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Equity markets for Q3 were mixed across the global regions with some U.S. tech-heavy indices posting substantial gains while others, like the U.K., suffered a little with a negative quarter. This year, equity portfolio performance has been pretty much dictated by the decision to include or exclude a handful of well-known technology stocks. As a theme, activity in European markets has been relatively subdued during this period as, unfortunately, the tech giants tend to prefer a U.S. listing. Therefore, the profit-taking in September, which saw a burst of activity, failed to transfer volumes significantly into Europe. Investor sentiment was rather one of cautious apathy. Markets felt too high, given the bounce back, to invest new money and an ultra-low interest environment, due to highly accommodative central bank policy, translated into lower hedging demand.
Despite this backdrop, some products did experience strong growth, such as the MSCI futures segment, with good volumes across the country indices for Thailand, Russia, Taiwan, Mexico, Australia, China, Saudi Arabia, Canada and Japan. The regional MSCI index futures also saw robust trading for ACWI, Europe and EM Latin America. Elsewhere, the Total Return Futures continued to be active as the implied repo term-structure at times steepened when the front-end maturities entered negative pricing. TRF dealers have also had to manage uncertainty over dividend announcement timing, which added some volatility. The most encouraging volume increases were in the STOXX® Europe 600, where both the vanilla index options saw strong interest but also the ESG-X futures posted a volume increase of +53% during the period. Lastly, the iShares Physical Gold ETC options stayed on track by maintaining another strong quarterly volume record.
Recent hedging activity indicates caution has returned, with notable outright call option positioning in the VSTOXX® for the December expiry. Added to this are some recent large option bets placed in the Banks sector across the November and December maturities. What is clear is that the road ahead is bumpy for the final quarter of 2020.
Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex