The Economic Data calendar for the week of the 1st of August through the 5th of August is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.
Takeaway: All exchange categories are now exhibiting negative Y/Y growth in 3Q however futures are showing the smallest contraction at just -2%.
Weekly Activity Wrap Up
For the second week in a row, the 3Q16TD average daily volume (ADV) fell for all exchange categories. Futures put up 16.9 million contracts per day this week, bringing the 3Q16TD ADV to 18.3 million contracts, a -2% Y/Y contraction. Options activity slumped to 14.5 million contracts per day in the past 5 days, lowering the 3Q16TD ADV to 15.4 million, -15% lower Y/Y. Cash equities came in at 6.5 billion shares per day, bringing the quarter's ADV to 6.6 billion, -10% lower than 3Q15. What is showing less seasonality is the trajectory of CME Group volumes. The exchange reported earnings this week and that year-over-year volume growth expanded +13% exchange wide with all categories growing except for FX. Metals, energy, and equity activity lead the way for CME up +41%, +33%, and +25% in 2Q and the exchange set a new high water mark for open interest at 106 million contracts. The stock remains on our Best Ideas list as a long position.
The trading volume setup thus far in 3Q16:
U.S. Cash Equity Detail
U.S. cash equities trading came in at 6.5 billion shares per day this week, bringing the 3Q16TD ADV to 6.6 billion, -10% lower than the year-ago quarter. In the market share battle for volume, exchanges are losing share. The New York Stock Exchange/ICE is taking a 24% share of third-quarter volume, which -31 bps lower than the year-ago quarter. NASDAQ is taking a 17% share, -223 bps lower than one year ago. Finally, BATS' 20% share is -120 bps lower Y/Y.
U.S. Options Detail
U.S. options activity came in at a 14.5 million ADV this week, bringing the 3Q16TD ADV to 15.4 million, -15% lower than the year-ago quarter. In the market share battle amongst venues, NYSE/ICE's 15% share of 3Q16 volume is -280 bps lower than one year ago. Additionally, while BATS' share grew in the first half of 2016, growth has stalled somewhat in recent weeks, and the exchange's 11% share is -23 bps lower than the year-ago quarter. Meanwhile, NASDAQ's 22% share is +164 bps higher than in 3Q15, and CBOE's 29% market share of 3Q16 is up +162 bps Y/Y. Finally, ISE/Deutsche's 13% share is -155 bps lower than 3Q15.
U.S. Futures Detail
12.5 million futures contracts per day traded through CME Group this week. That puts the 3Q16TD ADV at 14.1 million, -2% lower Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 103.7 million CME contracts pending, good for +14% growth over the 91.3 million pending at the end of 4Q15, although a contraction from the previous week's +17%.
Contracts traded through ICE came in at 4.2 million per day this week, lowering the 3Q16TD ADV to 4.3 million, which is flat Y/Y. ICE open interest this week tallied 64.2 million contracts, +1% higher than the 63.7 million contracts open at the end of 4Q15, although a contraction from the previous week's +2%.
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
Hard to have nailed this number when we anchored on Consumption (C) and it hit our tracker at +2.83% GDP contribution… but:
Net net, our TREND (multi-quarter) call for 2016 #GrowthSlowing remains firmly intact. Looking back, Real y/y GDP growth peaked in Q1-Q2 2015 at 3.3% and 3.0%, respectively, and has now been in discrete retreat for 5-quarters.
All-time highs for US stocks on month-end on this? Obviously. Some big cap Tech earnings were fantastic, but from a top-down strategist/economist perspective, I’ve never seen the GDP and EPS growth bulls right for so many of the wrong reasons. Staying with the Long Bond, Gold, Utes, etc. as the data continues to confirm slower and lower for longer (i.e. we’re a 1.5% +/- economy) both domestically and globally.
Don’t forget that Q3 is the peak 2yr comp of the Consumption Cycle (Real PCE Growth), capital spending remains in recession, labor continues to grow at a premium to output (i.e. productivity/profitability ↓) and the larger 2nd derivative trend in payroll, income and spending growth remains negative.
Let’s cut to the chase. Today's Q2 US GDP report was a certified train wreck. Here's a closer look.
Takeaway: An accelerating topline at AMZN means the pie piece is shrinking for B&M, while street expectations = accelerating 2H for softline retail.
The 800lb Gorilla in retail land reported numbers last night, and while this isn’t a specific analysis on the AMZN print, there is one key chart that we think is particularly noteworthy headed into Retail Earnings season which kicks off in earnest during the first week of August. In summary, we’ve seen a striking divergence between the relatively strong headline government monthly sales reports and what’s been printed by most (we won’t say all) companies in our coverage universe. That was clear as day in 1Q where the government reported 3.6% growth, but softline retailers (control group of 15 companies) grew only 0.6%. What gives?
As of June, the retail group (ex Auto, Food Service, and Gas) per the government added an incremental $111 billion in sales on a TTM basis. Good for 3.5% growth. There are puts and takes by category, but if we look at the trend in US consumption holistically – it becomes pretty clear what one of the root causes for the discrepancy between what would otherwise be considered healthy sales data and the flow-through to the P&Ls of (especially mall based) retail. And that’s AMZN.
We think the numbers here speak for themselves. Of the $111bn added over the past 12mnths, AMZN alone has accounted for 25% of the incremental growth. Yep, that’s $28bn when you incorporate 3rd party sales. The highest rate we’ve ever seen and a rate over 50% higher than the company recognized a year ago.
Yes, the pie is slightly bigger, but the amount up for grabs is a fraction of what it would otherwise be given the sheer size of the share AMZN is churning through its website in the US. From here, near term expectations look to be in check for softline retail with the street expecting just 0.1% topline growth in 2Q. But given the trend in the chart above, we’re not banking on the acceleration to 1.4% growth in 3Q16 or 2.7% growth in 4Q16.
Assumptions on Amazon US End Retail Estimate:
1) 20% Take Rate on 3rd Party Sales
2) Total Amazon 3rd Party Units % = NA Amazon 3rd Party End Retail Dollar %
3) AMZN North America = US Equivalent
4) 2Q16 3rd Party Units % Assumed 49% of Total
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