Zero Hedge
0
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

Calm Ahead Of Today's Quad-Witching Which May Lead To Vol Surge

Quad-witching days are volatile on normal days, so in an environment of virtually zero liquidity, in which the market careens from one extreme to another simply based on whether the Fed utters one single word, in which volatility across asset classes is soaring, and in which it is all about igniting algo momentum, today's quadruple withicng should be memorable, which is good since there is virtually no macro data today to speak of. 

Here are the specfici times for today's expiries:

  • SMI March'15 Options & Futures Expiry (0800GMT/0300CDT)
  • FTSE 100 March'15 Options & Futures Expiry (1015GMT/0515CDT)
  • EUROSTOXX March'15 Options & Futures Expiry (1100GMT/0600CDT)
  • DAX March'15 Option & Futures Expiry (1200GMT/0700CDT)
  • CAC 40 March'15 Options & Futures Expiry (1500GMT/1000CDT)
  • e-Mini DOW/ e-Mini NASDAQ & S&P March'15 Options & Futures Expiry (1330GMT/0830CDT)
  • T-Note March'15 Futures Expiry (1701GMT/1201CDT)

As Nanex reminds us, during last year's quad witching on March 21, 2014, at 15:45:00, a new record was set for most trades in 1 second in NMS stocks (NYSE, NY-ARCA, NY-MKT and Nasdaq listed stocks and ETFs - approximately 8,000 symbols). The 3rd and 4th most active seconds were also set, at 15:50:00 and 15:55:00 respectively. The 2nd most active second was set at 10:00:00 on September 1, 2011. Today may surpass it.

If quad witching proves to be a dud, then there is always Europe's partial solar eclipse to fall back on: an eclipse which may strain and test Europe's conventional electricity backup grid as suddenly a substantial portion of Europe's alternative electricity generator grid is about to go, pardon the pun, dark.

In the final trading session of the week, European equities trade in positive territory with the latest developments regarding the ongoing Greek/Eurogroup negotiations relatively upbeat thus far.

Yesterday it was reported that following emergency talks with German and French leaders, Greece agreed to submit a reform list in coming days, with Greek PM Tsipras saying that Greece will not have to take recessionary measures. This has subsequently bolstered sentiment so far with accompanying comments from various European premier’s conveying that progress is being made. There was an article run in German tabloid Bild saying that Schaeuble expects a Greek exit from the EUR, however, the market isn’t paying these uncited reports much credence with German Chancellor Merkel in favour of keeping the troubled nation in the currency union.

Here is DB's take on last night's Greek events:

Over in Greece meanwhile, following their meeting at the EU summit, we heard from various European leaders shortly after urging more progress from the Greek side to speed up the work around reform measures. The EU’s Juncker, Tusk and Dijsselbloem issued a joint statement following the meeting saying that there is a commitment to speed up the work and that Greece is expected to present full reform measures within days. German Chancellor Merkel was noted as saying that she was disappointed by progress so far and that the next list will be ‘full’ on details. French PM Hollande reiterated the need to speed up progress and said that pressure was put on Tsipras to act urgently. Greece’s Tsipras was seemingly upbeat meanwhile, saying that all sides were in agreement to restore financing to Greece and that talks are back on track after the process had been somewhat derailed. The push for progress is unsurprising in the face of a deteriorating liquidity position for Greece. Yesterday Greek press Ekathimerini reported that bank deposit outflows were estimated at around €350-400m on Wednesday following the chatter around potential capital controls. The outflows were the most in a single day since February 20th.

Elsewhere, with newsflow particularly light fixed income markets trade relatively unchanged with a lack of upcoming tier 1 US/Eurozone data points.

Nikkei 225 (+0.4%), Hang Seng (-0.1%) and Shanghai Comp (+1.4%) all swung between losses and gains, with the latter on course to post its biggest weekly gain in 3-months. Heading into the European open, the Shanghai Comp gained over 1% in around 30-mins led by brokerages following a surge in trading volumes, which follows a technical break-out above the 3600 level (yesterday's highs) after an earlier failed attempt. JGBs trade up 9 ticks with outperformance observed in the long-end amid decent two-way flows in the 10yr and longer zone, ahead of the quarterly redemption of JGBs.

