Witches and markets

Quadruple witching last Friday saw trading volume in US markets spiked to two to three times the average.

US Trader
Source: Bloomberg

When you paired this with the digestion of the Federal Reserve rate hike, sentiments were not particularly hopeful. US equities closed down sharply. Volatility jumped 9.3% to just over 20. This sets the stage for a cautious trade in Asia on Monday.

As we head into the final two weeks of the year, the limited year-end liquidity will be something to keep a watch on, particularly during the holiday periods of Christmas and New Year’s Eve, where most western markets will be closed. Nonetheless, the fact that market reaction was rather well-behaved in the wake of the FOMC rate action, means we should have one less thing to worry about for the rest of the year. This week, we have macro data and international developments to contend with. US will be releasing consumer spending, housing spending, inflation, revisions to Q3 GDP, while Japan will be doing the usual data dump on Christmas, as they don’t really celebrate the occasion.

The important data for China will only come in the final week, when they release PMI readings on New Year’s Eve. The main issue will be whether the Chinese manufacturing sector show signs of stabilisation amid a downward trend, and whether their non-manufacturing industry (namely services) continue to show support for the overall economy.

Today, we have not much in the way of market-moving data for Asia, so market players will likely be sitting on the sidelines and trying to search for clarity. Singapore may come under pressure, and the STI could eye the 2800 again.

Markets

  • US equities were smacked lower by the quadruple witching, which is the quarter-end option and futures expiration of stock and index. Typically, markets will trade with high volume and potentially high volatility. The S&P 500 tumbled -1.8%, with volume soaring to 1.8 billion, compared to the average of around 700 million in Mon-Thu. The index however managed to hold on above 2000. The Dow fell -2.1%, with volume more than doubling to 344.6 million.
  • Oil traded near the seven-year low, as fresh signs that the supply glut will persist spook market participants. Baker Hughes reported that drillers added the most number of rigs (17) since July, while Saudi crude exports rose to the highest in four months in October. Brent traded as low as $36.35, whereas WTI slumped to a near seven-year low of $34.29.
  • Commodities however seems to be afforded some relief. The Bloomberg Commodity Index trimmed some of the weekly losses to -1.2% after rebounding 1.1% on Friday. However, it is still moving below 80.

 

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