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TRADING THE WEEK: Volume Slips Amid Earnings and Ahead of FOMC

Bill Mingione, Managing Director, Equities, Drexel Hamilton

The summer trade is in full swing with volume lingering below 6 billion shares a day and traders clinging to any type of data point in the hopes of spurring activity.

But last week that was not to be, traders reported, as volume dropped again last week to 5.63 billion shares, its second straight week below 6 billion shares, compared to the 5.91 billion shares the week prior, according to BATS Global Markets. One month ago, volume was 7.46 billion shares per day, according to Bats.

William Mingione, Managing Director – Head of Equities at Drexel Hamilton reported that European markets ended last week on a weak note while the US markets were again higher but quiet as earnings season began in earnest. He noted that companies that have beat EPS estimates are only up about 0.5% on average, missed EPS down over 4%, and inline down over 2.5%.

“Overall companies that have reported earnings thus far are down about 1%,” Mingione began. “The major indices continue to trade near highs. The Nasdaq is in the middle of its 2nd 10-day winning streak this year. Overall volumes were light last week though.”

Mingione added that earnings continue next week with Amazon and Google reporting, while investors will have to wait another week for Apple earnings.

Also, the Wall Street Journal noted that conflicting economic data will challenge the Federal Reserve when it meets this week to discuss interest rates. Unemployment reached a 16-year low in May, while inflation figures have been weak the past three months.

This translates into the markets are pricing about a 50% chance that the Federal Reserve will increase interest rates again this year as retail and inflation data disappoint. The central bank now appears to be moving toward a downgrade in its economic growth forecasts, with the New York and Atlanta regional Feds paving the road.

Mingione said Drexel Hamilton expects no change in rates this Wednesday.

Rick Rieder, global chief investment officer of fixed income at BlackRock, said in an interview that he expects low interest rates to persist, regardless of who succeeds Janet Yellen as head of the Federal Reserve. “Quite frankly, part of why the Fed is executing this reduction of the balance sheet — you’re getting ready for the new Fed chair,” he said, noting Fed leadership transitions tend to be smooth.

In other market news, in what some have called the end of an era, Virtu Financial’s acquisition of KCG Holdings has closed.

“KCG was originally founded in 1995 by a consortium of broker dealers, many of them the online brokers, to provide efficient trade execution,” said Richard Repetto, Principal at Sandler O’Neill + Partners, L.P. “With the growth of retail online trading, KCG has been a leader in wholesale market making for the past two decades. As KCG merges with Virtu, the combined company will be one of the largest providers of liquidity in the globe across asset classes.”

In an 8-K filed last Wednesday, KCG announced that shareholders had approved the sale to Virtu for $20 in cash per share. KCG also indicated that “all Required Governmental Approvals” as defined by the merger agreement had been obtained.

Also, the exchange founded under a Buttonwood tree has had a solid first half when it comes to the new issue market. The New York Stock Exchange (NYSE) hosted the majority of initial public offerings (IPOs) conducted in the first half of 2017 with 49 new listings, raising over $19.3 billion in capital, representing 88 percent of all proceeds raised in the U.S. (based on operating companies and REITs that are qualified to list on the NYSE).

According to the NYSE, in the first six months of 2017, the market for IPOs rebounded from 2016, which was impacted by global equity market volatility. The NYSE listed the largest IPOs this year to date, including Snap Inc. (NYSE: SNAP), Altice USA (NYSE: ATUS) and Invitation Homes Inc. (NYSE: INVH), which raised a total of $6.9 billion in proceeds. In addition, global brands such as Canada Goose Holdings Inc. (NYSE: GOOS), Cloudera (NYSE: CLDR), Brazilian airline, Azul S.A. (NYSE: AZUL) and China’s leading K-12 schools operator Bright Scholar Education Holdings Ltd. (NYSE: BEDU), exemplify NYSE’s strategy to help innovative companies access public markets to build on their vision and unlock value.

Last week in a blog on the ViableMkts website, Exquam’s David Weisberger argued that a recent Yale University study published in the New York Times on IEX is inaccurate and skewed as the University’s endowment has an investment in the nation’s newest exchange. IEX responded reiterating their volume measurement metrics are solid and reflect today’s current market structure accurately.

Lastly, today the New York Stock Exchange launches its NYSE American exchange. Announced in January, NYSE American is billed as a “first-of-its-kind exchange” that brings the strengths of NYSE’s features, such as electronic DMMs with quoting obligations assigned to each NYSE American listed company. NYSE American will also file rules with the SEC for new features that promote midpoint trading, including a 350 microsecond delay upon order entry, proprietary data and outbound routing, as well as a Discretionary Pegged Order.

This Week’s U.S. Economic Indicators of Interest:

Monday
Existing Homes Sales
FOMC Meeting Begins
Redbook Retail Sales

Tuesday
Consumer Confidence
Richmond Fed Mfg Index

Wednesday
New Home Sales
FOMC Meeting Announcement

Thursday
Durable Goods
International Trade

Friday
Jobless Claims
GDP
Consumer Sentiment
Neel Kashkari Speaks

Author: John D’Antona Jr.
Posted: July 24, 2017
View the original article on Traders

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