Randomly Noted

Wall Street has always been associated with trading. And volatility in trading revenues can have a huge impact on the earnings of a particular firm. As the first quarter earnings reporting season comes to a close for Wall Street’s biggest banks, we thought it would make sense to see if there were any interesting trends that developed. And boy there was: fixed-income trading fueled very strong trading results across the board. As the above chart shows, fixed-income (lumped in with forex) was on a roll for the major Wall Street banks. At Morgan Stanley (MS in the above chart), fixed-income accounted for 65% of the trading revenue. At Citigroup (C), it was 82%. The others: Goldman Sachs (GS) was 75%, Bank of America (BAC) was 77% and J.P. Morgan (JPM) was 78%.

What was interesting was that some of the banks noted that volatility in the fixed-income market had declined and that spreads had narrowed. That usually spells an environment for reduced money-making opportunities. But instead, there was heavy customer order flow. Sustaining those strong trading gains will be the challenge for the banks.

You can talk about the January predictor (so goes the first month, so goes the U.S. stock market for the year, maybe) or the Super Bowl predictor (a circumstantial sometimes accurate parallel between who wins a football game and the direction of the U.S. stockmarket).

One fact is clear: volatility is back.

It’s not just evident in U.S. equities markets, but in stocks and bonds around the world. There are flighst back to safety because ofte sovereign debt worries about Greece, Spain, Ireland and Portugal.

(I find the derisive acronym being bandied about for these four nations, PIGS, particularly distasteful. It’s noted only once here just to register that distaste.)

There are worries about the growth prospects in the U.S. and the sustainability of a nascent recovery.

After a period of market stability and optimism and we-avoided-a- catastophe sanguinity, the action Thursday and today reminds us all too much of the wild swings that hit us so hard in the fall of 2008 and lasted into the spring of 2009. 

Today in U.S. stocks was one to remember. After Thursday’s 2.6% drop in the Dow Jones Industrial Average, the venerable 30-stock index is down modestly at this writing. It hovers just below 10,000. Earlier today it was below 9,900, cracking technical support levels as it dropped.

There is still some minutes of trading left in the week, so who knows how it will wind up.

As the dollar strengthened, oil has taken a terrific tumble. After falling 5% just on Thursday, the price of a barrel of crude oil fell another 2.7% today, finishing at about $71.20.

As a former colleague would say in the face of this sort of market action: fasten your seat belts.

DJN colleague Rosalind Mathieson’s “Money Talks” column today addresses “artificial” versus “genuine” causes of financial market volatility amid the economic crisis. She takes a relatively focused, week-ahead view, noting, among other things, that Japan will be closed until Thursday for “Golden Week.” This means thin forex trading with the yen ”susceptible to efforts by short-term traders…to push it around.” (As Ros predicted, JPY’s getting kicked around today in Asia.) Other likely prompts for speculation or panic:  results of U.S. bank stress tests, the European Central Bank rate decision, and U.S. payrolls data for April. Corporate earnings outlooks are likely to be a mix of so-so and lousy.  Ultimately, risk measures “are likely to remain on the high side” as investors try to navigate fundamental versus transitory market conditions, she writes. Continue reading…