A while ago we observed that negative gold leasing rates were potentially signalling something awry with the Libor rate.
That judging by gold forwards, the Libor component of the gold lease rate calculation (Libor-GOFO = Lending rate) was coming in much lower than what might otherwise be expected. Read more
This looks like a sign of the post-MF Global shift in the futures market…
Farmers across the United States have been left increasingly unable to buy equipment or to hedge their crops, because their money is still tied up in MF Global’s frozen customer funds, the WSJ reports. Customers of the broker have been waiting for $2.1bn of the funds since its collapse in October, but regulators cannot find around $1.2bn of missing funds. Farmers had already been hit when MF Global’s bankruptcy forced crop-hedging positions to be liquidated or subjected to margin calls on being moved to other brokers, Reuters reports, and now face tough decisions on whether to delay buying equipment in the crucial year-end period. Read more
Futures brokers are examining either government-sponsored or industry-funded insurance for customer funds in response to MF Global’s collapse, Reuters says. While an insurance fund would not prevent a broker misusing customer funds, it may restore investor confidence in the industry. The insurance could make trades more expensive for customers, however, depending on how it is funded. Industry authorities declined to set up similar insurance in 1986, following the collapse of Volume Investors, instead setting store by regulations governing segregation of customer funds. Read more
Regulators have blamed poor book-keeping for the failure to uncover $600m in missing MF Global client funds, which are still missing ten days after the broker collapsed, the WSJ reports. ”Their books are a disaster,” said Scott O’Malia, a CFTC commissioner. People who were familiar with MF Global’s accounts before and after its bankruptcy said that they included incomplete and inconsistent transactions. The CFTC has begun reviewing controls on client funds at other futures brokers in light of shaken confidence in the market, the FT says. The continued failure to find the money suggests it is long gone, rather than misplaced in the wrong books, Francine McKenna writes. Read more
A heads up — This is a three-part series attempting to explain the current backwardation in the market. We will make three arguments: 1) That contango trades helped to create fake demand in 2009/2010 2) that index funds replaced Saudi Arabia as key swing players, 3) that the Brent-WTI deviation can be explained by the current super-backwardation.
Remember super-contango? Read more
The head of the largest US futures exchange has labelled derivatives that track the price of traditional commodity futures “parasitic”, stoking tension over proposed US curbs on speculators, the FT reports. Craig Donohue, chief executive of Chicago-based CME Group, said that pending US rules limiting commodity speculation would prompt banks and hedge funds to abandon futures that require physical delivery and pour money into contracts that settle in cash. The reason for this, he said, was that the US commodity regulator had proposed allowing traders to hold five times more cash-settled contracts than traditional futures contracts. “What you’re doing is you’re encouraging people to leave the physical delivery, price discovery contract and move to what I would call a parasitic, second-order derivative,” Mr Donohue told the Financial Times. CME’s exchanges list leading physical commodity futures, including West Texas Intermediate crude oil, natural gas, corn and soyabeans. Read more
Markets were cautiously positive, with traders apparently reluctant to chase the previous session’s rally with the same vigour ahead of a slew of headline risks, the FT’s markets overview reports. The FTSE All-World equity index was up just 0.03 per cent as Europe opened with a 0.2 per cent loss and after the Asia-Pacific region added 0.1 per cent. The commodity, forex and sovereign debt sectors were exhibiting greater wariness. Traditional havens such as the US 10-year note werestronger, nudging the yield down 2 basis points to 2.02 per cent, while the dollar index was up 0.2 per cent and the euro was down 0.1 per cent to $1.4077. Niggling concerns about global demand saw copper dip 0.2 per cent to $4.11 an pound, leaving Brent crude down 33 cents at $115.47. Meanwhile the gold bugs were “bargain” hunting, the precious metal rebounding 1.5 per cent after Wednesday’s 3 per cent dive. S&P 500 futures pointed to Wall Street’s benchmark index giving back 3 points of Wednesday’s 33-point, or 2.9 per cent, surge. The rally had come as investors felt the slump at the start of September – the S&P 500 fell 4.4 per cent in three sessions – had been overdone. Some slightly better macroeconomic data and an easing of tensions in the eurozone after the German constitutional court allowed Berlin to participate in the bloc’s various bail-outs, added juice to the bounce. Read more
Trading in equities and derivatives has hit record levels this week, the FT reports, as investors traded frantically in response to a tumult of factors such as the US Federal Reserve’s decision to stick with near-zero interest rates until 2013, fears over the US’s credit rating and the eurozone debt crisis. Trading in currencies and gold, seen by many investors as a “safe haven” alternative to dollars, have spiked as central banks in the US, Europe and Japan have intervened to attempt to pump liquidity into currency, equity and sovereign debt markets. CME Group, the world’s largest futures market, reported an all-time volume record on Tuesday, beating the last peak of activity hit during the “flash crash” last year in the US, when markets gyrated wildly. On the CME, there were 25.7m contracts traded across all asset classes, with individual market records being hit in gold and Australian dollars.
