Sunday 18th February 2018
February 16th 2018: Mike van Dulken & Henry Croft at Accendo Markets, commented to clients this morning: “FTSE 100 Index called to open +30pts at 7265, maintaining a shallow uptrend towards 7300 since Monday, but in a bearish rising wedge that could yet see the uptrend scuppered. Bulls need a break above 7275 overnight highs to extend the uptrend; bears want to see a troubling of rising lows around 7245 to put the uptrend in jeopardy. Watch levels: Bullish 7275, Bearish 7245. Calls for gains at the open come after solid gains on Wall St and a largely positive session for Asian markets (ex-China and HK for Lunar New Year) as global volatility continues to ease, back below its long-term average of 20, and equities maintain their recovery course. Japanese stocks are higher despite a stronger Yen, after BoJ Governor Kuroda was nominated for a second term, while further USD weakness (meaning stronger GBP and EUR) helps commodities like Oil and Gold. However, Australia’s ASX is the odd one out, in the red with Miners and Financials under water, the former having a potential negative knock-on for the FTSE … Gold has broken above $1357 resistance as the US dollar extends its decline. The precious metal is trading a fresh 3-week high as the global reserve currency falls to a fresh 3-year low. Despite retreating from overnight highs of $1360, former resistance at $1357 is proving supportive. This afternoon, US Import Price Index will be the final US inflationary print that could influence USD … Crude Oil benchmarks have climbed higher overnight, bouncing from intersecting support yesterday afternoon, however remain hindered by January falling highs resistance. Global benchmark Brent touched $65 before retreating marginally from its highs, off yesterday’s $63.4 lows, while US crude has dipped from $61.8 from yesterday’s lows of $59.7 -- EFG Eurobank in Athens reports that the February 19th Eurogroup will discuss, among other things, the implementation of the remaining prior actions under Greece’s third programme review, which constitutes a precondition for the disbursement of the next loan sub-tranche of €5.7bn. The deadline for the submission of binding offers for the acquisition of 66% of the Hellenic Gas Transmission System Operator (DESFA) expires today. According to the Hellenic Statistical Authority (ELSTAT), inflation returned into negative territory in January this year after 13 months of expansion with the Consumer Price Index dropping by 0.2% on a year on year basis. Fitch is scheduled to release its updated review on the Greek sovereign today --- US Treasury yields retreated from yesterday’s fresh multi-year highs as investors are becoming cautious, indicating no rush to price in a steeper path of Fed rate tightening in the coming months, in spite of higher than expected US inflation data for January. With respect to global equity markets, risk appetite looks to continue to recover with the VIX volatility index moving below 20. In FX markets, the USD extended recent losses with the DXY index dropping to three-year lows earlier today weighed down by lingering US structural woes and the perceived erosion of its yield advantage - The European Parliament’s Economic and Monetary Affairs Committee will give its opinion next Wednesday on a proposal to create a single, clear and fair European corporate tax regime, dubbed the “Common Consolidated Corporate Tax Base” (CCCTB), which would also embrace digital firms. One major feature is to ensure that companies are taxed where their profits are generated, in a bid to crack down on profit shifting - Chris Iggo, CIO, fixed income, at AXA Investment Managers in a client note today says investors are moving money out of fixed income funds in response to higher yields and negative returns. “Now that volatility is rising; and yields have moved higher, there are outflows. It is not clear where the money is immediately going but the flows do suggest that, at least based on behavior, investors think things will get worse before they get better in bond-land. As I write, the 10-year benchmark US Treasury yield is closing in on 3%. This is the highest level since the beginning of 2014 and represents a 160 basis points (bps) increase in yields since the low reached in mid-2016. The pattern, if not the actual size of the move or the level of yield, has been the same in the German bund and UK gilt markets. It might be that investors are getting out of bonds a bit late,” he says. Iggo also notes that investment grade corporate bond credit spreads are more or less unchanged, year-to-date, but have widened in the last two weeks in response to higher equity market volatility, explaining that: “For long-term followers of US high yield, that benchmark yield is now back above 6% for the first time since the end of 2016. European high yield bonds have not seen such a large move, but the benchmark yield is back above 3%. I doubt that these yields are enough to entice investors back into fixed income just yet, especially when sentiment is bearish and expecting higher yields as we move further into the regime of monetary normalisation. Indeed, the risk scenario is now not about being short but about being long” - Miles Eakers, chief market analyst at Centtrip reports this morning that: “Global stock markets continued to make gains overnight following another positive day on Wall Street. The US S&P 500 is now up close to 8% from last week’s nadir. Equity prices increased after the US Bureau of Labor Statistics released its Producer Price Index (PPI). The PPI, which measures the average change in the selling prices received by domestic producers for their output, showed prices rose by 2.7% on an annualised basis, further supporting robust US economic growth. Market participants have for now brushed aside last week’s ‘healthy’ correction, with global stocks all on the way up. The euro and the pound strengthened against the US dollar, as the latter continues to weaken across the board.” - Are emerging market (EM) equities set to resume their outperformance versus those in developed markets (DMs) after proving their resilience during the global correction? NN Investment Partners (NN IP) thinks they will. NN IP’s analysis suggests that EM equities underperformed those of DMs by just two percentage points during the global correction of the past weeks. The asset manager also notes that the traditional weak links, such as Turkey, Brazil and Colombia, were not responsible for the underperformance, having held up well and even outperforming the EM average, the analysis shows. The only market that clearly underperformed is China. Maarten-Jan Bakkum, senior emerging markets strategist, NN IP, says in a client note today: “The Chinese market and particularly the Chinese Internet names were the segments that had inflated the most within global emerging markets during the previous months. While the Chinese underperformance should not have been a big surprise, it remains remarkable that other EMs that should be more sensitive to big movements in DM interest rates have held up so well. We are therefore inclined to buy into weakness in China and increase our underweights in markets such as Turkey, where macro imbalances are large, economic policies are becoming more unorthodox and higher DM bond yields should eventually push local rates higher.” Even so, there is a caveat. NN IP anticipates that the EM-DM outperformance trend in equities that started two years ago will be sustained only as long as the rising bond yields in the US and Europe do not force EM central banks to tighten policy; thereby keeping EM financial conditions easy and supporting the EM domestic demand growth recovery -

