05 Jan 2023

Eurex

Equity Index market briefing January 2023

by Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex

Eurex equity index derivatives see large volume growth in 2022

2022 proved to be the year where the endless accommodative central bank policy concretely expired. It is indeed the case that the catalyst of overall economic growth did not drive the exit from ZIRP. Instead, it was triggered by the Russian invasion of Ukraine in Q1, causing high food and energy price inflation. The energy crisis was acutely felt in Europe, where sanctions led to retaliation and a surge in prices. This geopolitical backdrop dominated most of the year, as did the concern about how effectively the rapid increase in interest rates for several major countries would curb inflationary pressure without risking a potential recession. We shall soon be able to collect empirical evidence over this year.

The impact on Eurex derivatives volumes was positive as the resulting realized volatility in major equity benchmarks spiked, prompting a rush to open portfolio protection positions. No surprise then to see double-digit growth in the Price and TRF versions of the EURO STOXX 50®, DAX and Micro-DAX, Banks and STOXX® Europe 600 futures. The absolute largest percentage increase was for the FTSE 100 TRF and the respective vanilla futures, as the failed UK mini-budget sent the GBP interest rate curve into a violent shift upwards. A close second was the MSCI derivatives segment, where Eurex's wide breadth of regional and country coverage offered traders deep liquidity when required, even via the block market.

Despite some negative YoY performance, especially across tech sector companies, most clients were, fortunately, able to navigate the choppy waters, in many instances likely due to the use of derivatives. Given the outlook for 2023 is based on the trend of tighter monetary conditions as central banks remain determinedly hawkish, we can expect demand for optimized futures and options hedging strategies to persist. Here Eurex will fulfill its role to ensure price formation, trade execution and subsequent clearing is a frictionless experience.

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