transaction clears all regulatory requirements.
Under the terms of the deal, former Nasdaq CEO Robert Greifeld and Silver Lake founder Glenn Hutchins will join Virtu’s board of directors.
To finance the purchase, Virtu has obtained a commitment from J.P. Morgan Securities to provide up to $1.65 in debt financing.
Virtu expects to recoup $208 million in cost savings from technology, communications, and data processing consolidation ($70 million); occupancy, overhead, and redundancies ($180 million), and foregone revenues ($42 million) as well as $440 in capital synergies.
In technology, blockchain ledger usage is expected to grow by leaps and bounds over the next six years, according to a new study.
The global blockchain distributed ledger market accounted for $228 million in 2016, and between 2017 and 2023 is expected to reach $5.43 billion, expanding at a compound annual growth rate of 57.6 percent. This is according to a new report, “Blockchain Distributed Ledger Market by Type and End User: Global Opportunity Analysis and Industry Forecast, 2017–2023,” released from Oregon-based Allied Market Research (AMD).
Last year, North America led the pack in terms of blockchain generated revenue, AMD said, as the region accounted for more than 40% of total global market share.
The report also said that as knowledge of blockchain and digital edge tech grows more opportunities will be afforded those vendors and firms involved in the new technology.
This Week’s U.S. Economic Indicators of Interest:
|Monday||Dallas Fed Manufacturing Survey
Neel KashKari Speaks
|Tuesday||Redbook Retail Sales
New Home Sales
Richmond Fed Index
|Wednesday||No major economic data|
Durable Goods OrdersInternational Trade
Existing Home Sales
Lael Brainard Speaks
Patrick Harker Speaks
Equities is the bellwether for derivatives market development, Fidessa's Chris Monnery writes.
Morgan Stanley expat says technology is essential for the brokerage business.
Investment managers reported the steepest fall in activity since the financial crisis.
Brokers differentiate by getting back to basics.
Facebook and Google architectures are not the answer to the problems of trading, Adaptive writes.