05.22.2017
By John D'Antona

TRADING THE WEEK: Volatility Returns

Wait a sec?

Is that? Can it be? Volatility? Why, it’s nice to see you again.

In a nutshell the equity trading markets saw a rise in volatility last week as measured by the VIX index, courtesy of President Donald Trump’s campaign’s potential involvement with Russia during the 2016 Presidential election. But as traders said, whatever the cause, the impetus to trade was a welcome break.

Nicolas Colas, Convergex

According to Nicolas Colas, chief market strategist at Convergex, the VIX is back at its  April 18th close at 14.4, coming in last Thursday at 14.8.  despite a close below 10 on May 8th and long stretch below 11. The rise on the VIX, while not drastic, still has caused a stir in stocks – particularly technology issues, which would be hit the hardest in a market slump.

Sharon Stark, Managing Director of Fixed Income Strategy at inCapital, also noted the VIX increase and effects on equities. She noted that the Trump administration’s recent internal power struggles have proven to be a distraction to the financial markets, sending equity prices, bond yields and the dollar lower.

“Unfortunately, these come at the cost of any fiscal actions to stimulate the economy and only exacerbate the level of uncertainty with regard to future growth in the U.S,” she noted. “Markets don’t like uncertainty and abhor smoking guns – such the allegation in The New York Times this week that the Trump administration obstructed justice. Whether monitoring the political environment or simply watching the evening news, it is difficult to ignore the spectacle in Washington.”

She added that more volatility could be on tap for this week – ahead of the U.S. Memorial Day holiday weekend. “The week leading up to the Memorial Day holiday may result in more volatile price action with fewer participants as the week draws to a close,” she said.

Trading this week reflected the temporal return of volatility to the market especialy last Wednesday, as volume climbed to 7.12 billion shares from the week prior when volume was 6.67 billion shares, according to Bats Global Markets.

In other market news, according to the first exchange filing of fees for the Consolidated Audit Trail, the sell-side will bear, at least initially, a whopping 75% of the fees associated with running it. In comparison, the exchanges and ATSs share comes to only 25%, with allocations to be made by message traffic for brokers and by volume for venues.

Fees will be charged on a quarterly basis. Each broker or trading venue will receive one invoice for its applicable CAT Fees, not separate invoices if it operates multiple brokerages or trading platforms. The industry will pay its CAT fees to the a central to-be-created company via a centralized system designed solely for the collection of fees as established by CAT operating committee.

Also, in a response to SEC comment letters and shared with Traders Magazine, CHX’s General Counsel James Ongena discussed the merits of its proposed 350 microsecond speedbump in the wake of the SEC approving NYSE’s proposed trading delay.

Ongena pointed out that LEAD benefits both retail and Institutional Investors, not just the LEAD MMs. “In minimizing the effectiveness of latency arbitrage, this initiative would allow LEAD MMs to quote tighter spreads and display larger size?—?this will provide valuable liquidity and price discovery to all market participants, particularly retail and institutional investors, which rely upon efficient price discovery to evaluate the quality of their executions, regardless of where they occur in the NMS,” Ongena said.

“In particular, the 350 microsecond delay will not completely eliminate instances of latency arbitrage at CHX and, as such, a LEAD MMs will still be subject to material risk when providing liquidity at CHX,” he added.

On the regulatory front, the Council of Institutional Investors (CII) and 53 institutional investors with collectively more than $4 trillion in assets sent letters to all members of the House of Representatives opposing provisions of the Financial CHOICE Act that undercut fundamental shareholder rights. The House is expected to vote on the CHOICE Act as soon as this week.

In the letter, CII and co-signers note that “Americans suffered enormously from the 2001 Enron scandal and the 2008 financial crisis—they lost jobs, homes and retirement savings—and we can’t go back.

“We are deeply troubled by provisions of the Act that would threaten prudent safeguards for oversight of companies and markets, including sensible reforms that investors need to hold management and boards of public companies accountable, and that foster trust in the integrity of the markets.”

Lastly, crypto-currency Bitcoin climbed to a record of $1,875.08 last week. With the technology supporting bitcoin appearing to become more stable, it is attracting new interest from investors, CNBC reported.


This Week’s U.S. Economic Indicators of Interest:

Monday Chicago Fed Mfg Index

Neel Kashkari Speaks

Patrick Harker Speaks

Lael Brainard Speaks

 

Tuesday Redbook Retail Sales

New Home Sales

Richmond Fed Index

Neel Kashkari Speaks

Patrick Harker Speaks

Wednesday  PMI Flash Index

 

Existing Homes Sales

 

FOMC Minutes

Neel Kashkari Speaks

Robert Kaplan Speaks

Thursday Jobless Claims

International Trade

Lael Brainard Speaks

Robert Kaplan Speaks

James Bullard Speaks

Tsy Quarterly Refunding Announcement

Friday GDP

Durable Goods

Consumer Sentiment

 

 

 

 

 

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