Stocks in Asia had a listless session Tuesday amid continuing concerns about stability in emerging markets and prospects for escalating U.S.-China trade tensions. The dollar and Treasury yields were steady.
Equity benchmarks swung between gains and losses with little direction after American exchanges were closed Monday for a holiday. Stocks in Japan and Australia headed lower, while they rose in Hong Kong and China in an afternoon turnaround. European futures tipped a muted session start. The yen fluctuated after the Bank of Japan increased purchases of shorter-term bonds in its regular operations Tuesday, compensating for a reduction in the number of days on which it plans to buy them.
Emerging markets maintained declines after sliding Monday, with Argentina slumping the most even as it took further steps to restore investor confidence. The Australian dollar reversed declines after the nation’s central bank painted an upbeat economic picture even as it left interest rates on hold. Earlier, the currency fell back toward its lowest since January 2017 after the current-account deficit widened more than expected.
Nikkei -0.05% Hang Seng +0.85% CSI +1.43% Shanghai +1.28% Shenzen +1.23%
Eur$ 1.1596 CNH 6.8370 CNY 6.8245 JPY 111.35 GBP 1.2851 CHF 0.9705 TRY 6.6144 RUb 68.0913 WTI$ 70.12 +0.46%
S&P +0.28% EurStoxx +0.21% FTSE +0.17% Dax +0.20%SMI +0.32%
Macro :
- Puma, Hikma Seen Joining Stoxx 600, Casino Seen Leaving: SG
- European Banking Stock Selloff Looks ‘Overdone’, Barclays Says
- Switch to Cyclicals Within Europe Capital Goods: Morgan Stanley
Keep an eye on :
-
- AST IM : Astaldi Downgraded to CCC- by S&P
- CMBN SW : Pascal Perritaz Appointed New Chief Financial Officer of Cembra
- DANSKE DC : Danske Says ‘Complex’ Laundering Probe Is Now Being Finalized
- EDP PL : Portugal Watchdog Accuses EDP of Abuse of Dominant Position
- GGTV IM : Giglio Group Names Carlo Frigato Chief Financial Officer
- GS US : Petershill Is Said to Take Minority Stake in Lmr Fund: Reuters
- HELN SW : Helvetia First Half Business Volume CHF5.83 Bln
- ILD FP :*ILIAD REVISES TARGET FOR EBITDA LESS CAPEX TO AROUND EU1B
- ILD FP : Iliad Cuts Profit Target as Subscriber Base Declines
- ILD FP : Iliad Won’t Be the One Triggering Consolidation in France: CEO
- ING NA : ING Settles With Dutch Prosecutor, Will Pay EU675m Fine
- MCHN SW : Baselworld Operator MCH Sees FY Loss Exceeding CHF100m (1)
- KWS GY : KWS Plans Change in Legal Form and Stock Split With Ratio 1:5
- UG FP : PSA Is Said to Build Next Peugeot 208 Model in Trnava: Tribune
- RDW LN : Redrow Full Year Revenue Beats Highest Estimate
- SANN SW : Santhera First Half Loss CHF27.4 Mln
- GLE FP : SocGen in Talks W/ U.S Authorities to Resolve Sanctions Probe
- UCG IM : UniCredit Is Focused on Organic Growth, CEO Mustier Says
- WPP LN : WPP Quarterly Revenue Growth Smooths Path for New CEO Read
- ZAG AV : Zumtobel Targets 6% Ebit Margin by 2021 Fiscal Year
>>> Up
* Beneteau Upgraded to Buy at Gilbert Dupont; PT 17.50 Euros
* CaixaBank Upgraded to Outperform at RBC; PT 4.40 Euros
* CaixaBank Upgraded to Overweight at JPMorgan; PT 4.65 Euros
* DEFAMA Upgraded to Buy at SRC Research; PT 14.50 Euros
* Hunting Upgraded to Buy at Kepler Cheuvreux; PT 10 Pounds
* Ingenico Group Upgraded to Buy at HSBC; PT 81 Euros
* Lloyds Banking Group Upgraded to Hold at Berenberg
* UBI Banca Upgraded to Overweight at JPMorgan; PT 4.20 Euros
>>> Down
* BBVA Downgraded to Neutral at JPMorgan; PT 6.80 Euros
* DNB Downgraded to Underweight at Barclays; PT 155 Kroner
* Greenyard Downgraded to Hold at Kepler Cheuvreux; PT 8.50 Euros
* Hostelworld Downgraded to Hold at Berenberg
* ING Downgraded to Neutral at JPMorgan; PT 14.40 Euros
* Inmarsat Downgraded to Sector Perform at RBC; PT 6.50 Pounds
* Maisons France Confort Cut to Reduce at Gilbert Dupont
* Ontex Downgraded to Hold at Kepler Cheuvreux; PT 21 Euros
* Stef Downgraded to Neutral at Oddo BHF; PT 104 Euros
>>> Initiation
* Austrian Post Rated New Hold at Berenberg; PT 35 Euros
* BBA Aviation Rated New Buy at Berenberg; PT 3.70 Pounds
* Bpost Rated New Buy at Berenberg; PT 17 Euros
* Neste Reinstated at Goldman With Neutral; PT 83 Euros
* PostNL Rated New Sell at Berenberg; PT 2.35 Euros
>>> Call
* Dialog on Alpha List, ’Very Positive Newsflow’ Possible: Lampe
When Machines (and Humans) Decide to Sell at Once
As algorithmic traders grow in influence, automatic sell orders may be behind some dramatic market swings
On Feb. 5, the Dow Jones Industrial Average suffered its worst one-day point-decline in history amid a tumultuous week for global markets. Although the blue-chip index has since erased that loss, some investors are still trying to puzzle out what caused such a drop.
