WEBVTT - Curnutt: electronic trading has changed market volatility

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<v Speaker 1>thirty seconds, the yield one point at one percent. NIMEX

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<v Speaker 1>Call Mike's Gold little changed. At twelve thirty seven announced

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<v Speaker 1>and the euro A dollar thirteen twenty eight, then one

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<v Speaker 1>twelve point to eight. That's a Bloomberg business flash, Tom

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<v Speaker 1>and Barry Karena. Thanks so much, Berry, Ridholdson, Tom Keen,

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<v Speaker 1>morning must read. And this is really cool. Vice President

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<v Speaker 1>Biden has many of you know, um has really taken

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<v Speaker 1>the initiative on jump starting cancer research in America. He

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<v Speaker 1>and Michael Bloomberg, of course majority owner of this of

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<v Speaker 1>Bloomberg LP and of course Bloomberg Radio worldwide. Michael Bloomberg

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<v Speaker 1>and Joe Biden writing today an essay on the announcement

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<v Speaker 1>of the Bloomberg Sydney Kimmel Institute for Cancer Immunotherapy at

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<v Speaker 1>Mike's Johns Hopkins University. This is fabulous. Sidney Kimmel, you

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<v Speaker 1>will know from Jones Apparel from years ago, and he's

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<v Speaker 1>been truly one of the great donors for cancer research,

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<v Speaker 1>not only with this announcement of a five million to

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<v Speaker 1>Johns Hopkins University, but Sydney Kimmel's contribution to phil Alphia

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<v Speaker 1>into all of cancer research nationwide. Uh So, it's wonderful

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<v Speaker 1>to see a further commitment with Mike to Johns Hopkins

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<v Speaker 1>University look for curing cancer is within reach. The vice

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<v Speaker 1>president and Mike look for that Bloomberg view. Uh this

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<v Speaker 1>morning features up twelve down, features up one hundred. Barry Redoltson,

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<v Speaker 1>Tom Keene, we look at volatility with Dean current. Dean,

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<v Speaker 1>I thought what you did with us this morning, I

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<v Speaker 1>was just brilliant. I do want to revisit one thing,

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<v Speaker 1>which is this belief out there that the market is

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<v Speaker 1>forever changed. It's the market not of the big short.

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<v Speaker 1>Maybe it's the small long. I don't know what it is,

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<v Speaker 1>but it's not the little guy. It's et F hedge

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<v Speaker 1>funds in and out, in and out playing your world

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<v Speaker 1>of volatility. Is that an accurate view? I think it is.

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<v Speaker 1>Think about the days from long long ago when you

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<v Speaker 1>have people with a presence in the pit of the

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<v Speaker 1>New York Stock Exchange or in Chicago some of the

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<v Speaker 1>futures and options pits. That physical presence has change, and

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<v Speaker 1>now you've got a vast electronification of markets, even treasury markets,

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<v Speaker 1>which have one of the latest markets to become much

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<v Speaker 1>more electronic and its orientation. What you have is impulses,

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<v Speaker 1>you know, competing for liquidity. There's a lot of this

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<v Speaker 1>kind of spoofing going on where you're you're really not

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<v Speaker 1>sure if the screen looks spoofing. I mean, when I

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<v Speaker 1>want to buy a hundred forty two shares of amalgamated

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<v Speaker 1>chin strap, I'm not spoofing. Am I know you're going

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<v Speaker 1>in there trying to take liquidity, But the providing of

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<v Speaker 1>liquidity is not really a human being that has got

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<v Speaker 1>an opinion on whether the stock or going is going

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<v Speaker 1>up or down. It's just all about trying to trade

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<v Speaker 1>in and out of markets in in, you know, almost

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<v Speaker 1>light speed, and that's really it begs the question of

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<v Speaker 1>whether the liquidity will truly be there when the market

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<v Speaker 1>is potentially I just got it. Spoofing barriers with the

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<v Speaker 1>New York Knicks have done to us for fifteen years. Well,

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<v Speaker 1>if the New York Knicks would put up fifty shots

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<v Speaker 1>in the spa and of a few micro seconds and

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<v Speaker 1>then cancel all of them, but as to fool the defenders,

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<v Speaker 1>that would be spoofing. But let me ask a more

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<v Speaker 1>serious question of our guest. How much of the change

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<v Speaker 1>in in character of trading in the markets is just

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<v Speaker 1>human psychology? And what's changing on the side of retail

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<v Speaker 1>investors and how much of it is it really the

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<v Speaker 1>h F T al go driven electronification of markets. There's

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<v Speaker 1>a little of each, isn't there? Yeah, I certainly think

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<v Speaker 1>that the electronification is very much a real trend. You know.