FX markets have also traded in a relatively tentative manner with the USD-index for once taking a breather. As such, price action has been dictated more by large option expiries with USD 1bln at 1.0700 for EUR/USD and USD 3.7bln due to roll-off in USD/JPY at 121.00. Elsewhere, AUD has managed to hold onto its gains in the wake of less-dovish than expected comments from RBA Governor Stevens who failed to jawbone the currency and added he does not think the current rate level is holding back economic development. Looking ahead, CAD will be a focus given the Canadian CPI report due at 1230GMT/0830CDT.

In commodity markets, both Brent and WTI crude futures trade modestly lower with WTI on track for its fifth weekly decline, after falling for a 7th time in 8 days yesterday. As a reminder the WTI April’15 Futures contract is set to expire at today’s NYMEX pit close. In other news, the CME cut their NYMEX Natural Gas margins by 22% to 2,750 per contract. In precious metals markets, spot gold and silver trade relatively flat alongside the USD-index. Copper saw muted overnight trade with the metal holding on to the 3% gain seen in the prior session, as output remains halted in Freeport-McMoRan’s Grasberg copper mine which is among the largest in the world

In summary: European shares little changed with basic resources and food & beverage sectors underperforming and construction, autos outperforming. EU leaders tell Greece to submit a more concrete reform plan. U.K. Feb. budget deficit below estimates. Holcim, Lafarge revise merger terms. The Swedish and Dutch markets are the worst-performing larger bourses, the German the best. The euro is stronger against the dollar. Greek, Spanish 10yr bond yields fall; French yields decline. Commodities decline, with Brent crude, WTI crude underperforming and nickel outperforming.

Market Wrap

  • S&P 500 futures up 0.2% to 2086.5
  • Stoxx 600 down 0% to 400.7
  • US 10Yr yield down 0bps to 1.97%
  • German 10Yr yield up 0bps to 0.19%
  • MSCI Asia Pacific down 0% to 146.7
  • Gold spot down 0.1% to $1170.5/oz
  • Eurostoxx 50 +0.2%, FTSE 100 +0%, CAC 40 +0.1%, DAX +0.5%, IBEX +0.4%, FTSEMIB +0.3%, SMI +0.2%
  • Asian stocks little changed with the Shanghai Composite outperforming and the Sensex underperforming.
  • MSCI Asia Pacific down 0% to 146.7; Nikkei 225 up 0.4%, Hang Seng down 0.4%, Kospi down 0%, Shanghai Composite up 1%, ASX up 0.4%, Sensex down 0.7%
  • 3 out of 10 sectors rise with financials, consumer outperforming and telcos, materials underperforming
  • Euro up 0.18% to $1.0679
  • Dollar Index down 0.23% to 99.03
  • Italian 10Yr yield down 3bps to 1.22%
  • Spanish 10Yr yield down 5bps to 1.21%
  • French 10Yr yield down 1bps to 0.44%
  • S&P GSCI Index down 0.3% to 390.7
  • Brent Futures down 0.8% to $54/bbl, WTI Futures down 0.7% to $43.7/bbl
  • LME 3m Copper up 0.7% to $5896.5/MT
  • LME 3m Nickel up 1.7% to $14010/MT
  • Wheat futures up 0.5% to 514.8 USd/bu

 

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European equities trade higher as progress appears to have been made between Greece and their Eurogroup counterparts
  • USD-index is holding steady with price action magnetised by large option expiries
  • Looking ahead, today sees the release of Canadian CPI, comments from Fed’s Evans and Lockhart and quadruple witching for US equities
  • Treasuries steady, head for second consecutive weekly gain after Fed lowered forecasts for fed funds target, GDP and inflation.
  • China’s securities regulator urged investors to consider risks from the nation’s surging stock market after the benchmark index jumped to levels last seen before the global financial crisis in 2008
  • BOJ’s Kuroda says he really doesn’t see any sort of currency war; policy actions by Fed, BOJ and ECB taken to achieve price stability, not to depreciate currencies
  • A BOJ policy board member present at Feb. meeting said it was “very unlikely that the year-on-year rate of increase in the CPI would reach 2% in a stable manner within a short period of time,” according to meeting minutes
  • With Greece’s coffers emptying and payments looming, Tsipras’s government is coming ever closer to a financial day of reckoning; cash shortfall projected to hit EU3.5b in March, according to Bloomberg calculations
  • Greece must submit a more concrete reform plan so that bailout talks can speed up, EU leaders said after nearly four hours of talks with Tsipras
  • German FinMin Schaeuble “is internally anticipating the Greeks are going to leave the euro” Bild newspaper reports without saying where it got the information
  • Britain had its smallest budget deficit for any February since 2008 as the late arrival of self-assessed tax filings boosted government revenue
  • Sovereign 10Y yields mixed. Asian, European stocks gain, U.S. equity-index futures rise. Crude lower, gold little changed, copper rises

US Event Calendar

  • No scheduled releases

Central Banks

  • 10:20am: Fed’s Lockhart speaks in Athens, Ga.
  • 11:30am: Fed’s Evans speaks in Washington

DB's Jim Reid Concludes the overnight summary

The weak dollar, strong commodity and strong US equity reversal trade that emanated from the FOMC seems to have lasted as long as the eclipse will do today. We remarked yesterday how the Euro had seen its second biggest daily range on Wednesday, well yesterday it mostly traded back down towards pre-FOMC levels and some 3.5% off the intra-day highs from the previous session. Other immediate post-FOMC trades also reversed to some degree yesterday. The S&P 500 closed -0.49% and has now failed to hold more than one day of gains through March so far. Energy (-1.69%) and Materials (-1.75%) were the significant laggards yesterday as WTI (-1.57%) and Brent (-2.65%) dived back below $44/bbl and $55/bbl respectively. US Treasuries also gave up some of the previous day’s gains as 10y benchmark yields climbed 4.9bps to close at 1.969%. In terms of Fed Funds rates, the Dec15 (+4bps), Dec16 (+5bps) and Dec17 (+5bps) contracts all rose too.

US Data yesterday exhibited a similar trend to what we’ve seen recently, with employment firm but softness seen elsewhere. Initial jobless claims (291k vs. 293k expected) modestly beat expectations and came in more or less in line with the previous reading (290k). The March Philadelphia Business Fed outlook reading was 2pts below consensus at 5 and the lowest since February last year. The prices component of the print was particular weak at -6.4 which was the lowest reading since September 2010. Elsewhere, the conference board’s leading index was in line at +0.2% mom. There was Fedspeak chatter also yesterday, with Chicago Fed President Evans saying in a research paper - which was written pre FOMC - that ‘the biggest risk we face today is prematurely engineering restrictive monetary conditions’ and that ‘it therefore seems prudent to refrain from raising rates until we are highly certain that the economy has achieved a sustained period of strong growth and inflation is on a clear trajectory to return to target’.

A further comment from us on the Fed having had a day to think about it. Perhaps another way of looking at things might be to say that if you had all of the data at your disposal except where Fed Funds had been over the last 7-8 years what would you expect the next rate move to be? Up or down? Virtually all previous post war rate hiking cycles have started with nominal GDP considerably above the 3.5-4.5% range we've been stuck in over the last 4-5 years. Also the dollar is strong and at decade plus highs with many other countries engaging in beggar-thy-neighbour policies. Meanwhile overall debt levels remain close to all time highs even with some de-leveraging post-crisis and inflation has consistently low-balled over the same period with expectations of a summer ahead of headline deflation. Employment is the brightest spot but wages are subdued. So if you were told rates were now say 3% or 5% with this combination would you say the next move might be up or down?? All other things being equal I'd say down. So the main justifications to raise rates are either that the forecasts for growth and inflation are bullish with a high confidence level or that you want to wean markets off incredible levels of stimulus. Both are very valid reasons but risky given the poor forecasts seen in recent years and given how addicted markets are to central bank (and particularly Fed) liquidity built up over a couple of decades. Maybe some food for thought.

Yesterday was also a busy day on the central bank front globally. Norway was the first to surprise the market, going against the trend of most central banks this year and choosing instead not to cut rates from 1.25%, after 18 out of 19 economists on Bloomberg had expected the Norges Bank to ease. Governor Olsen did however keep the door open to a potential cut in the near term. In Switzerland meanwhile, the SNB attracted some interest after President Jordan noted that inflation is unlikely to return to positive territory until 2017 – which would mark around 5 years of deflation for the nation. Jordan also didn’t rule out further moves in the currency markets, having been quoted on Reuters as saying that ‘overall, the Swiss Franc is significantly overvalued and should continued to weaken over time’ before going on to say that ‘the SNB will therefore remain active in the foreign exchange market, as necessary’.

Closer to home yesterday, there was some slightly dovish chatter out of the Bank of England where Chief Economist Haldane noted that risks to inflation are ‘skewed to the downside’ and that ‘even without any asymmetry in risks to the inflation outlook, a case can be made for policy easing today’ (Bloomberg). Despite Haldane still saying that ‘the chances of a rate rise or cut or broadly evenly balanced’, the comments were in contrast to the Governor Carney’s view who said that it would be ‘foolish’ to cut rates.

With the exception of the DAX (-0.20%), most major European bourses were higher yesterday with the Stoxx 600 (+0.55%), CAC (+0.07%), FTSE MIB (+1.06%) and IBEX (+0.37%) all higher. It was a firmer day for sovereign bonds too in the eurozone. 10y Bunds fell another basis point to a new fresh record low at 0.185% while yields in the periphery were some 2-5bps tighter.

There was little in the way of macro data yesterday, however we did get the latest TLTRO data from the ECB. Take-up was higher than expected with banks taking on €97.8bn of loans (versus expectations of €30-40bn) with Italian banks in particular taking up around 30% of overall allotment. Although the ECB made the latest allotment more attractive by removing a 10bp premium over the main interest (which was applied to the first two allotments), the higher than expected take up is a positive for bank lending given that the amount banks can borrow is linked to their net lending.

Over in Greece meanwhile, following their meeting at the EU summit, we heard from various European leaders shortly after urging more progress from the Greek side to speed up the work around reform measures. The EU’s Juncker, Tusk and Dijsselbloem issued a joint statement following the meeting saying that there is a commitment to speed up the work and that Greece is expected to present full reform measures within days. German Chancellor Merkel was noted as saying that she was disappointed by progress so far and that the next list will be ‘full’ on details. French PM Hollande reiterated the need to speed up progress and said that pressure was put on Tsipras to act urgently. Greece’s Tsipras was seemingly upbeat meanwhile, saying that all sides were in agreement to restore financing to Greece and that talks are back on track after the process had been somewhat derailed. The push for progress is unsurprising in the face of a deteriorating liquidity position for Greece. Yesterday Greek press Ekathimerini reported that bank deposit outflows were estimated at around €350-400m on Wednesday following the chatter around potential capital controls. The outflows were the most in a single day since February 20th.

Rounding up the news in Europe, it was interesting see that Ireland yesterday issued 6-month T-Bills at a negative yield (-0.01%) for the first time on record. Clearly depressed yields across the Euro-area generally are playing a large part, but it’s amazing to think how far the country has come given it wasn’t all that long ago that the nation needed a bailout and the banking sector was in crisis.

Looking at the early trading this morning in Asia, it’s largely mixed across the region with markets trading with little obvious direction. The Nikkei (+0.11%), Shanghai Comp (+0.16%) and ASX (+0.41%) are all higher while the Hang Seng (-0.28%) and Kospi (-0.33%) are lower. The Dollar, as measured by the broader DXY (-0.36%) is weaker as we go to print and credit markets are more or less unchanged.

It’s a fairly quiet day data-wise in Europe this morning with just German PPI, Euro-area trade data and UK public finance data to look out for. The calendar takes a breather in the US too with no releases due, but the Fed’s Evans and Lockhart are due to speak on monetary policy which could be worth keeping an eye on. Talking of eyes, make sure you don't stare at the sun too hard today! Enjoy the eclipse if you're in the relevant parts of Europe.