Russell rebalance drives trading activity ... Does oil's recovery have staying power?

Russell rebalance drives trading activity | Investors closely watch Russell rebalancing | BofA analysts: Brexit has devastated pound's status

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June 25, 2020

Market sentiment and insights through the lens of options on futures

Trading Trends

Russell rebalance drives trading activity

Fund managers are planning to adjust portfolios following the annual rebalance of indices such as the Russell 1000 large cap and Russell 2000 small cap. Trading volumes increase as the market receives signals of the coming changes, and the health care sector is expected to receive a boost from the activity.

Full Story: The New York Times (tiered subscription model) (6/20)

Investors closely watch Russell rebalancing

The process of reconstituting the Russell US Index is being closely watched by investors. "The annual reconstitution is one of the most significant drivers of short-term shifts in supply and demand for US equities, often leading to sizable price movements and volatility in individual company names or industry sectors," writes Payal Lakhani for CME Group.

Full Story: Traders online/CME Group (6/23)

BofA analysts: Brexit has devastated pound's status

Brexit's effect on the UK economy has prompted an irreversible shift in investor attitude toward sterling, which is increasingly likened to an emerging-market currency, Bank of America analysts say.

Full Story: Financial Times (subscription required) (6/23)

Credit Suisse ETN retreat casts cloud over $11B market

Credit Suisse's decision to withdraw nine exchange traded note products could shrink the $10.8 billion ETN market by over one-quarter unless investors reallocate funds elsewhere within the sector. One of the products set to disappear is the top performing VelocityShares Daily 2x VIX Short-Term ETN, which has $1.5 billion of assets and has returned over 200% so far this year.

Full Story: Bloomberg (tiered subscription model) (6/23), Financial Times (subscription required) (6/23)

Quest for VIX-like gauge for interest rates continues

The success of the VIX as a stock-market volatility gauge has inspired exchanges to work toward establishing a similar gauge for interest-rate trading. Volume in CME Group's listed options has increased 70% in recent years, and Agha Mirza, CME global head of interest-rate products, says these options are "the best way to monitor, trade or hedge volatility" on its 10-year Treasury futures contract.

Full Story: Bloomberg (tiered subscription model) (6/24)

Oil demand recovery overshadowed by refining sector

Petroleum refiners, a major source of oil demand, have seen their profit margins shrink in wake of the coronavirus pandemic, and many are struggling to stay afloat, potentially jeopardizing the oil demand and price recovery.

Full Story: The Wall Street Journal (tiered subscription model) (6/23)

Rally slowdown could mean volatility coming

The market rebound, marked by a weekslong rally for the S&P 500, has hit a resistance point, signaling that fund managers may see volatility coming. "Long-term investors should stay the bullish course, while short-term traders should brace for higher-than-normal odds of a noticeable pullback during the summer months as uncertainty still prevails with the pandemic," writes Todd Salamone for Schaeffer's Investment Research.

Full Story: Schaeffer's Investment Research (6/24)

New tech and no-fees driving retail trading surge

The recent surge in retail trading is being driven by new trading apps boasting attractive digital features, such as Robinhood, along with fierce competition among brokerages to offer low- or no-fee transactions. Many retail traders are buying options as well as stocks, as price competition and technology have made trading easier.

Full Story: Quartz (tiered subscription model) (6/23), The Wall Street Journal (tiered subscription model) (6/24)

Survey: Buy-side increasingly wants outsourced trading

Some 85% of asset management firms have outsourced their trading operations or are interested in doing so, a survey by Northern Trust finds. Nearly half of the firms surveyed said they are considering outsourcing data management, while about a third are mulling outsourcing FX and middle-office operations.

Full Story: The Trade (UK) (6/18)

Protracted US presidential contest worries FX traders
Bloomberg (tiered subscription model) (6/24)

Spotlight on Options

Bitcoin options expiration could mean volatility

The upcoming expiration of $1 billion in Bitcoin options contracts could drive volatility in the short term. The expiration "could trigger a trend-defining movement," writes Cole Peterson for Bitcoinist.

Full Story: Bitcoinist (6/20)

CME Group Insights

Analysis: Does oil's recovery have staying power?

US shale oil producers have responded rapidly to the current low oil prices, cutting production and pausing new well drilling, helping to support a price rebound. But the rise of demand from the transportation sector and production by Saudi Arabia and Russia are key variables when it comes to oil's longer term price recovery, according to Blu Putnam chief economist of CME Group.

Full Story: CME Group (6/22)

Investors hedge against equities, currency volatility

This analysis of trends in precious metals sees upside for gold amid a devaluing of global currencies. Concern over volatility in equities could also fuel demand for gold.

Full Story: CME Group (6/23)

Hot Topics

Volatility trading increasingly drives markets
The Wall Street Journal (tiered subscription model)

S&P hedging costs surge as traders rush to buy protection
CNBC

Analysts question impact of "Robinhood investors" on markets
Financial Times (subscription required)

Traders increasingly bullish on euro surge against USD
Reuters

Tight oil market getting more bullish
BNN Bloomberg (Canada)

Policy Update

CFTC reportedly aims to revamp HFT rules

The Commodity Futures Trading Commission will propose rules as early as next week for exchanges to use in overseeing high-frequency trading, sources say. The CFTC reportedly will also drop a plan to obtain access to traders' computer codes and to force high-frequency traders to register with the agency.

Full Story: BNN Bloomberg (Canada) (6/18)

Bitcoin futures, options have tax implications

Those trading in futures and options for Bitcoin and other cryptocurrencies may be taxed on gains even while still holding their positions. Instruments that fall under section 1256 contracts are affected.

Full Story: The National Law Review (6/17)

Fed details additional stress test scenarios

A sensitivity analysis added to the Federal Reserve's annual stress test consists of three adverse scenarios to gauge banks' ability to weather different forms of recovery from the coronavirus pandemic, says Randal Quarles, vice chair for supervision at the central bank. "We will use the results of our sensitivity analysis to inform our overall stance on capital distributions and in ongoing bank supervision," Quarles says.

Full Story: Reuters (6/19), The Wall Street Journal (tiered subscription model) (6/19), Risk (subscription required) (6/19)