(Bloomberg) — Central bank efforts to resuscitate the American and European economies are at different stages, and thats driving a divergence in fortunes at two of the top derivatives exchanges.
Trading at CME Group Inc., the largest U.S. futures market, rose 9 percent to a record in 2014 as the Federal Reserve wound down its economy-stimulating program of buying bonds and signaled the first interest rate boost since 2006 was likely this year. At Intercontinental Exchange Inc., Europes largest derivatives bourse, trading fell 16 percent as the European Central Bank cut rates twice and came closer to starting its own bond-purchase program to stave off deflation.
The divergence is best seen in the two companies interest- rate volumes. As investors prepare for more volatility among U.S. markets due to rising borrowing costs, CMEs futures based on Treasury bonds and three-month interest rates jumped 19 percent from their level in 2013. At the same time, expectations of lowered volatility, and therefore less demand to hedge, led to a 28 percent drop in rates trading at ICE.
The U.S. is coming out of quantitative easing and is much further along in monetary policy, said Rich Repetto, an analyst at Sandler ONeill & Partners LP in New York. Its being reflected in the interest-rate volumes.
Investors have taken notice, with ICE shares losing 2.5 percent of their value in 2014, ending a five-year winning streak for the stock. CME shares gained 13 percent, climbing for a third consecutive year.
Direct Reflection
Share prices for derivative exchanges are a direct reflection of their volume, Repetto said.
The contracts offered by Chicago-based CME and Atlanta- based ICE let investors and speculators place wagers on the direction of rates. With the Fed ending stimulus amid the fastest U.S. economic growth in a decade, theres a greater desire among traders to speculate on an increasingly uncertain future. In Europe, the direction of rates seems more certain after a report yesterday showed the euro area slipped into deflation at the end of last year, the first time prices have contracted since 2009.
Alex Gorbokon, a CME spokeswoman, declined to comment on the volume trends. In November, ICE Chief Executive Officer Jeff Sprecher said on an earnings conference call that we continue to believe that we acquired our interest-rate franchise at the bottom of an interest-rate cycle.
The economic situation in Europe may put a temporary damper on Sprechers plan to gain access to interest-rate futures through his 2013 purchase of NYSE Euronext, which owned Liffe, one of Europes largest financial futures markets.
Certainly the timing could have been better, but interest rates are a significant product in the futures industry, Repetto said. Theyre just in a very tough part of the cycle right now.
The trend is continuing in 2015. During the first three days of this year, CMEs average daily volume was 7.5 percent higher than in January 2014, according to Repetto. ICE was 22.5 percent below the full-month average a year ago, he said.