A former portfolio manager at Moore Capital has been fined $1m and barred from trading US platinum and palladium futures in a civil settlement with the CFTC, after officials claimed he tried to manipulate the two markets, the FT says. Christopher Pia, now of Pia Capital, executed large orders through a floor clerk in the last 10 seconds of trading, roiling “thinly traded” and “illiquid” markets between November 2007 and May 2008, the CFTC alleged. The regulator has sought to stamp out “banging the close” in commodity markets of late, and will gain powers to monitor Pia’s hedge fund in the settlement, the WSJ reports. Read more
CME Group has increased the haircuts it applies to Treasury, agency and foreign sovereign bonds, it said in a statement, reflecting growing volatility in the Treasuries market as fears over a debt ceiling default continue. T-bill collateral haircuts will rise from 0 to 0.5 per cent, and those for off-the-run Treasuries from 0.5 to 1.5 per cent. CME earlier increased margin requirements for Treasury futures, also in response to volatility, according to Reuters. The margin cost of trading 10-year Treasury futures is now $1,300, but still some way below the $2,200 charged in the depths of the financial crisis in October 2008, the FT reports. Read more
Worries about slowing global growth rejoined simmering Greek debt concerns to deliver a downbeat session on global markets, the FT reports. The FTSE All-World equity index was down 0.5 per cent, commodity prices are lower, while the dollar and US Treasuries were in demand. To some investors’ minds, this traditional “risk-off” scenario came courtesy of the US Federal Reserve, which on Wednesday said the world’s biggest economy faced slower than expected growth and higher inflation. During a press conference, Fed chairman Ben Bernanke said that “incoming data” would determine the pace of the exit from its ultra-loose monetary policy, but declined to lay out a more specific forecast. He said the extended easing might last for at least another two or three meetings. And so S&P 500 futures suggested Wall Street would add a loss of 0.5 per cent to the previous session’s 0.7 per cent decline, all of which came after Mr Bernanke’s comments. News out of China was also adding to the perception that the monetary authorities are prepared to be a bit tougher in their attempts to guide growth and normalise policy. Read more
A lobby group for some of the world’s largest physical commodities traders has pushed back against US rules that would restrict who would receive exemptions from trading limits in markets from oil to wheat, the FT says. The Commodity Markets Council, whose members include trading houses such as Archer Daniels Midland and hedge funds such as Vermillion Asset Management, said in a letter that the proposed rules were “unnecessarily narrow” and threatened to redefine a large amount of hedging as speculation. Seperately, Bloomberg reports that specialised commodities futures funds are facing headwinds. Read more
The natgas mystery continues!
Let’s start first with the following flashes from the CME via Reuters on Friday: Read more
Our colleagues on the paper-side drew attention last week to the fact that silver trading in Asian hours experienced a clear pickup into the lead up to the commodity rout.
Jack Farchy wrote, citing Edel Tully, analyst at UBS: Read more
There was a mixed start to the European portion of the global session, with the underlying tenor one of caution as traders remained wary about the ongoing eurozone debt crisis, the FT’s global market overview reports. Worries about a slowing of global growth as central banks tackle inflationary pressures, coupled with the imminent demise of the Federal Reserve’s $600bn QE2 market support programme, were also weighing on strategies. Technology stocks were struggling following reports that Hewlett-Packard’s boss Leo Apotheker expected “another tough quarter”, leaving the FTSE Eurofirst 300 down 0.1 per cent. S&P 500 futures were up 0.2 per cent. The FTSE All-World equity index was down 0.3 per cent after an Asian session thinned by various national holidays absorbed Wall Street’s decline to a three-week low into Monday’s close, the FTSE Asia Pacific index losing 0.4 per cent. Read more
Bears had the upper hand as concerns about sovereign debt discourage buyers of racier assets, the FT’s global market overview reports. The FTSE All-World equity index was down 0.5 per cent, commodities prices were mostly falling, while US Treasury yields were inching lower in traditional response to heightened risk aversion. S&P 500 futures were pointing to a 0.2 per cent fall when Wall Street opens. The previous week ended with worries about the eurozone fiscal crisis and a possible Greek debt restructuring harming the euro and forcing the dollar higher. This, in turn, triggered the usual “risk off” response by traders apparently still wedded to the buck as a negatively correlated gauge for broader sentiment. Similar dynamics were weighing on markets on Monday, but with the added spice of scandal. Allegations of sexual assault against Dominique Strauss-Kahn, managing director of the International Monetary Fund, have allowed pessimists to suggest this could hobble a Greek request for further aid from the EU-IMF – potentially making a debt default by Athens more likely. Read more
Oops. Acronym alert. Sovys = Sovereign Yield Spread Futures, interest-rate products unveiled by CME Group last Thursday.
