Scribbler Logo

    You have 4 summaries left

    The Market Huddle

    The Evolving Market Structure (Guest: Peter Haynes & Jenny Hadiaris)

    Fri May 03 2024
    marketstradingalgorithmic execution24-hour tradingjob marketcurrency speculationgold analysisgrains marketwinter gas pricestrading strategiesbiotech stockssurfingreal estate

    Description

    This episode covers the evolving state of markets, algo orders and efficiency in trading, algorithmic execution for institutional clients, the shift towards passive participation, managing large orders and blocks, the controversy of 24-hour trading, challenges in trade settlement, market participation and investor confidence, the role of technology in finance, geopolitics and market structure, market reactions to job market news, currency and market speculation, gold and crude oil analysis, grains market and uranium spot prices, winter gas prices and market analysis, trading strategies and bond yields, biotech stocks and market trends, and surfing and real estate in Portugal.

    Insights

    Wheel trading strategy allows traders to optimize best execution and focus on difficult orders

    24-hour trading is controversial, with concerns about liquidity, spreads, and impact on prices

    Shift towards 24-hour trading driven by international interest in US markets and desire for broader market participation

    Increased demand for 24-hour trading due to European companies listing in the US and Euro time zone investors wanting to trade in local hours

    Weakness in the jobs market is a concern as it may indicate a weakening economy

    Market reactions to job market news include shifts in yields, dollar strength, and stock market movements

    There are concerns about a potential topping formation in the stock market and muted rallies that may fade quickly

    The importance of sustained trends above moving averages over short-term fluctuations

    The speaker went long gamma despite high volatility, noting a 700 PIP swing

    Various cross currencies have retraced about 50% of their prior US dollar strength in the past week, indicating potential buy-on-dip opportunities

    Chapters

    1. The Evolving State of Markets
    2. Algo Orders and Efficiency in Trading
    3. Algorithmic Execution for Institutional Clients
    4. The Shift Towards Passive Participation
    5. Managing Large Orders and Blocks
    6. The Controversy of 24-Hour Trading
    7. Challenges in Trade Settlement
    8. Market Participation and Investor Confidence
    9. The Role of Technology in Finance
    10. Geopolitics and Market Structure
    11. Market Reactions to Job Market News
    12. Currency and Market Speculation
    13. Gold and Crude Oil Analysis
    14. Grains Market and Uranium Spot Prices
    15. Winter Gas Prices and Market Analysis
    16. Trading Strategies and Bond Yields
    17. Biotech Stocks and Market Trends
    18. Surfing and Real Estate in Portugal
    Summary
    Transcript

    The Evolving State of Markets

    00:03 - 07:06

    • Jenny Hedyaris and Peter Haynes discuss the evolving state of markets, including algos and trading changes.
    • Jenny Hedyaris shares her background from Harvard to working in market structure at RBC Capital Markets.
    • Hedyaris discusses the technical aspects of her job, including understanding order routing and technology in market structure.
    • She was part of the market structure group at RBC during the Flash Boys era, involved in building trading technology.

    Algo Orders and Efficiency in Trading

    06:40 - 13:34

    • Algo orders are used by both buy-side and sell-side traders for efficiency in trading, allowing trades to be spread out over time.

    Algorithmic Execution for Institutional Clients

    13:05 - 19:52

    • Sell side traders use algorithms to manage execution for institutional clients, refining tools over time.
    • Algorithms help minimize impact of larger orders by breaking them into smaller pieces and spreading them out over the day.
    • VWAP (Volume Weighted Average Price) algorithm evolved from basic spreadsheets to sophisticated tools that blend orders into market volume curves.
    • Some argue against VWAP as it may lack conviction in picking specific prices and may not adapt to market trends throughout the day.
    • Traders now rely more on algorithms like VWAP to measure true costs of trades and assess value added by traders compared to bid-offer crossings.

