Coronavirus outbreaks affect economic recovery

GDP, 1Q'20 (third estimate) data released | CFTC Open Meeting (Inter-Affiliate Exemption, Post-Trade Name Give Up, Electronic Trading Risk Principles, Regulation AT, Margin Requirements for Uncleared Swaps, Volcker Rule) | FDIC Open Meeting (Volcker Rule, Swap Margin Rule, Federal Interest Rate Authority)

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June 25, 2020

News on the capital markets

Morning Bell

Coronavirus outbreaks affect economic recovery

A resurgence of coronavirus cases in some states is making its presence felt in the economy, with activity weakening after a pickup when businesses reopened. The stutter suggests recovery is "going to be fits and starts," says Michelle Meyer, head of US economics at Bank of America.

Full Story: BNN Bloomberg (Canada) (6/25)

Happening Today

GDP, 1Q'20 (third estimate) data released

CFTC Open Meeting (Inter-Affiliate Exemption, Post-Trade Name Give Up, Electronic Trading Risk Principles, Regulation AT, Margin Requirements for Uncleared Swaps, Volcker Rule)

FDIC Open Meeting (Volcker Rule, Swap Margin Rule, Federal Interest Rate Authority)

Weekly jobless claim data released

HFSC Subcommittee Hearing: Capital Markets and Emergency Lending in the COVID-19 Era (SEC Chairman Jay Clayton to testify)

Industry News

Individual sectors struggle amid S&P 500 rally

The S&P 500's discretionary and energy sectors look set to achieve the best quarterly performance on record, rising at least 26% quarter to date. Other sectors, however, including real estate and utilities, are hovering above correction territory. After the worst quarter since 2008, the S&P 500 is up 18% this quarter and is reducing year-to-date losses to 5.6%. "It's a difficult environment for investors who are trying to make sense" of sometimes contradictory signals, says Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

Full Story: The Wall Street Journal (tiered subscription model) (6/24)

Goldman's Solomon: V-shaped rebound likely, to slow in '21

Goldman Sachs CEO David Solomon expects a V-shaped economic recovery in the near term, despite an increase in coronavirus cases, but says the recovery might lose momentum next year. "I do think we're going to see a sharp V to start with, but it's very open-ended as to what kind of economic friction we're going to see as we get through the end of the year and into 2021," he says.

Full Story: Business Insider (6/24)

Execs: Libor phaseout on track despite pandemic

The transition away from Libor remains on track to meet the deadline at the end of 2021, despite a slowdown of some projects because of the coronavirus pandemic, executives say. However, smaller firms are more likely than larger rivals to struggle with the timeline.

Full Story: Risk (subscription required) (6/25)

Cboe to debut volatility indexes, FX platform

Cboe Global Markets will launch volatility indexes during the third quarter based on the iShares 20+ Year Treasury Bond exchange-traded fund. Cboe will also increase indexes based on interest-rate swaps and eventually list futures and options. Additionally, the company will launch a currency-trading service called Cboe FX Central, offering an alternative to foreign exchange trading.

Full Story: BNN Bloomberg (Canada) (6/24), Financial Times (subscription required) (6/24)

Fed actions calm fears of market disruption

Federal Reserve interventions appear to have stabilized funding markets, with indicators of stress falling to levels last seen in early March. Spreads between three-month Libor and the risk-free rate have slipped back, the benchmark repo rate remains under control, and banks have barely used the Fed's overnight liquidity funding facility this week.

Full Story: Bloomberg (tiered subscription model) (6/25)

Retail trading surge extends to options market
The Wall Street Journal (tiered subscription model) (6/24)

Coronavirus-driven bankruptcies hit CLO market
The Wall Street Journal (tiered subscription model) (6/24)

Washington Roundup

Analysts prepare to interpret revamped bank stress test

Analysts may find results of the Federal Reserve's latest bank stress test, due for release today, particularly difficult to interpret. Uncertainties have arisen because of the coronavirus pandemic coinciding with changes to the test methodology. SIFMA has called for clarity on the outline of changes.

Full Story: Reuters (6/24)

Reg BI to take effect next week

Regulation Best Interest, the set of rules requiring broker-dealers to act in the best interest of clients and to disclose conflicts of interest, will take effect Tuesday. "This is a very strong rule, something the firms have taken very seriously, and there is no question this is a higher standard," said SIFMA President and CEO Kenneth E. Bentsen, Jr.

Full Story: CNBC (6/25)

6.2% of Fed aid used so far

The Federal Reserve has spent $143 billion, or 6.2%, of $2.3 trillion pledged to help the economy survive the coronavirus pandemic. Two main reasons are the complexity of programs and a decrease in demand.

Full Story: CNBC (6/24)

SEC questions hedge fund, private equity charges

The Securities and Exchange Commission has criticized instances in which hedge fund and private equity managers charge clients excessive fees and conceal conflicts of interest.

Full Story: Financial Times (subscription required) (6/24)

Bank regulators to vote on Volcker rule changes
BNN Bloomberg (Canada) (6/24)

US proposes tariffs on $3.1B in UK, EU products
BNN Bloomberg (Canada) (6/24)

Global Update

IMF downgrades global outlook as debt mounts

The International Monetary Fund has again lowered its outlook for the world economy, predicting a 4.9% contraction this year amid rising public indebtedness because of the coronavirus pandemic.

Full Story: Financial Times (subscription required) (6/24)

European Parliament delays futures open-access rules

The European Parliament has voted to postpone open-access rules for futures by a year. The vote follows a warning from the European Securities and Markets Authority that companies are behind with preparations for the rules, which remove a need for trading and clearing to occur at the same venue.

Full Story: The Trade (UK) (6/24), Reuters (6/24), Financial Times (subscription required) (6/24), Law360 (subscription required) (6/24)

Operations Update

FICC algo trading good-practice guidelines issued

The FICC Market Standards Board has issued good-practice guidelines for algorithmic trading in fixed-income, currency and commodity markets to reduce risk and promote good conduct and governance among traders. The board's statement lists 10 points market participants and venue operators should follow.

Full Story: The Trade (UK) (6/24)

How exchange heads plan to return to office
Futures & Options World (subscription required) (6/24)

SIFMA News

Join SIFMA on Wednesday, Sept. 16, for the third webinar in the Ops Series. The transition to alternative reference rates may come as soon as the end of 2021. Firms need to be able to adapt to instruments using new rates, such as SOFR, implement fallbacks, and review and execute new agreements. This webinar will discuss how ops professionals should prepare. Register today!

Return to Office: Considerations for the Financial Industry

In consultation with member participants, SIFMA has developed the following general, common considerations for financial firms as they plan for returning staff to the office to resume "normal operations" following the global coronavirus pandemic (COVID-19).

Watch the Webinar Replay: Virtual Fireside Chat with FINRA's Bill Wollman

Explore Fixed Income Market Trends with SIFMA's Data Visualization

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