Desks have, understandably, been in a relative state of shock since the 2 April decision from the new administration, with a fugue-like state descending across the capital markets as players attempt to make sense of ongoing tariffs turmoil.
Speaking at a Bloomberg Intelligence market structure conference on Wednesday, Alex Dalley, head of European cash equities at Cboe, confirmed that the venue had processed more than a trillion message events on its options market in the US earlier in the week, a clear sign of the intense market activity.
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When it comes to the current state of play on desks themselves, the buy-side wants to buy, but the sell-side doesn’t want to sell, one trader tells The TRADE – a sentence not often heard across the industry.
Reportedly, the sell-side are going flat, not shorting or blocking and instead sitting in a bid to protect their book. Simultaneously, on the buy-side traders are trying to find opportunities in a barren landscape.
Notably, recent BMLL data examining the impact of the US tariffs on market structure and how people traded showed a dramatic fall in the time that orders are resting on the book before being filled.
BMLL explained that “the same dramatic reduction is seen across Europe (~35 seconds to ~6) and the US (~25 seconds to ~7), reflecting the global impact of the tariffs,” as players look to rapidly execute volume.
When it comes to strategy, it’s difficult to blame the sell-side for this approach of protecting their books, especially given the fact that the buy-side generally has a longer-term view on trades.
One sell-side trader echoes this, confirming that instructions have been clear on the desk to keep risk very low, with instances of not showing prices to the ‘wrong’ types of clients due to the opacity of the current landscape.
Despite this, several across the street have used to current state of turmoil following the US to reinforce the importance of relationships – in particular in times of high volatility.
Though technological innovation is on an upwards trajectory with no sign of slowing down and traders’ roles continue to change, recent events have demonstrably made clear that this human touch factor is unlikely to go extinct.
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One trader concurs, explaining that there is a clear, unavoidable difference in rejecting an electronic order and saying no directly to an individual, explaining that in some recent instances, where the firm perhaps wouldn’t usually have said yes to a price, they have for a specific client – even if considered a loss.
For the buy-side, it’s hard to criticise why the other side aren’t meeting them – conscious that it’s an opportunity and thus have no real motivation to sell. It comes down to the simple fact that if the sell-side don’t have a view on something they simply will not price it, says one trader.
Demonstrably, when the market panics, nobody wants to take a side because of the fact it can so easily move in either direction. Of course, that does nothing to comfort clients who are more cognisant than ever of the importance of their managers’ roles in the current climate.
The market volatility is also true of trading strategies themselves, with day to day and intraday activities swinging dramatically, The TRADE understands.
One source confirms that certain days in the past week have been completely risk off, with things changing radically just a day later, with yesterday’s sellers becoming today’s buyers – and struggling on both counts in many instances.
Clearly, the situation is akin to a waiting game, at least for now, with desks on tenterhooks as concerns US decision making.
Another source confirms the reality of the buy-side is selling, explaining that though of course these firms are prepped to absorb some losses, some assets which have traditionally been used to hedge are no longer perhaps as viable as once before.
The message of course being clear – that we may be entering a pivot era away from US exceptionalism and the consideration of the region as a safe haven.
As Charles Younes, deputy CIO at FE fundinfo explained on Wednesday: “We recently moved from an overweight to an underweight position on US equities, and the latest market developments have reinforced that decision. The equity sell-off has now extended into the bond market, with US Treasuries selling off overnight and the US dollar also under pressure.”
“US assets – long viewed as global safe havens – are now being repriced as sentiment deteriorates. This is not about fundamentals, which remain broadly intact, but about rising uncertainty and diminished visibility. Investors are increasingly demanding a premium to hold US-based assets.
“[…] In this environment, we believe a more defensive posture is not only prudent but necessary.”
Fake news
On Monday, the markets were sent into a tailspin as an unverified report that the US president was planning a 90-day pause on proposed tariffs momentarily sent stocks shooting back up.
One trader tells The TRADE that everything started rolling and continued to for around 20 minutes with those trading jumping in and starting to buy before realising the lack of validity of the claims.
With the market at its most sensitive, some names have been hammered by this incident, with some hedge funds taking the opportunity to fish for assets.
The original source was put down to a misunderstanding – though some reputable financial news services had already reported, fuelling the fire of the chaos.
Following the reports, Karoline Leavitt, the White House’s press secretary confirmed that it was “fake news”.
Demonstrably, as capital continues to rotate globally, there’s much more yet to come…
Speaking to The TRADE, Nandini Sukumar, chief executive of the World Federation of Exchanges, highlighted that the industry can expect this instability to continue for the foreseeable.
“It’s a time of great volatility, but that’s what public markets are here for: to allow investors to take a view on the global economy, political directives, and geopolitics, and to manage their risk effectively. In times like this, the operational resilience of market infrastructure really proves its worth. Things will continue to be volatile until we have clarity.”