Citigroup’s announcement that trading revenues could drop 20—25 percent this quarter from the comparable year-ago period echoes what JPMorgan said last week. It is also symptomatic of the problems confronting the Wall Street trading community.
It’s pretty simple to understand. The sell side makes money when the market is in a clear trend (up or down) and when volatility (intraday price movements) is high. Neither of these conditions exist currently. It’s a market with low volatility and no trend, combined with low interest rates, derivatives price movements, and equity fund inflows. Even foreign exchange volumes are down.
And it’s getting worse.
According to Sandler O’Neill, the average for total trading volume this year is 6.7 billion shares a day. But we haven’t gone above 6 billion shares in seven days.
Of course, volatility bulls like to point out that all indices are mean-reverting. You cannot stay at low volatility levels forever. Theoretically that is true, but is anyone surprised that the CBOE Volatility Index is at the lowest levels since 2007, with all these worries about China slowing, and with all the Ukraine/Russia issues? I am.
Bank bulls also like to move the discussion away from the lousy trading volumes and point out the investment banking revenues are still strong —and that’s true. Mergers and acquisitions (M&A) activity is good, as is IPO activity and secondary offerings.
What’s causing this? Some are blaming regulators, arguing that efforts to limit bank risk has caused banks to pull back. There may be some truth to this: bank proprietary trading desks were major risk takers. Closing those risk-taking desks should have some dampening influence on volatility. And investigations into everything from foreign exchange trading to LIBOR also reduces bank willingness to trade.
The most likely answer is that the economic data is much more mixed, which makes investors much more uncertain about where the economy is going.That reduces conviction levels and causes pullbacks.
Revenues: up 43 percent
Same store sales: up 20.6 percent
Revenues: up 125 percent
Same store sales: up 62 percent
2) The golden era of China housing is over. That what China’s largest property developer said.
Yu Liang, President of China Vanke, said “The golden era of the housing market is over, and it’s now a silver era.” He did qualify that by adding “it hasn’t declined to the mud or coal era yet.” Strange thing to say, considering they are trying to go public on the Hong Kong stock exchange. They already list on the domestic Shenzen exchange.
–By CNBC’s Bob Pisani