☀️☕️ CME, FedWatch Winners

📊 Also: Nvidia’s #3; Bitcoin 1T pre-“Halving”; Lyft me up; UK recession?; JPY down JGB yield up 🎓 The Fed controls what rate?

📈 Market Roundup [15-Feb-24]

US large-cap S&P 500 closed 0.96% UP ▲

Tech-heavy Nasdaq Composite closed 1.3% UP ▲

Pan European STOXX Europe 600 closed 0.5% UP ▲

HK/China’s Hang Seng Index closed 0.84% UP ▲

Japan’s broad TOPIX closed 1.05% DOWN 🔻

📝 Focus

  • CME, FedWatch Winners

📊 In the Markets

  • Nvidia’s #3; Bitcoin 1T pre-“Halving”; Lyft me up; UK recession?; JPY down JGB yield up

📖 MoneyFitt Explains

  • 🎓️ The Fed controls what rate?

💸 Personal Finance Corner

📝 Focus

CME, FedWatch Winners

Soft Landing? Higher for longer? CPI or PCE? March, May or not even? Inflation, Disinflation and Deflation? Dual Mandates and Phillips Curves? And the CME FedWatch Tool?

“I've never seen such a disparity in opinions on what the Fed may or may not do, and I believe that is a tailwind for CME Group in our rates products”

CME Group CEO Terry Duffy

CME Group reported a robust fourth-quarter profit, beating Street expectations and logging the strongest year in its history, driven by strong demand for its interest-rate futures and options amid heightened uncertainty surrounding the Fed’s next moves at the end of a series of massive inflation-busting rate hikes. 

Geopolitical and economic uncertainties on top of a datapoint-driven Fed spurred record-high average daily trading volumes (ADV), particularly in interest rate contracts, which surged 35.8% on speculative as well as hedging demand. Total ADV increased by 17% in the quarter, while revenue soared 19%, on a 21% jump in clearing and transaction fees. These are the primary source of revenue, generating 82% of total revenue in fiscal year 2023. 

..... ▷ CME Group began life in 1898 as the "Chicago Butter and Egg Board," reflecting its initial focus on spot trading agricultural products, but was renamed the "Chicago Mercantile Exchange” in 1919. 

CME began offering its first futures contracts in 1961 on frozen pork bellies, marking its shift to derivatives trading. 

Over the ensuing decades, it progressively expanded its futures offerings including a move into financial instruments, when in 1972, CME launched the world's first futures contracts on seven foreign currencies, pioneering this type of financial derivative.

Its 2007 merger with crosstown rival, The Chicago Board of Trade (CBOT, 50 years older and originally trading grains and livestock) created the world's largest and most diverse derivatives exchange.

The resulting firm was renamed CME Group. 

..... ▷ It offers a diverse range of derivative products spanning major asset classes. 

These include a) Interest rates like Treasuries and Fed Funds futures 🎓; b) Equity indexes like the S&P 500 and NASDAQ; c) Currencies like EUR/USD and USD/JPY; and d) Commodities like corn, oil and gold. 

CME also offers Bitcoin futures and weather derivatives, diversifying its revenue streams.

..... ▷ The CME Group is primarily regulated by the Commodity Futures Trading Commission (CFTC). 

The CFTC oversees futures and options contracts traded on commodity exchanges like CME, and looks to ensure fair and orderly markets and protect investors.

However, some of CME Group's activities fall under the Securities and Exchange Commission (SEC) jurisdiction. 

These include Equity index products, since these are based on underlying securities, and Securities lending activities (for margin lending.) 

(As a publicly traded company, CME Group itself is subject to SEC reporting and governance requirements.)

- Image credit: CME FedWatch Tool via CME

Financial Futures - a mini-Explainer

- Financial futures markets involve contracts where parties agree to buy or sell financial instruments (like currencies, interest rates 🎓 or stock indexes) at a predetermined price on a future date and are traded through regulated futures exchanges. 

- Futures pricing reflects market expectations of an asset's value at the contract's expiration. It's influenced by spot prices (current market prices), interest rates, dividends (for shares), storage costs and time to expiration.

- Traders use futures to hedge against price fluctuations or simply for speculation. The price difference between futures and spot prices can offer insights into market sentiment and supply-demand dynamics.

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

On Wednesday, Wall Street closed higher, partially reversing Tuesday’s CPI-related losses. 

A day after overtaking Amazon, Top Dog AI chipmaker Nvidia closed at a value $5 billion more than Google parent Alphabet, now making it the third most valuable company in the US and fourth in the world after Saudi Aramco. Next week sees the release of Nvidia’s hotly anticipated quarterly results.

Only another $238bn to go to overhaul Aramco, Jensen!

“The market shivers with…” - Image credit: The Rocky Horror Picture Show (1975) / 20th Century Fox via Tenor

There is also growing anticipation over the Bitcoin “halving” that’s likely due in April. 

Crypto bros Coinbase, Marathon Digital and Riot all rose an almost identical 14% as Bitcoin’s market value made it back to $1 trillion for the first time since last November.

Lyft soared 35% after beating profit estimates and forecasting positive free cash flow in 2024 (with a press release typo having initially sent it up 62%) while larger ride-hailing rival Uber popped up 15% to hit a record high on announcing a $7 billion share buyback plan.  

The pan-European Stoxx 600 rose 0.5%, led by a 1% gain in tech stocks. UK benchmark FTSE rallied 0.75% as January inflation came in below expectations at 4% year-on-year, thanks to easing food and drink prices. But the latter could be a nasty sign that Thursday's fourth-quarter GDP release could confirm a technical recession for the country.

Most Asia-Pacific markets declined on Wednesday, after strong U.S. inflation data caused Wall Street to tumble, aside from Hong Kong, which rose 0.96% on its return from the Lunar New Year holiday. Mainland Chinese markets remain closed for the rest of the week. 

South Korea declined 1.1%, pulled down by Kospi index heavyweight Samsung Electronics, down 1.6%.

Yields on 10-year Japanese government bonds (JGBs) reached 0.766, their highest since Dec. 11, as the yen fell below 150 against the dollar for the seventh consecutive session. The Bank of Japan's market-distorting yield curve control (YCC) policy targets 10-year JGB yields near 0%, with 1% as an upper reference limit.

Equity markets like the weak Yen - Image credit: Tenor

Japan's Nikkei 225 and Topix indexes dropped from 34-year highs that had been driven in part by the weak Yen and the positive impact on its exporters.

📖 MoneyFitt Explains

🎓️ The Fed controls what rate?

The Federal Funds Rate (FFR) is a target interest rate range rather than a single number and is one of the most important monetary policy tools used by the Fed to control the economy.

It is set by the US central bank's FOMC (the Federal Open Markets Committee, which meets 8x a year) for the rate at which commercial banks borrow and lend their extra reserves to one other overnight.

As a result, the Fed Funds rate influences short-term rates on consumer loans and credit cards as well as the yields on bonds and other financial instruments.

Other central banks around the world do the exact same thing (like the UK's Monetary Policy Committee and Japan's Policy Board) but when it is the USA and the US Dollar we're talking about, everyone pays attention!

Note that such “policy rates” can be negative as well as positive, depending on the mandate(s) of the central bank in question, its level of political independence and the current economic picture.

💸 Personal Finance Corner

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