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Global equity markets saw an impressive bounce back as investors chose to look towards positive data points on infection rates and vaccine hopes emerged. The initial leg of this rally came immediately after the first large quarterly expiry of the year, indicative that derivative positioning may have been a significant factor in triggering this short-term support. Volumes at Eurex remained elevated compared to the same month last year as on-going hedging demand was evident across our benchmark products: EURO STOXX 50®, Banks® sector, STOXX Europe 600®, Mini-DAX and SMI® Futures. Unsurprisingly, given the recent market turmoil having a direct impact on company decisions to postpone 2019 dividend payments, volatile forward pricing has been a challenge for all our members. This has translated into heavy demand to hedge equity repo exposure via our EURO STOXX 50® Total Return Future and, of course, the related EURO STOXX 50® index dividend futures & options where prices have already rebounded from historically low levels.
In other asset classes, the distressed market conditions took longer to materialize. We saw this in the WTI crude oil May futures contract, where we experienced negative prices for the first time in history. This poses a major headache for risk managers all over the market, looking to cover feasible stress scenarios. With implied volatility levels still high, clients have notably utilized shorter-dated expiries that are less Vega risk heavy to execute index hedges. This was particularly seen in the EURO STOXX 50® and Banks® sector weekly index options that saw an uplift in activity. There was also a strong increase in MSCI index options as open interest builds in MSCI EM, World and EAFE.
The strong market performance in April is not without detractors who point to the relatively lower cash volumes that have taken equities broadly higher but also the diplomatic rapprochements that are already rumbling in the background, again seeing the U.S. facing off China. Now that the world slowly begins the process of lifting lockdown restrictions, new, and sobering, questions rise along. How will small businesses survive? How will the U.S. bring 30 million jobs back? And, how will the immense central bank liquidity injections burden taxpayers? Typically, the market intensely dislikes uncertainties and so derivative hedging demand will likely continue in the subsequent weeks and months ahead.