It’s a fascinating little challenge to all sorts of sovereign trading traditions, including bonds and CDS. Read more
Olivier Jakob, at Petromatrix (who we know we quote a lot, but only because he really does constantly come up with interesting points) alerts us to the fact that from Monday onwards investors will be able to trade euro-denominated contracts on certain Nymex energy products.
As he points out: Read more
Buyers were returning to risk assets as the confidence wobble seen at the start of the week quickly faded on Wednesday, the FT’s global market overview reports. The FTSE All-World equity index was up 0.3 per cent, many commodities were enjoying bids and safety plays, such as core government bonds, and haven currencies were falling back. US stock futures suggested Wall Street, which lost 1.1 per cent in the previous two sessions, would open up by 0.3 per cent. A burst of insecurity on Monday and Tuesday had caused a flight out of erstwhile market darlings, such as oil, precious metals, agricultural products, stocks and high-yielding forex units. This coincided with a mixed reception afforded by the IMF’s latest world economic bulletin and a poorly received earnings report from Alcoa, the aluminium producer, as it kicked off the US reporting season. Read more
A busy day for monetary and fiscal news seems to have left investors a touch uncertain and thus erring on the side of caution, leaving many riskier assets to dip from recent peaks, the FT’s global market overview reports. The FTSE All-World equity index was down 0.1 per cent from its cyclical high, gold was retreating from Wednesday’s record, and oil was lower. Core treasury yields were softer and the FTSE Eurofirst 300 opened with a 0.1 per cent gain. US stock futures pointed to a 0.3 per cent fall for Wall Street at the open, while the euro was pulling back from its best level in 14 months versus the dollar. The euro is the main focus of the session as traders prepare for confirmation that the era of ultra-loose monetary policy is coming to a close in Europe, with the bloc’s central bank expected to raise interest rates by 25 basis points to 1.25 per cent, the first rise in almost three years. Read more
Oil prices continued to dominate traders’ psyche, pressurising equities on fears an energy supply shock could harm the economic recovery, the FT’s global overview reports. Gold sits near a record as dealers seek protection from strife. The FTSE All-World index was down 0.6 per cent and non-energy commodities were generally weaker after the US crude contract breached the $100 a barrel mark as the unrest in Libya and other countries in the oil-rich region showed little sign of abating. The Saudi Arabia stock market was down another 2.4 per cent, while the cost of insuring the kingdom’s sovereign debt against default, one of traders’ favourite risk gauges, was up 7 basis points to 143 basis points, according to Markit. S&P 500 futures pointed to Wall Street adding another 0.3 per cent to the previous session’s 1.6 per cent slide. This would leave the benchmark poised above the 1,300 level, with strategists warning that any decisive breach of that mark could see stocks test support at 1,275. Read more
We’ve touched on the issue of the forward curve not being a forecast a few times on FT Alphaville before.
But just in case it still hasn’t hit home — since many are seemingly still confused — here’s a little more from former energy analyst John Kemp, now a columnist at Reuters, on the matter of what futures curves in commodities tell investors. Read more
Probably not with cotton futures now through $2/lb. Read more
Talk to the precious metal bugs, and you’ll soon come across the story that there is a growing disconnect between what’s happening in the futures market and the physical market.
This, they say, is particularly the case for silver, where rumours of retail shortages have been doing the rounds since about the start of the year. Read more
According to Reuters, trading in German Bund futures was halted for two minutes on Friday after US December non-farm payrolls sent price volatility spiking:
Why trading machines don’t like news releases – FT Alphaville Read more
According to SocGen’s Dylan Grice, seeking a decent long-term return on commodities is akin to selling coal to Newcastle: rather foolhardy.
For those in need of a history lesson, he has outlined the case of why in his opinion commodities aren’t really so swell. Read more