Happy Independence Day.
Takeaway: The Brexit explosion pushed volume to extreme highs making the last week of the quarter the biggest for options and cash equity all quarter.
Weekly Activity Wrap Up
The breaking Brexit pushed exchange traded volumes to extreme highs this week with futures traded through CME Group and ICE topping 24.7 million contracts per day, pushing 2Q16 average daily volume in the futures industry to 19.8 million, +12% higher than the year-ago quarter. Open interest at CME has grown by +16% year-to-date in 2016, a widening gap to the more energy (and European) exposure at ICE which has zero YTD growth in open interest. As we head into the second part of the year, CME's variable dividend starts to be discounted by the market which we forecast at over $3 per share this year (to be announced in December) for a total yield of +5.5%. The stock remains on our Best Ideas list as a Long and is a defensive stock in volatile markets.
Options volume came in at 20.8 million contracts per day, the highest level all quarter, bringing the 2Q16 ADV to 15.8 million, +3% higher than 2Q15. Finally, cash equity volume came in at 10.3 billion share per day this week, the highest level all quarter, bringing the 2Q16 ADV to 7.3 billion, +14% higher than one year ago.
U.S. Cash Equity Detail
U.S. cash equities trading came in at 10.3 billion shares per day this week, bringing the 2Q16 ADV to 7.3 billion. That marks +14% Y/Y growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE took a 25% share of second-quarter volume, which is +115 bps higher Y/Y, while NASDAQ took a 17% share, -115 bps lower than one year ago.
U.S. Options Detail
U.S. options activity came in at a 20.8 million ADV this week, bringing the 2Q16 average to 15.8 million, +3% higher than the year-ago quarter. In the market share battle amongst venues, NYSE/ICE's 17% share of 2Q16 volume is +17 bps higher than one year ago. BATS has also been taking share from the competing exchanges, up to a 12% share from 10% a year ago. NASDAQ's 22% share is consistent with 2Q15. Meanwhile, CBOE's 27% market share of 2Q16 is down -19 bps Y/Y, although it has been rising in recent weeks. Finally, ISE/Deutsche's 14% share is -183 bps lower than 2Q15.
U.S. Futures Detail
18.7 million futures contracts per day traded through CME Group this week, bringing the 2Q16 ADV to 15.1 million, +13% higher Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 105.7 million CME contracts pending, good for +16% growth over the 91.3 million pending at the end of 4Q15, although a contraction from the previous week's +19%.
Contracts traded through ICE came in at 6.0 million per day this week, the exchange's highest volume all quarter, bringing the 2Q16 ADV to 4.7 million, a +10% Y/Y expansion. ICE open interest this week tallied 63.8 million contracts, about in line with the 63.7 million contracts open at the end of 4Q15 but a contraction from the previous week's +1%.
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
Patrick Staudt, CFA
In this excerpt from The Macro Show today, Hedgeye CEO Keith McCullough lays out the bullish case for gold and highlights some disconcerting central planning statistics in Europe.
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Short Low, Cover High, Capitulate, And Cry = 2&20
What a sad year it's been for our industry. According to Bloomberg (during one of Hedgeye's best years yet), hedge funds are on track for their worst first half since 2011. I can't for the life of me understand how hedge funds missed what has been so obvious to us all year. Instead of whining about the "macro environment," hedge funds should be up huge, long Utilities, short Financials.
Sure, 100 handle 3-day swings in SPY have been great for traders who can go both ways. It's also terrible for equity fund flows…
Most Pundits have completely missed the link between #GrowthSlowing and long the Long Bond (TLT) and Gold (GLD) vs. short U.S. Equities. Gold ripped another +1% higher to $1335/oz, clocking Global Equity Bull at +25.9% YTD. And TLT continues to rock the Bond Bear world, hitting new all-time highs.
It generally takes time for "stocks" people to figure out what the bond market is telling them. Patience, of course, is what the real #GrowthSlowing Bulls (Long: TLT, ZROZ, EDV, XLU, GLD) have understood, for a year.
But, but, Keith, what about the FTSE? UK stocks are up … yeah, lol – for a trade… and they had to eviscerate both the Pound (back down to $1.32 this am) and UK Bond Yields to all-time lows (UK 10yr -57bps in the last month alone to 0.84%) to get there…
Whoever is telling you Brexit doesn't matter is a macro moron - all-time lows in yields (and bank spreads) matter. Question: What’s next for banks after giving up of a lot of free market liberty for short-term centrally planned market gains?
All of this is going to end swimmingly because economic fundamentals are so strong...
For the record ... unlike most unaccountable Old Wall pundits, we actually have a real research team with a real process for making our calls. Old Wall and its media are in for a rude awakening. It's going to get a lot uglier before the entire edifice comes crashing down.
Takeaway: Trump's Trade Tirade; Hampering Hillary; Trump Veepstakes
Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email firstname.lastname@example.org.
“On matters of style, swim with the current, on matters of principle, stand like a rock.”
― Thomas Jefferson
Donald Trump’s protectionist and populist trade talk is becoming a big fly in the ointment for Republicans. He pledges to abolish policies that send American jobs overseas, threatens to impose tariffs on Chinese imports, promises to punish companies that move manufacturing to countries with cheaper labor, and bashes the U.S. Chamber of Commerce for their “insider deals” - even though economists of all stripes argue that Trump’s trade stance would be devastating to the economy and global trade.
Trump is making a calculated move on two fronts: go after both Clintons and their backing of trade deals over the decades, and woo working class voters and Democrats at the expense of main street Republicans and support from the business community. Someone had better buy up Trump’s foreign made clothing line before he gets elected...
In contrast to Trump, June was a good month for Hillary Clinton – she’s climbed in the polls, garnered important endorsements, and dodged a number of potential setbacks. She even broke ground on confronting the trust and likeability issues that have dogged her for years and then, BAM!, the State Department email issue resurfaces in earnest - courtesy of her top aide’s sit down with the Justice Department and her husband’s indiscreet conversation with U.S. Attorney General Loretta Lynch - who this morning announced she would not overrule the final decision by prosecutors and the FBI in the case.
It’s been nearly a year since the inspector general raised concerns over Clinton’s server, and despite comments that they plan to continue the case further, there’s increasing speculation that the Justice Department has set the date of the convention later this month as an unofficial deadline to finish the probe.
While Trump has mostly been moving in the right direction, there’s still an abundance of doubt within his party – he has yet to receive big-name endorsements or even put the convention on solid footing. Trump can quickly allay that doubt once he names his veep. The right veep, that is. Choosing his running mate will anchor support from many in his party as well as provide a foundation for his yet-to-be-unveiled policy agenda. Trump plans for a convention reveal, but we think he’ll do it before – he needs momentum going into the convention.
Around the world, government bond yields are making fresh lows as global growth slows. U.K. gilts and the 10yr Treasury yield hit all-time lows this morning.
Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:
"We’re seeing fresh all-time lows in the USA’s 10yr this morning (briefly touching 1.40%) – obviously the higher return (especially on a volatility adjusted basis) position, for a year now, has remained long the Long Bond (TLT) instead of US Equity Beta (SPY) and Micron (MU) is just a preview of Earnings Season; risk range on VIX = 14-27!"
That's why, since late 2014, we've been making the call to get long the Long Bond (TLT). It's been the right call. With yields making record lows, TLT is at an all-time high today and has crushed the S&P 500 year-to-date: