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HEDGEYE Exchange Tracker | Volatility = Opportunity

Takeaway: With global markets shuddering in the first week of 2016, volume was strong across all categories.

Weekly Activity Wrap Up

The first quarter of 2016 started off with a bang with high activity levels in all three exchange traded categories as global markets shuddered and volatility rose. Cash equity volume came in at 8.4 billion shares traded per day, which is +20% higher than 4Q15 and +22% higher than 1Q15. Futures activity (CME and ICE combined) came in at 21.0 million contracts per day, +17% higher than the previous quarter and +5% higher year-over-year. Options put up an average of 18.4 million contracts per day this week, +15% higher Y/Y and +19% higher Q/Q.

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon1 2

  

U.S. Cash Equity Detail

U.S. cash equities trading came in at 8.4 billion shares per day this week, a +22% Y/Y and +20% Q/Q expansion. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 24% share of first-quarter volume, -1% lower than 4Q15 but in line with 1Q15, while NASDAQ is taking a 19% share, a +3% Y/Y expansion but -5% lower than the year-ago quarter. 

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon2

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon3

 

U.S. Options Detail

U.S. options activity came in at an 18.4 million ADV this week, a +19% Y/Y and +15% Q/Q expansion. In the market share battle amongst venues, NYSE/ICE has been trending downward at a moderate pace, but at an 18% share it is +8% higher than the year-ago quarter. Meanwhile, NASDAQ's recent declines bring it -17% lower than 1Q15. CBOE's market share has also been falling and is down -7% Y/Y, but it's starting the quarter on a strong note, +4% higher than 4Q15. BATS and ISE/Deutsche have been taking share from the competing exchanges, with BATS up to a 10% share from 9% a year ago and ISE/Deutsche taking 16%, up from 13% a year ago.

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon4

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon5

 

U.S. Futures Detail

CME Group activity came in at 15.4 million contracts traded per day, a +3% Y/Y and +17% Q/Q expansion. Additionally, open interest at CME currently tallies 95.9 million contracts pending, +2% higher than the 93.7 million pending at the end of 2014.

 

ICE activity came in at 5.6 million contracts traded per day this week, +12% Y/Y and +17% Q/Q growth. Additionally, open interest at ICE currently tallies 64.2 million contracts pending, +8% higher than the 59.4 million pending at the end of 2014.

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon6

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon8

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon7

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon9 

 

Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon10

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon11

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon12

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon13

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon14

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon15

 

Sector Revenue Exposure

The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:

 

HEDGEYE Exchange Tracker | Volatility = Opportunity - XMon19 3

 

 

Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

  

  

 

 Joshua Steiner, CFA

 

 

 

 


XLU: Adding Utilities to Investing Ideas (Long Side)

Takeaway: We are adding Utilities to Investing Ideas today.

Stay tuned. We will send out a full analyst report outlining our high-conviction thesis early next week.

 

XLU: Adding Utilities to Investing Ideas (Long Side) - zz xlu


McCullough: The US Stock Market Is Going To Crash

"The US stock market has never NOT crashed (i.e. a 20% or more decline from peak – that would get you 1704 SPX from the 2130 #bubble high) when corporate profits go negative for 2 consecutive quarters," Hedgeye CEO Keith McCullough wrote earlier today in a note to clients.

 

Click to enlarge.

McCullough: The US Stock Market Is Going To Crash  - EL profits large

 

Editor's Note: The chart above was featured in our recent 73-slide Q1 Macro Themes deck. If you would like more information on how you can subscribe to our non-consensus research please email sales@hedgeye.com.


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FOUR SCORE | December Employment

Four Score and Zero Months ago the current expansion commenced.  0.5 Score months ago growth in the labor market peaked. 

 

Inclusive of the solid monthly gain in December hiring, the trend towards deceleration remains ongoing.  The net of a solid NFP print in December is likely more deflation risk. 

 

There’s no dearth in NFP data reporting so we’ll keep it to a quick quadfecta of key takeaways.  There’s a visual tour of the employment data below:

  • Between a RoC and a Hard Gray Bar:  From a rate-of-change perspective the employment cycle cycles rather cleanly (see 1st chart below).  Once employment growth peaks, it''s effectively a one way street towards contraction.  The RoC peak-to-recession timeline is cycle specific but roughly consistent (has averaged ~23 months in the last 3 cycles) and February 2015 (+2.34% YoY) marked peak growth in the current cycle. Employment growth in December was +1.88% YoY.   
  • Good is Probably Bad:  The macro factor flow stemming from a good domestic jobs report is basically this:  Solid NFP --> hawkish policy expectations ↑ --> $USD ↑ --> Deflation Risk ↑ = continuation of the market price and macro data trends that characterized 2H15.  With the $USD up, 10Y Yields flat-to-down and equities quickly fading early (lack of china crashing, not NFP) optimism, the market looks to be pricing in some measure of a similar conclusion. 
  • Income:  Sequential Acceleration, Trend Deceleration:  Income growth drives the capacity for consumption growth (and anchors the pro-cyclical trend in credit growth) and the net of the decline in aggregate hours growth and the acceleration in hourly earnings growth in December will result in a modest acceleration in salary and wage income growth when the December data is released later this month.  Like the employment data, aggregate income growth peaked in 4Q14/1Q15 and should continue to decelerate against tough comps.  The silver lining is that so long as employment/income growth can hold in (albeit slowing), the probability of an outright recession declines or, at least, gets pushed out.    
  • Labor Income ↑ = Profitability ↓:  With labor rising, topline (GDP & Corporate Profit estimates) decelerating and inventories spiking (see this mornings wholesale inventory data), the probability that positive hiring perpetuates continued margin contraction is more likely than not.  

FOUR SCORE | December Employment - NFP YoY

 

FOUR SCORE | December Employment - NFP Goods vs Services

 

FOUR SCORE | December Employment - Reported   IMplied income growth

 

FOUR SCORE | December Employment - Hourly Earnings

 

FOUR SCORE | December Employment - Payroll Growth vs Wage Growth

 

FOUR SCORE | December Employment - IS

FOUR SCORE | December Employment - Labor Income Share 

FOUR SCORE | December Employment - SPX Margins

 

FOUR SCORE | December Employment - Emp Summary

 

Christian B. Drake

@HedgeyeUSA

 


Here's the REAL Picture Behind Today's Jobs Report

Takeaway: The US stock market has only had 16 up days in the last 42 – please, don’t blame China.

Here's the REAL Picture Behind Today's Jobs Report - ball drop cartoon 12.31.2015 large

 

Jobs, Jobs, Jobs...

 

That's what Old Wall is talking up today. 

 

Thinking like consensus is the biggest risk right now. On today's non-farm payroll number, Old Wall is staring at the absolute number this morning, instead of the rate-of-change. Don’t forget that the US employment cycle peak was a NFP growth rate of 2.3% year-over-year in Q1 of 2015. It’s also the latest of late cycle indicators (put another way, nothing could change our bearish TREND view).

 

 

To better understand the year-over-year slowdown in NFP, here's a quick visual summary from Hedgeye U.S. Macro analyst Christian Drake. Take a look at the circled fourth line down, labelled "NFP, Y/Y," with the current reading of 1.88% versus the aforementioned peak of 2.3% in Q1 of 2015.

 

In other words, this is the last data point you'll see that the bulls can try to hang their hat on. It was a nice ride. It's over.

 

 

The S&P 500 appears to be shrugging off the NFP number today anyway. Remember, the US stock market has never NOT crashed (i.e. a 20% or more decline from peak – that would get you 1704 SPX from the 2130 #bubble high) when corporate profits go negative for 2 consecutive quarters. We’ll have that in earnings season that starts next week.

 

Just look at the chart...

 

 

That's why JPMorgan's (JPM) earnings are way more important to me than this today's jobs report.

 

You won't hear that from anyone on Wall Street though.


RTA Live: January 8, 2016

 


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