Earnings season for the Financial sector has been a race to the bottom with Financial Service outlets announcing a steady drum beat of year-over-year revenue and earnings declines. From Goldman Sachs' -40% decline in revenue to the across the board slack in Lazard's lowly levered M&A and asset management business, trends indicate both secular shifts and cyclical weakness. The exchange sector however will be one of the few Financial sub groups to post organic growth and we expect both year-over-year volume gains to be met with slight incremental pricing power in both transactions and market data. CME Group (CME) which reports on April 28th still has the opportunity for an earnings beat with the +13% year-over-year volume increase coinciding with a +2% increase in pricing power. We have a 1Q16 estimate at $1.18, +3% ahead of consensus. CME stock has positively reacted on earnings the past 5 announcements, rising between +1.5-3.7%. The earnings scorecard for Financials thus far is that 32 of 90 companies (in the S&P 500) have reported, with mean sales growth (declines) of -4.8% with bottom line earnings down -17.0% on average. The S&P in aggregate has trends of -0.6% on top line and earnings declines of -8.1%.
Weekly Activity Wrap Up
Cash equity volume again came in slightly higher week over week at 7.0 billion shares traded per day. It has held steady around that level for the last few weeks, keeping the 2Q16TD average daily volume (ADV) around 7.0 billion, +10% higher than one year ago in 2Q15. Additionally, volume of futures traded through CME and ICE picked up the pace week over week, rising to 19.0 million contracts traded per day and bringing the 2Q16TD ADV to 18.3 million, +4% higher than the year-ago quarter. Furthermore, CME's open interest currently tallies 110.4 million contracts, +21% higher than the 91.3 million pending at the end of 2015. This compares to ICE's OI growth of just +4% since the beginning of the year. Lastly, options volume was again stronger week over week, rising to 16.7 million and bringing the 2Q16TD ADV to 15.5 million, which is +1% higher than the year-ago quarter.
U.S. Cash Equity Detail
U.S. cash equities trading came in at 7.0 billion shares per day this week, bringing the 2Q16TD ADV to 7.0 billion. That marks +10% Y/Y growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 25% share of second-quarter volume, which is +77 bps higher Y/Y, while NASDAQ is taking a 17% share, -180 bps lower than one year ago.
U.S. Options Detail
U.S. options activity came in at a 16.7 million ADV this week, bringing the 2Q16TD average to 15.5 million, a +1% Y/Y expansion. In the market share battle amongst venues, NYSE/ICE's share fell week over week, dragging down its 2Q16TD share from 18% to 17%. Although that 17% is +39 bps higher than NYSE's year-ago share, it has been trending downwards and is headed toward negative territory. Additionally, CBOE's 25% market share of 2Q16TD is down -222 bps Y/Y. Meanwhile, NASDAQ is doing well in 2Q16TD, taking a 23% share, +89 bps higher than one year ago. BATS has also been taking share from the competing exchanges, up to an 11% share from 10% a year ago. Finally, although ISE/Deutsche's share expanded through 1Q16, it has been falling recently; at 15%, its share is -109 bps lower than 2Q15.
U.S. Futures Detail
14.2 million futures contracts per day traded through CME Group this week, bringing the 2Q16TD ADV to 13.7 million, +3% higher Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 110.4 million CME contracts pending, good for +21% growth over the 91.3 million pending at the end of 4Q15, although a contraction from last week's +24%.
Contracts traded through ICE came in at 4.8 million per day this week, bringing the 2Q16TD ADV to 4.5 million, a +6% Y/Y expansion. ICE open interest this week tallied 66.4 million contracts, a +4% expansion versus the 63.7 million contracts open at the end of 4Q15 but a contraction from last week's +5%.
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.
Please let us know of any questions,
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA