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Market briefing
The January Effect returned, as equity markets staged a broad recovery after December's rout. All could merely be a relief rally though, as the markets took note of the mixed earnings reports of American bellwether stocks as a possible early indicator for the year ahead.
On the product volume side, we've seen that dividend derivatives, one of last year's success stories, are already back in focus with good volumes in the EURO STOXX 50® index dividend futures and options. Many of the blue-chip single stock dividend futures, such as Banco Santander, Vodafone, AXA, Deutsche Telekom, BNP Paribas, Credit Agricole, Orange, Sanofi, and Enel have also seen an excellent early buildup of open interest. The same can be observed in our benchmark equity index products. Overall, across the listed index derivatives space, we have seen a continuation of last year's Q4 volume uptick.
Our MSCI derivatives segment got off to a similarly good start as our message on achievable capital benefits, gained from Eurex's portfolio margining, is well received by members. The MSCI futures segment, where volumes increased by 75% compared with January 2018 also benefitted from an extremely early start of the EM Asia roll ahead of the Chinese New Year. The respective options on MSCI World, EM, and EAFE also saw a significant jump in traded volumes.
Statistical evidence tends to indicate that a strong January points towards a robust annual equity market performance. However, 2018 was one of the few years where this historical pattern did not play out. Therefore, we expect markets to remain cautious and anticipate robust hedging demand throughout the first quarter of this year.
Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex
Facts & figures
Round-ups of January
Are you prepared for the upcoming Dividend season? Watch our Dividend video series Part 3, "How can dividends be used to generate Alpha." In this video interview, Jad Comair, Founder & CEO of Melanion Capital, discusses how dividends are used to generate Alpha in a low interest rate environment. This year, our dividend products are already off to a strong start with an ADV of 110k for all dividends products. For January, the number of traded contracts increased by 71% percent to 2.4 million contracts compared with January 2018. Especially, Single Stock Dividends Futures saw a substantial increase of 111%, mainly driven by Intesa Sanpaolo.
Responsible investing has become a major theme for institutional investors worldwide. More than $23 trillion in AUM are now invested according to environmental, social and governance (ESG) principles. Ahead of the introduction of the first three ESG Futures on leading European Benchmarks of responsible investment criteria, climate impact and low carbon focus, Eurex spoke with Magnus Linder, Head of Derivatives at Swedbank Robur, one of Scandinavia's largest asset managers.
At the end of January, the VSTOXX® ended 41% lower at a level of 15.11 compared with its 27 December high of 25.68, which was the highest level close since February 2018. With implied volatility falling, the term structure of VSTOXX® Futures moved from backwardation back to a more typical contango shape. Interestingly, except for 2 January 2019, the VSTOXX®/VIX spread closed negative the entire month. VSTOXX® Futures and Options liquidity remains event-driven with key dates in 2019 being the end of March (Brexit) and 23 May (EU Elections).