One possible culprit: a cascade of automated stop-loss sell orders by trend-following investment funds that started in London and then fed into the steep rout in U.S. stocks. In the following days, the downward lurch prompted selling to spread to other assets like oil futures.
This was the conclusion of an analysis of that fraught week by Bridgeton Research Group LLC, which runs computer models predicting trading patterns of algorithmic strategies.
Stop-loss orders, or sell stops, are standing directives to sell a position—say, a stock or exchange-traded fund—once prices fall below a certain level. They have long been a tool for investors to automatically shut down a losing bet.
But the growing influence on markets of algorithmic traders and trend-following funds, which use such automatic directives, potentially makes markets more vulnerable to sharp swings if everyone starts to sell at once. Such strategies tend to have sell stops around the same levels across stock, bond and commodities futures.
“So many of these algorithms are doing the same thing. Their behavior becomes like human group think,” said Peter Hahn, co-founder of Bridgeton.
Whether humans or machines tend to be the originators in major market declines is a longstanding debate on Wall Street. Many analysts believe fundamental data, like an economic release or news report, is what causes investors to run for the exits, while stop losses add momentum and volatility to the move. Others believe a wave of automated selling can just as easily be what prompts investors to sell, absent any fundamental reason to bail.
There is no definitive answer in the debate. The estimate of the effect of stop losses by Bridgeton—which provides research on different algorithmic strategies, such as daily positioning and buy and sell levels—was based on the firm’s in-house models built to trade like major trend-following funds. However, the exact prices at which large quantitative firms buy and sell is difficult to verify, and those levels frequently change based on the market and exact strategy each fund is running.
The use of stop losses by algorithmic traders has evolved as well to be more fluid and difficult to pinpoint. Instead of setting an explicit sell order, programs take data points from moving markets, such as volatility and momentum trends, to determine when to reduce positions.
For example, short-term and long-term funds will weigh market signals differently, traders say. That leads them to behave differently in terms of when and what to trade.
Also, rather than exiting a position completely when a stop is hit, many algorithms are programmed to reduce their holdings gradually. Because of this, some trend-following funds dispute the idea that their actions can have a sizable impact on market moves.
“They all don’t want to be trying to get out of the position at the same time,“ said Jeff Malec, managing partner at RCM Alternatives. ”They’re going to use technology to mitigate that.”
One thing is clear: Funds that chase trends and use automated strategies have grown and can more easily program sell stops in the futures market, thanks to increasing automation.
Trend-following funds are often synonymous with so-called commodity-trading advisors, or CTAs, though they can use a variety of strategies. In the past decade, the amount of money managed by CTAs has risen by 47% to roughly $367 billion, according to first-quarter data from BarclayHedge Ltd. Algorithmic strategies account for 88% of those assets.
Attempts by traditional investors to decipher trend-following funds’ methodologies and figure out which levels they will trade at have also increased.
“People have always speculated, but there’s better data now," said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group LLC.
That, in turn, can amplify moves as a wider range of institutional investors are trying to position for what the trend-following funds might do. Eric Armitage, chief executive of London-based East Alpha, started building models for BP PLC in 2001 to help the company understand what algorithmic strategies were doing.
“Having worked for some very large fundamental shops, they are all very cognizant of this activity," Mr. Armitage said.
Fundamental traders can use such information to better time their hedging strategies, or to load up on positions more cheaply. Others may try to reduce risk ahead of sell stops or even try to push the market toward a trigger to bet against the algorithms.
Of course, the effectiveness of stop-loss orders has been questioned for years. An established stop order can help investors automatically quit a position. But a rapid bout of selling could prevent the trade’s execution until prices have fallen far below the level of the stop-loss order.
The New York Stock Exchange stopped offering stop-loss orders in 2016. Retail investors can still place these orders through brokers, but some report that the practice is on the decline.
Technological advances that make market data readily available have made such orders less necessary, traders said. “It’s not like the old days where you have a resting order and then you go to the beach,” said Mauro Taratufolo, chief investment officer of the quantitative fund Tiber Capital LLP.
When Machines (and Humans) Decide to Sell at Once
As algorithmic traders grow in influence, automatic sell orders may be behind some dramatic market swings
On Feb. 5, the Dow Jones Industrial Average suffered its worst one-day point-decline in history amid a tumultuous week for global markets. Although the blue-chip index has since erased that loss, some investors are still trying to puzzle out what caused such a drop.