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<v Speaker 1>I keep going back to the flash crash in two

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<v Speaker 1>thousand and ten, and there were a number of things

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<v Speaker 1>happening at that time. There was clearly a the Greek

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<v Speaker 1>potential for big risk off was starting to occur. Uh

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<v Speaker 1>that there were many reasons that the economy was still

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<v Speaker 1>very fragile. But to see what actually ultimately occurred in

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<v Speaker 1>terms of the liquidity vacuum prices falling, you know, so tremendously,

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<v Speaker 1>and all the research that went into trying to investigate

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<v Speaker 1>what exactly happened. I think that there's still uh many

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<v Speaker 1>questions that are left unanswered in terms of market structure.

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<v Speaker 1>And we've got this again, this structure for liquidity for

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<v Speaker 1>providing liquidity that is so electronic, uh and so high

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<v Speaker 1>frequency and its orientation um and I think it works,

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<v Speaker 1>but it potentially doesn't work in a in a in

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<v Speaker 1>a market where all of the liquidity gets turned off

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<v Speaker 1>based on signals, uh that too many of the liquidity

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<v Speaker 1>providers are using that are very similar. So I think

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<v Speaker 1>that's again it's a risk that might not be active

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<v Speaker 1>right now here and now as as volatility comes in

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<v Speaker 1>d chair chairwoman yelling, But it's still a risk I

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<v Speaker 1>think out there. So so let's stay with the issue

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<v Speaker 1>of market structure and and changes that create additional risk.

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<v Speaker 1>In the bed old day is we would have specialists

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<v Speaker 1>on the n Y s C. And some people complain

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<v Speaker 1>that was a license to steal, a license to print money.

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<v Speaker 1>And to some degrees, if if you ever made the

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<v Speaker 1>mistake of putting in a a limit order far away

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<v Speaker 1>from the market and watch the market move down, execute

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<v Speaker 1>the limit, and then move right back up, you knew

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<v Speaker 1>that there was some shenanigans going on. But the bottom

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<v Speaker 1>line was you didn't get days like the flash crash

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<v Speaker 1>because market makers and specialists always had to be ready, willing,

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<v Speaker 1>and able, even with their own capital, to create and

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<v Speaker 1>maintain an orderly market. Is that what's missing from the

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<v Speaker 1>h f T structure? Do we do we not have

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<v Speaker 1>that social good of Hey, regardless of what else happens

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<v Speaker 1>when everything gets there, you have to be able to

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<v Speaker 1>make a make a market. Yeah, I think in some

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<v Speaker 1>ways it's you can make the argument that electronic liquid

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<v Speaker 1>the uh kind of algorithmically driven trading strategies are additive

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<v Speaker 1>to liquidity in the marketplace. You know, there's this big

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<v Speaker 1>question mark now around the I X is registering in exchange.

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<v Speaker 1>And I find it so interesting to to see the

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<v Speaker 1>arguments about this electronic speed bump as they're calling it,

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<v Speaker 1>which is in the micro seconds. Uh So it's it's

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<v Speaker 1>so interesting that this notion of front running, which you're

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<v Speaker 1>referring to in the old days of the specialist, has

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<v Speaker 1>now become uh measured in in in micro seconds. And

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<v Speaker 1>so I think, you know, the markets are changing, they're

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<v Speaker 1>becoming more electronic, but I think that a lot of

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<v Speaker 1>the risks remain. I still like the time of a

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<v Speaker 1>Screenberg with the paper tickets on the left and right

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<v Speaker 1>the Fed would pick up the pace of interest rates increases.

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<v Speaker 1>broader effort to reduce costs amid fierce competition from Airbus.

