Markets Roiled By JPMorgan Trading Blunder and Disappointing Chinese Economic Data

May 11, 2012 01:46 AM

What Traders are Talking About:

* Risk-off attitude. Markets (investors) were spooked overnight on two fronts -- news investment JPMorgan suffered major losses and Chinese economic data -- which led to widespread risk aversion. Asian and European markets were pressured overnight, while U.S. stock futures and commodities are also on the defensive.

* JPMorgan: JPMorganChase & Co. confirmed it suffered at least a $2 billion trading loss that arose from a failed hedge strategy by the company's Chief Investment Office (CIO). The firm's CEO Jamie Dimon said of the matter, "This puts egg on our face," and pledged corrective actions will be taken. While there are now questions about other investment firms, Dimon dismissed those suggestions, saying, "Just because we're stupid doesn't mean everyone else is." This will very likely lead to a greater push in Washington for implementation of the so-called Volcker Rule, which prevents banks from trades like this. However, some say this incident may not have been impacted by the forthcoming Volcker Rule.

* China: Data out of China overnight signaled the country's economy is struggling more than expected while inflation is easing. Industrial production rose by 9.3% in April (the lowest level since May 2009), retail sales growth slowed to 14.1% (the weakest in 14 months) and fixed asset investment rose by 20.2% in the first four months of the year (the slowest level since December 2002). Meanwhile, China's April consumer price index (CPI) slipped to 3.4% from 3.6% in March -- food prices came in 7% higher than year-ago, while non- food prices were 1.7% higher. The April producer price index (PPI) dipped to 0.7% under year-ago. The combination of disappointing industrial output, sluggish retail sales and slowed fixed income investment along with the lower inflation data suggests China will be more aggressive with pro-growth measures in fiscal and monetary policy.

The long and short of it: The JPMorgan trading blunder + poor Chinese economic data = a risk-off attitude to close out the week.

* Grain groups ask CFTC to delay 22-hour grain trading. The National Grain and Feed Association and the North American Export Grain Association urged the Commodity Futures Trading Commission Thursday to institute a 30-day public comment period on plans by the CME Group and IntercontinentalExchange (ICE) to move to 22-hour trading days for grain futures/options. "Neither the ICE contracts nor the CME Group's plan to expand electronic trading hours were vetted properly with appropriate market participants," the grain groups' joint statement said. One of the major concerns is the release of USDA data during grain trading hours. Yesterday's reports were the last time grain traders will have a 2-hour cushion to digest USDA's report data before the open. With the move to 22 hour grain trading, USDA's reports will be released during active trading hours and the analysis and reaction will be on the fly, which is likely to create greater market volatility. ICE is slated to start its 22-hour electronic grain trading on Monday, while CME Group pushed back its start date to May 21.

The long and short of it: In essence, CFTC would have to act today if they are going to delay the start of the expanded grain trading hours. At this point, that doesn't seem likely, but this whole process has already had many twists and turns, so anything is possible.


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