One possible culprit: a cascade of automated stop-loss sell orders by trend-following investment funds that started in London and then fed into the steep rout in U.S. stocks. In the following days, the downward lurch prompted selling to spread to other assets like oil futures.
This was the conclusion of an analysis of that fraught week by Bridgeton Research Group LLC, which runs computer models predicting trading patterns of algorithmic strategies.
Stop-loss orders, or sell stops, are standing directives to sell a position—say, a stock or exchange-traded fund—once prices fall below a certain level. They have long been a tool for investors to automatically shut down a losing bet.
Mr. Hahn provides daily research estimating trade positions held by quantitative funds. PHOTO: MONICA JORGE FOR THE WALL STREET JOURNAL
But the growing influence on markets of algorithmic traders and trend-following funds, which use such automatic directives, potentially makes markets more vulnerable to sharp swings if everyone starts to sell at once. Such strategies tend to have sell stops around the same levels across stock, bond and commodities futures.
“So many of these algorithms are doing the same thing. Their behavior becomes like human group think,” said Peter Hahn, co-founder of Bridgeton.
Whether humans or machines tend to be the originators in major market declines is a longstanding debate on Wall Street. Many analysts believe fundamental data, like an economic release or news report, is what causes investors to run for the exits, while stop losses add momentum and volatility to the move. Others believe a wave of automated selling can just as easily be what prompts investors to sell, absent any fundamental reason to bail.
Stop Signs
Algorithms that chase trends get signals to sell if they're long and the market falls—orders known as stop losses or sell stops. These orders are meant to limit losses, but could be compounding them as funds pile on.
Note : Market data are in 30-minute intervals, which omit some intraday levels. Some annotations have been adjusted to more clearly denote where stops were hit.
Sources: Bridgeton Research Group LLC (sell levels); Thomson Reuters (prices)
Traders have pointed to stop-loss orders in previous market plunges, such as in August 2015, when a surprise devaluation of the Chinese yuan sent markets into freefall. The Securities and Exchange Commission listed stop-loss orders as a potential aggravator of market losses in the so-called “flash crash” of May 2010.
There is no definitive answer in the debate. The estimate of the effect of stop losses by Bridgeton—which provides research on different algorithmic strategies, such as daily positioning and buy and sell levels—was based on the firm’s in-house models built to trade like major trend-following funds. However, the exact prices at which large quantitative firms buy and sell is difficult to verify, and those levels frequently change based on the market and exact strategy each fund is running.
The use of stop losses by algorithmic traders has evolved as well to be more fluid and difficult to pinpoint. Instead of setting an explicit sell order, programs take data points from moving markets, such as volatility and momentum trends, to determine when to reduce positions.
For example, short-term and long-term funds will weigh market signals differently, traders say. That leads them to behave differently in terms of when and what to trade.
Also, rather than exiting a position completely when a stop is hit, many algorithms are programmed to reduce their holdings gradually. Because of this, some trend-following funds dispute the idea that their actions can have a sizable impact on market moves.
“They all don’t want to be trying to get out of the position at the same time,“ said Jeff Malec, managing partner at RCM Alternatives. ”They’re going to use technology to mitigate that.”
One thing is clear: Funds that chase trends and use automated strategies have grown and can more easily program sell stops in the futures market, thanks to increasing automation.
Trend-following funds are often synonymous with so-called commodity-trading advisors, or CTAs, though they can use a variety of strategies. In the past decade, the amount of money managed by CTAs has risen by 47% to roughly $367 billion, according to first-quarter data from BarclayHedge Ltd. Algorithmic strategies account for 88% of those assets.
Attempts by traditional investors to decipher trend-following funds’ methodologies and figure out which levels they will trade at have also increased.
“People have always speculated, but there’s better data now," said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group LLC.
That, in turn, can amplify moves as a wider range of institutional investors are trying to position for what the trend-following funds might do. Eric Armitage, chief executive of London-based East Alpha, started building models for BP PLC in 2001 to help the company understand what algorithmic strategies were doing.
“Having worked for some very large fundamental shops, they are all very cognizant of this activity," Mr. Armitage said.
Bridgeton’s analysis of the February market rout shows a wave of selling from algorithmic strategies feeding into the selloff. PHOTO: MONICA JORGE FOR THE WALL STREET JOURNAL
Fundamental traders can use such information to better time their hedging strategies, or to load up on positions more cheaply. Others may try to reduce risk ahead of sell stops or even try to push the market toward a trigger to bet against the algorithms.
Of course, the effectiveness of stop-loss orders has been questioned for years. An established stop order can help investors automatically quit a position. But a rapid bout of selling could prevent the trade’s execution until prices have fallen far below the level of the stop-loss order.
The New York Stock Exchange stopped offering stop-loss orders in 2016. Retail investors can still place these orders through brokers, but some report that the practice is on the decline.
Technological advances that make market data readily available have made such orders less necessary, traders said. “It’s not like the old days where you have a resting order and then you go to the beach,” said Mauro Taratufolo, chief investment officer of the quantitative fund Tiber Capital LLP.
nor more GLE deal....