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<v Speaker 1>Fox Gun Technology Growup has inched a deal to buy

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<v Speaker 1>Sharp and for years at pursuit, bringing together the main

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<v Speaker 1>assembler of Apple's iPhones with the electronics maker that built

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<v Speaker 1>for news from around the world, we say good morning

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<v Speaker 1>to Bloomberg's Michael Barner, Good morning, John. Republican presidential candidates

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<v Speaker 1>have pulled back to support the party's presidential nominee, Donald Trump,

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<v Speaker 1>Ted Cruz, and John Kasick during a talent hall in

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<v Speaker 1>Milwaukee last night, all said they no longer feel beholden

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<v Speaker 1>to the loyalty pledge by the sign as signed back

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<v Speaker 1>in September, President Obama called for aggressive action to fight

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<v Speaker 1>the opioid abuse epidemic. The Obama administration issued new regulations

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<v Speaker 1>that would make addiction treatment available to millions more people.

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<v Speaker 1>The President attended the National Prescription Drug Abuse and Heroin

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<v Speaker 1>Summit yesterday in Atlanta. Brazilian President dil Marusso has lost

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<v Speaker 1>key ally, just weeks before she faces an impeachment vote

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<v Speaker 1>in Congress. The Brazilian Democratic Movement Party has left the

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<v Speaker 1>governing coalition. Party members must leave Russef's cabinet posts. The

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<v Speaker 1>PMDB had controlled six ministries in her administration. Experts say

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<v Speaker 1>the PMDV leaving could make Russef's impeachment more likely. The

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<v Speaker 1>US plans to beef up its military presence in Eastern Europe,

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<v Speaker 1>from Russia. Global News twenty four hours a day, powered

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<v Speaker 1>a right thanks to Michael seven two well Street, ending

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<v Speaker 1>his time for sports The Bloomberg NBC Sports Update. Good Morning,

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<v Speaker 1>John Stesshower, Morning John. Sunday was Matt Harvey's twenty seventh

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<v Speaker 1>birthday and also the day he began to feel the

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<v Speaker 1>effects of a bladder infection that created a blood clot.

0:10:45.720 --> 0:10:48.120
<v Speaker 1>And I didn't really know what's going on. I was

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<v Speaker 1>having trouble using the restroom and it's not a great feeling,

0:10:51.679 --> 0:10:53.640
<v Speaker 1>so I didn't know what was going on with my stomach.

0:10:53.679 --> 0:10:58.960
<v Speaker 1>But we had some tests yesterday and everything's fine now.

0:10:59.440 --> 0:11:01.520
<v Speaker 1>Terry said, we'll be fine to go for Sunday. I'm

0:11:01.520 --> 0:11:04.640
<v Speaker 1>gonna probably throw a couple innings tomorrow, I believe, and

0:11:04.880 --> 0:11:08.360
<v Speaker 1>we'll be completely fine, fine to go. The season opener

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<v Speaker 1>in Kansas City, Islanders and Devils both at home. Both won,

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<v Speaker 1>both two to one Isisles and a shootout over Carolina

0:11:14.280 --> 0:11:17.960
<v Speaker 1>Kayla Posto. The shootouts only Gold Devils on a rick

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<v Speaker 1>Bluche power play goal third period top Boston to the

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<v Speaker 1>one in the next blown out at Orlando one oh

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<v Speaker 1>five at the Garden George Washington and Valparaso and i

0:11:26.520 --> 0:11:29.680
<v Speaker 1>T semifinal winners. They'll play tomorrow for the title. Columbia

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<v Speaker 1>became the first New York City school to win a

0:11:31.679 --> 0:11:34.040
<v Speaker 1>postseason tournament since St. John's when the n I T

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<v Speaker 1>in two thousand three. The Lions be Callervine seventy three

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<v Speaker 1>sixty seven. They are the champions of the c I T.

0:11:40.440 --> 0:11:43.600
<v Speaker 1>With Bloomberg NBC Sports Update, I'm John Stash. All right,

0:11:43.600 --> 0:11:46.959
<v Speaker 1>thanks John Hanna. Ahead of the market, open ball Street.

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<v Speaker 1>We have futures right now the US. They are higher

0:11:49.240 --> 0:11:52.720
<v Speaker 1>SMP futures although about six tenths of a percent at

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<v Speaker 1>eleven points, the DAL futures that one hood at three,

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<v Speaker 1>and the nasdack Emitate futures thirty two points higher. That

0:11:59.280 --> 0:12:03.160
<v Speaker 1>is up seven tense of a percent. After a Janet

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<v Speaker 1>at Young's address yesterday, the year a one thirteen six

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<v Speaker 1>the end right now one twelve thirty two. You're listening

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<v Speaker 1>to Bloomberg Surveillance on Bloomberg RADIOAM. Good morning, I'm John Tucker.

