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Equity Index market briefing February 2020

Release date: 02 Feb 2020 | Eurex Exchange, Eurex Clearing, Eurex Group

Equity Index market briefing February 2020

January ended with market participants posing several critical questions: How long will the disruption to supply chains last? Will infection rates peak? What does this all mean for global growth? So far, the Chinese equity market and crude oil have been in the firing line. However, with interconnected global markets and, of course, global travel, the coronavirus is not purely a domestic issue. Volatility jumped in all major developed equity benchmarks. For Eurex, this translated into demand for liquid hedging instruments: VSTOXX® futures volume was up 33 percent and VSTOXX® options volume plus 47 percent compared to the same month last year. Our EURO STOXX 50®, DAX, mini-DAX, Banks sector and STOXX® 600 futures all saw higher turnover as well. These index futures volumes increases were largely mirrored in the respective index options, with additional interest in MSCI world index options. 

A more notable volume highlight was the monthly record for the EURO STOXX 50® Total Return Futures (TRF). The record was not driven by a dramatic change in equity repo pricing nor by term-structure shifts but rather an increase in member participation as customers increasingly look to deploy their trading strategies beyond traditional asset classes. Despite the wobble in equity markets, our STOXX® Europe ESG-X future was able to build a steady open interest base. We have high expectations for our expansion of the ESG derivatives suite into the STOXX® USA ESG-X, and MSCI ESG Screened index futures. Asset managers are increasingly adopting ESG benchmarks, which will be reflected by strong volume and open interest trends in corresponding products at Eurex. 

In February, Eurex Improve goes live. Eurex Improve provides members with a tool to guarantee their clients full execution at the best available price. There is also the launch of a new Collateral Index TRF. This represents an important step in the expansion of the TRF product suite by covering generic index financing or collateral baskets. A primary use case is expected to come from buy-side investors who employ synthetic portfolio replication, by offering them the potential diversification of swap counterparties.

These periods of volatility remind me that Eurex's efforts to foster a  deep tradable market at all times is the correct focus. Additionally, we need to ensure that we deliver new products responding to client demand. With this in mind, members can expect we will review our benchmark derivative products in the coming months to ensure we optimize parameters to support both price transparency and, of course, liquidity. 

Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex