Wake Up Call
We’ve been talking about the coronavirus and its possible impact on the markets for a while now, and risk responses have been muted for the most part.
The current number of coronavirus cases across the globe now sits at 77,265, and the total number of deaths sit at 2,251.
Even though the mortality rate of the novel virus is relatively low compared to that of other viruses such as SARS and MERS, the rate at which the virus is spreading is exponential and far greater.
The S&P 500 posted its first weekly decline since January at close on Friday’s session, and the yields on 30 year T-bills dropped to record lows. Bond yields are inversely related to their demand, so dropping yields are signals of portfolio rebalancing and an increase in demand for bonds.
Volatility made a comeback, and the VIX - the market index representing the 30-day forward-looking volatility - jumped 9.77%, closing at 17.08 as of market close.
As equities and fell in the US, and capital flew into bonds. Additionally, we also saw money going into Canadian gold mining and utility companies.
The net effect of the Coronavirus has led to a capital flight from the US to Canada. If you were diversified not just across classes, but also across markets, you would’ve reduced your risk and captured better returns. So far in this year, Canadian stocks have outperformed US markets.
The S&P 500 dropped 35.48 points closing at 3337.75, while the Dow shed 227.57 points closing to 28992.41. Nasdaq All three indexes suffered declines of at least 1.2% for the week but have posted double-digit gains over the past year and set repeated highs in 2020.
No Speed Bump
One of the ways high-frequency trading firms make money is by buying and selling stuff before anyone else can at paces faster than everybody else.
It basically works like this. Let’s say the orders for Apple stock are causing changes in prices that range from $313.05 to $313.15. Let’s say the order you put in to buy Apple stock is at $313.10, what a High-Frequency trading firm could do, is to get in line first (because they have access to the data and place those buy orders first) and get the stock anywhere between $313.05 - $313.09 because and then sell it to you at $313.10.
Now, this happens within fractions of a second, so you could say that high-frequency firms have an “unfair” edge or a trading advantage in the market because they have, well - access, technology, infrastructure, and of course, money.
Recently, there was a proposal filed to the Securities and Exchange Commission that argued for a four-millisecond speed bump on one of CBOE’s exchanges.
Well, the SEC said no, and argued that the proposal for “discriminatory”, and failed to provide sufficient evidence to show that it would improve the markets by curbing ultrafast trading strategies.
“We are extremely disappointed that the SEC has disapproved our proposal to introduce Liquidity Provider Protection,” Cboe said in a statement, using its term for the proposed speed bump.