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<v Speaker 1>Say good morning to Bob Moon, and good morning to

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<v Speaker 1>you John. Here's what's making news in science. Good morning

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<v Speaker 1>to you, John. Here's what's making news in science, technology, engineering,

0:12:53.960 --> 0:12:58.559
<v Speaker 1>and math. Missilemaker Mitsubishi is taking another look at components

0:12:58.559 --> 0:13:02.640
<v Speaker 1>had developed to guide those weapons milliliter wave radar, sonar

0:13:02.760 --> 0:13:06.480
<v Speaker 1>sensors and cameras, and hoping to repurpose the technologies to

0:13:06.520 --> 0:13:11.679
<v Speaker 1>help autonomous driving cars detect obstacles and avoid collisions. Engineers

0:13:11.679 --> 0:13:14.800
<v Speaker 1>of the company's automotive division say the missile guidance components

0:13:14.960 --> 0:13:17.599
<v Speaker 1>are being adapted for use in self driving vehicles that

0:13:17.640 --> 0:13:21.080
<v Speaker 1>will hit the roads by While its competitors have a

0:13:21.120 --> 0:13:24.120
<v Speaker 1>head start, Mitsubishi engineers say they'll be able to offer

0:13:24.160 --> 0:13:27.560
<v Speaker 1>superior systems next year that will benefit from the company's

0:13:27.640 --> 0:13:31.640
<v Speaker 1>existing expertise. China is moving to tighten its grip over

0:13:31.679 --> 0:13:35.319
<v Speaker 1>the Internet through draft rules that effectively ban web addresses

0:13:35.559 --> 0:13:38.760
<v Speaker 1>not approved by local authorities, including possibly the most widely

0:13:38.840 --> 0:13:42.840
<v Speaker 1>used dot com and dot org addresses. China already employs

0:13:42.880 --> 0:13:46.160
<v Speaker 1>one of the world's most exhaustive Internet censorship regimes to

0:13:46.200 --> 0:13:51.600
<v Speaker 1>support suppress descent and information deemed dangerous by the Communist Party.

0:13:51.960 --> 0:13:55.840
<v Speaker 1>And the operator of the popular social messaging app, Snapchat,

0:13:56.240 --> 0:14:00.200
<v Speaker 1>released an update that steps up competition with Facebook, owner

0:14:00.240 --> 0:14:04.200
<v Speaker 1>of the rival mobile communication services Messenger, Instagram, and What'sapp.

0:14:04.640 --> 0:14:08.480
<v Speaker 1>Los Angeles based Snapchat bolstered its chat function with multimedia features,

0:14:08.520 --> 0:14:13.360
<v Speaker 1>including voice and video calling and digital stickers. And that's

0:14:13.400 --> 0:14:16.200
<v Speaker 1>this morning is Bloomberg and g I t Stem Report, John, I,

0:14:16.200 --> 0:14:19.920
<v Speaker 1>I know you've been waiting for those digital stickers. Just

0:14:19.960 --> 0:14:23.640
<v Speaker 1>what I need. Right you're listening to Bloomberg Surveillance, Bob

0:14:23.640 --> 0:14:27.080
<v Speaker 1>Boom thanks a lot, and Bloomberg Surveilmance continues. Tom Keene

0:14:27.120 --> 0:14:31.000
<v Speaker 1>and Barry Ritholds in this week for Michael McKee. Barry

0:14:31.040 --> 0:14:33.000
<v Speaker 1>are gonna tell you'm very tempted. Tom went off to

0:14:33.000 --> 0:14:36.280
<v Speaker 1>do television and look what he left behind is wallet.

0:14:37.280 --> 0:14:40.720
<v Speaker 1>Just make a quick photo of the credit card numbers,

0:14:40.760 --> 0:14:46.960
<v Speaker 1>and well we still have Dean car sitting with us

0:14:47.000 --> 0:14:53.880
<v Speaker 1>from Macro Risk Advisors, and earlier we were discussing volatility

0:14:54.080 --> 0:14:58.360
<v Speaker 1>and what it means for for various markets, and let's

0:14:58.400 --> 0:15:02.600
<v Speaker 1>move beyond the question market structure and talk about a

0:15:02.680 --> 0:15:06.480
<v Speaker 1>handful of things that are are fairly significant. Yesterday we

0:15:06.560 --> 0:15:10.280
<v Speaker 1>had the big speech from Janet yelling, uh, markets seem

0:15:10.360 --> 0:15:12.680
<v Speaker 1>to like what they hear. What does this mean in

0:15:12.800 --> 0:15:15.680
<v Speaker 1>terms of near term volatility and what does this mean

0:15:15.720 --> 0:15:19.600
<v Speaker 1>for the market looking forward? Well, it certainly underscores the

0:15:19.600 --> 0:15:23.440
<v Speaker 1>impact of central banks on risk taking. You know, the

0:15:23.440 --> 0:15:26.800
<v Speaker 1>the Fed can really dictate outcomes from markets. They can

0:15:27.480 --> 0:15:31.240
<v Speaker 1>impose on markets, UH what I like to call premium fatigue,

0:15:31.240 --> 0:15:34.920
<v Speaker 1>which is, you know, for all the uh negative surprises

0:15:34.920 --> 0:15:38.640
<v Speaker 1>that market participants battle with and try to handicap, whether

0:15:38.760 --> 0:15:43.480
<v Speaker 1>it's overseas or geopolitical events or an earning surprise. UM,

0:15:43.520 --> 0:15:47.320
<v Speaker 1>the reality is that hedging is costly. It costs money

0:15:47.360 --> 0:15:51.680
<v Speaker 1>to buy puts. And for all the fear that investors

0:15:51.680 --> 0:15:55.000
<v Speaker 1>have in confronted markets, UM, there hasn't been a lot

0:15:55.000 --> 0:15:59.200
<v Speaker 1>of realization. There was some realization of of down markets

0:15:59.200 --> 0:16:02.920
<v Speaker 1>in the past couple months, but Yellen has essentially reasserted

0:16:03.240 --> 0:16:06.160
<v Speaker 1>the devishness of the FED. One of the metrics that

0:16:06.200 --> 0:16:09.000
<v Speaker 1>we like to look at at macro risk advisors is

0:16:09.040 --> 0:16:12.720
<v Speaker 1>the implied probabilities of the Fed UH moving UM. It's

0:16:12.800 --> 0:16:16.160
<v Speaker 1>it's the Bloomberg page w I r P. And what's

0:16:16.280 --> 0:16:19.480
<v Speaker 1>very interesting is that even as the market has rallied UH,

0:16:19.520 --> 0:16:22.880
<v Speaker 1>the probability of the FED moving in June, which is

0:16:22.920 --> 0:16:26.280
<v Speaker 1>the next UH conference call or the next press release

0:16:26.440 --> 0:16:29.200
<v Speaker 1>UM has come down quite a bit. I think it's

0:16:29.240 --> 0:16:33.480
<v Speaker 1>really says something about the FEDS communication to the market,

0:16:33.520 --> 0:16:36.720
<v Speaker 1>which is we're gonna take it really, really, really slow.

0:16:37.320 --> 0:16:41.120
<v Speaker 1>We'll probably let inflation run above trend um. And we're

0:16:41.240 --> 0:16:45.320
<v Speaker 1>very concerned about global developments, things like China. We're concerned

0:16:45.320 --> 0:16:47.440
<v Speaker 1>about the impact of the dollar and what that means

0:16:47.480 --> 0:16:50.560
<v Speaker 1>for inflation and corporate profits in the United States. And

0:16:50.960 --> 0:16:53.040
<v Speaker 1>you know, this is really good news if you're if

0:16:53.040 --> 0:16:55.120
<v Speaker 1>you're a risk taker, doesn't mean that there's not a

0:16:55.120 --> 0:16:57.600
<v Speaker 1>significant number of risks still out there in the marketplace.

0:16:58.080 --> 0:17:01.880
<v Speaker 1>But if you're in the business of trying to manager portfolio, UH,

0:17:02.080 --> 0:17:06.080
<v Speaker 1>yelling is is essentially providing some some glide path right now.

0:17:06.600 --> 0:17:09.000
<v Speaker 1>UH So, let me let me push back against the

0:17:09.040 --> 0:17:13.439
<v Speaker 1>idea how important the FED is within the context of

0:17:13.480 --> 0:17:16.800
<v Speaker 1>what's going on. Rates are really low, and they've been

0:17:16.840 --> 0:17:21.639
<v Speaker 1>really low zero for seven years. Now. Is it really

0:17:21.800 --> 0:17:23.919
<v Speaker 1>all that much of a difference as far as the

0:17:24.000 --> 0:17:28.280
<v Speaker 1>US economy or markets are concerned between twenty five basis

0:17:28.280 --> 0:17:30.960
<v Speaker 1>points or fifty basis But is that really all that relevant?

0:17:31.000 --> 0:17:34.000
<v Speaker 1>I totally agree it It can't really matter that much.

0:17:34.040 --> 0:17:37.359
<v Speaker 1>But I do think what matters is the FED communicating

0:17:37.760 --> 0:17:41.359
<v Speaker 1>almost in a forward guidance like fashion, which is trying

0:17:41.440 --> 0:17:44.959
<v Speaker 1>to provide some degree of certainty uh to the market

0:17:45.080 --> 0:17:48.320
<v Speaker 1>that market participants are are forced to lean against. Remember,

0:17:48.560 --> 0:17:52.280
<v Speaker 1>by keeping the base rate, uh, let's say, treasury rates

0:17:52.440 --> 0:17:55.399
<v Speaker 1>so low. Uh. Through this what the FED likes to

0:17:55.400 --> 0:17:59.800
<v Speaker 1>call the portfolio balance channel, they're forcing investors to find alternatives.

0:18:00.040 --> 0:18:03.120
<v Speaker 1>And those alternatives are in things like credit bearing instruments,

0:18:03.160 --> 0:18:05.639
<v Speaker 1>which again don't provide a lot of yield, but at

0:18:05.680 --> 0:18:09.800
<v Speaker 1>least provide some yield stocks, provide the opportunity for upside,

0:18:09.840 --> 0:18:13.560
<v Speaker 1>and also uh, some dividends. So they're they're effectively by

0:18:13.600 --> 0:18:18.320
<v Speaker 1>making the opportunity cost of not getting involved so so painful,

0:18:18.560 --> 0:18:21.040
<v Speaker 1>they forced people back into the market. You know, yesterday

0:18:21.040 --> 0:18:23.680
<v Speaker 1>we spoke with Doug cass He talked about Tina. There

0:18:23.800 --> 0:18:26.680
<v Speaker 1>is no alternative, and that seems to be the case.

0:18:27.119 --> 0:18:30.119
<v Speaker 1>Let's let's take a quick look at the market. I

0:18:30.119 --> 0:18:32.800
<v Speaker 1>wanted to bring this up since Dean brought up the

0:18:32.800 --> 0:18:36.520
<v Speaker 1>function WORP w RP and the Bloomberg. The probability of

0:18:36.520 --> 0:18:39.840
<v Speaker 1>a FED hike according to the FED futures zero percent

0:18:40.440 --> 0:18:44.520
<v Speaker 1>for the April seventh meeting, twenty percent for the June

0:18:44.600 --> 0:18:48.400
<v Speaker 1>fifteenth meeting. After that specie yesterday by Yemen SMP futures,

0:18:48.440 --> 0:18:50.800
<v Speaker 1>the head of the market open up twelve points high.

0:18:50.920 --> 0:18:52.720
<v Speaker 1>Right now, Barry up six tenths of p percent. The

0:18:52.800 --> 0:18:56.280
<v Speaker 1>NASDAIC futures up thirty four points. That's seven tenths of

0:18:56.359 --> 0:19:01.680
<v Speaker 1>a percent higher. You're listening to Bloomberg Surveillance. Surveillance brought

0:19:01.720 --> 0:19:04.119
<v Speaker 1>you by Mercedes Vans this month or Mercedes Vans Trisity

0:19:04.200 --> 0:19:07.399
<v Speaker 1>dealers welcome Spring with limited time offerers and select models

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<v Speaker 1>like the Sporting c l A and Versatile g l A,

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<v Speaker 1>each engineered and priced to move a Visit MPY USA

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<v Speaker 1>dot com today