    The Shift Towards Passive Participation

    19:33 - 26:29

    • Trading has evolved from the old days with more involvement of buy side traders in the execution process.
    • VWAP trading is prevalent and helps in finding natural matches in the market.
    • Determining the right percentage of volume to trade is crucial to minimize impact on stock prices.
    • The market has shifted towards more passive participation to reduce impact on trades.

    Managing Large Orders and Blocks

    26:05 - 33:00

    • Block trading in the market is at an all-time low, but strategic transactions still occur occasionally.
    • VWAP trading can lead to imbalances and gradual price movements throughout the day.
    • Liquidity in the market has become more episodic, with increased activity around closing auctions and block prints.
    • Algorithms play a significant role in managing large orders and blocks, offering various execution instructions.
    • Off-exchange volume is on the rise, leading to a decrease in displayed exchange volume and a shift towards dark pools for minimizing impact.
    • The market has experienced natural fragmentation with a movement away from trading on exchanges, impacting the information available through displayed quotes.
    • An algo wheel allows clients on the buy side to send orders to different brokers based on specific instructions for optimizing best execution.

    The Controversy of 24-Hour Trading

    32:41 - 40:01

    • Wheel trading strategy allows traders to optimize best execution and focus on difficult orders
    • 24-hour trading is controversial, with concerns about liquidity, spreads, and impact on prices
    • Shift towards 24-hour trading driven by international interest in US markets and desire for broader market participation
    • Increased demand for 24-hour trading due to European companies listing in the US and Euro time zone investors wanting to trade in local hours

    Challenges in Trade Settlement

    39:43 - 46:18

    • European close in New York doesn't generally see a volume bump
    • Move to T plus one settlement poses challenges for European investors due to time zone differences
    • Shortening the time period between trade and settlement aims to reduce risk in the system
    • Historical examples like the 1987 crash highlight the importance of matching settlement dates for different securities
    • Issues with trade settlement can lead to significant losses for brokers and hedge funds

    Market Participation and Investor Confidence

    46:03 - 53:11

    • Retail investors losing confidence in the market can lead to a perception of 'us versus them' and impact market participation.
    • Shift from single stocks to options by individual investors can be concerning as it may lead to unrealistic return expectations.
    • Concerns raised about Canadian pension funds being pressured to own more Canadian assets, potentially affecting market independence and returns.
    • Future of global capital markets is expected to be more automated with a focus on generative AI for efficient stock analysis.

    The Role of Technology in Finance

    52:47 - 59:15

    • Goldman Sachs saw a significant shift from human traders to computer programs over the years.
    • The finance industry has become more reliant on programmers and technology for efficiency.
    • Despite technological advancements, relationships still play a crucial role in the finance business.
    • Personal anecdotes shared about kindness and support received during challenging times in the industry.
    • The podcast 'Bid Out' covers market structure topics and features guests discussing relevant issues.

    Geopolitics and Market Structure

    58:55 - 1:05:24

    • The podcast features discussions on geopolitics and market structure with guests like Frank, the former premier of New Brunswick.
    • Guests on the podcast include Chris Kruger from the Cowan team, who talks about micro stuff in Washington.
    • There is a common interest among people interested in market structure to also be curious about developments in Washington and financial services rules.
    • The host receives praise for his hosting skills and ability to navigate conversations smoothly.
    • Guests Jenny and Peter discuss topics like algos and market structure on the show.
    • The upcoming two weeks will focus on watching commodity markets, short-term top in yields, and inflation numbers as key factors influencing the markets.

    Market Reactions to Job Market News

    1:04:56 - 1:12:29

    • Weakness in the jobs market is a concern as it may indicate a weakening economy.
    • Market reactions to job market news include shifts in yields, dollar strength, and stock market movements.
    • There are concerns about a potential topping formation in the stock market and muted rallies that may fade quickly.
    • The importance of sustained trends above moving averages over short-term fluctuations.

    Currency and Market Speculation

    1:12:00 - 1:18:57

    • The speaker went long gamma despite high volatility, noting a 700 PIP swing.
    • Various cross currencies have retraced about 50% of their prior US dollar strength in the past week, indicating potential buy-on-dip opportunities.
    • There is speculation about interventions in the yen market and whether they aim to defend a level or move the currency to a new target.
    • Despite skepticism and negative sentiments from others, the speaker increased their trade position due to perceived maximum skepticism in the market.
    • There are discussions about potential future movements in the US dollar and yen exchange rates, with differing opinions on possible outcomes.
    • Bitcoin's price retracement is seen as a crucial moment for determining future bullish or bearish trends, with focus on key support levels and resistance at 66,000.

    Gold and Crude Oil Analysis

    1:18:33 - 1:25:55

    • Bitcoin needs to clear 66,000 to turn the trend upwards.
    • Gold is in a consolidation phase but still above a 50-day moving average.
    • Asian investors buying gold due to weaker yen, potentially influenced by central banks.
    • Uncertainty about gold's performance in relation to USD and interest rates.
    • Gold may face short-term weakness but could see a major bull market with easing cycle and dollar weakness prevailing.
    • Buy on dip strategy suggested for both gold and crude oil at current levels.

    Grains Market and Uranium Spot Prices

    1:25:28 - 1:32:27

    • Grains market might be done selling after a two-year bear market, showing signs of support and potential short-term lows.
    • Observations on bullish sentiment in ag stocks and uranium market, with potential for uptick in spot prices.
    • Investors front-running expected uptick in uranium spot prices due to Russian sanctions and increased demand for electricity.
    • Consideration of natural gas as a short-term solution for electricity generation amidst rising prices.

    Winter Gas Prices and Market Analysis

    1:32:08 - 1:39:22

    • Discussion on the potential rise in winter gas prices due to trading patterns in JAN contract.
    • Caution advised when dealing with leverages and options, particularly naked calls.
    • Analysis of platinum and palladium markets, anticipating a turnaround in the bear market for palladium.
    • Insight into gold market dynamics influenced by central bank buying amidst geopolitical tensions.
    • Evaluation of cocoa market manipulation and its impending mean reversion.
    • Observations on sugar and cotton commodities trends, highlighting potential shifts in their prices.
    • Shift in economic outlook leading to demand weakness signals and considerations regarding long bonds.

    Trading Strategies and Bond Yields

    1:38:57 - 1:45:41

    • Discussion about trading strategies involving long bonds and two-year TUA product.
    • TUA is seen as a great diversifier for portfolios due to its responsiveness to Fed policy.
    • Misunderstandings around the TUA product's negative carry and leverage are clarified.
    • Interest in trading block cheese futures once liquidity increases.
    • Humorous anecdote about a fraternity group raising funds for a party, including contributions from a hedge fund guy.
    • Speculation on short-term low on bonds following weaker jobs numbers and high unemployment rates.
    • Analysis of yield trend lines suggesting potential for four percent yields again.

    Biotech Stocks and Market Trends

    1:45:16 - 1:52:24

    • XBI and IBB are showing different patterns in the stock market, with XBI having a more diversified basket of mid-cap names while IBB includes larger cap names like AMGEN and biogens.
    • Investors tend to chase hot stocks rather than focusing on mid-cap space, leading to potential opportunities in small caps during a broader rally.
    • IBB breaking out over biotechs may rely more on large cap names like Amgen for continued growth.
    • The podcast hosts discuss their beer ratings and plans for future episodes, including collaborations and upcoming events.

    Surfing and Real Estate in Portugal

    1:52:09 - 1:59:21

    • The speaker prefers Portugal over Mexico for various reasons like safety, beautiful oceans, great surfing, and seafood.
    • The speaker has taken up surfing in Europe and owns two surfboards.
    • There is a discussion about surfing locations in Portugal, including Sintra and Nazareya.
    • One of the speakers is planning to surf with someone named Kupp.
    • A conversation about buying a house in Portugal being more reasonable than in the UK takes place.
    • The water temperature for surfing in Portugal is compared to Nova Scotia, highlighting the differences in temperatures.
    1