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Peter Reitz, Chief Executive Officer, European Energy Exchange AG Peter Reitz, Chief Executive Officer, European Energy Exchange AG Supplied December 2015.

EEX – Moving into the major league

Monday, 21 December 2015
EEX – Moving into the major league Set against a dynamic business backdrop in its own backyard, the European Energy Exchange (EEX) has adopted a confident and bold strategy to establish its global footprint within the exchange industry. Last year’s move into new commodity focused asset classes marks a new dimension in EEX’s growth and its continued transition from Europe’s leading energy exchange towards a global, multi-commodity exchange group. It has provided EEX and its parent company, Deutsche Börse Group, a growing competitive edge, given that it can also provide the vertical post trade support infrastructure required to back its expansion plans. Why has EEX been so successful in Europe, and how does that translate into its plans for global growth?

Set against a dynamic business backdrop in its own backyard, the European Energy Exchange (EEX) has adopted a confident and bold strategy to establish its global footprint within the exchange industry. Last year’s move into new commodity focused asset classes marks a new dimension in EEX’s growth and its continued transition from Europe’s leading energy exchange towards a global, multi-commodity exchange group. It has provided EEX and its parent company, Deutsche Börse Group, a growing competitive edge, given that it can also provide the vertical post trade support infrastructure required to back its expansion plans. Why has EEX been so successful in Europe, and how does that translate into its plans for global growth?

Once considered just another local German power exchange, today the European Energy Exchange (EEX) has matured into the leading pan-European trading platform for energy and related products, with global expansion firmly within its sights. It is not surprising that EEX should look to a global future. The European market, while still evolving and providing the exchange with numerous long term opportunities, is undergoing radical change; partly driven by natural competitive forces, but also as a result of the ever-changing regulatory landscape. EEX has worked hard to meet these new challenges head-on and has further strengthened its position within its core European markets in recent years. What’s more - the exchange has already embarked on a new, global chapter in its development story.

In real terms, the exchange has come a long way since 2002, when it was created by a merger between the Frankfurt and Leipzig power exchanges. Initially, EEX began offering contracts for electric power, adding CO2 emissions allowances in 2005, followed by coal trading a year later and natural gas in 2007. At its core, EEX operates and connects liquid and transparent markets for energy and related products, on which power, natural gas, CO2, coal and guarantees of origin are traded. 

Clearing and settlement of all trading transactions is provided by the clearing house European Commodity Clearing AG (ECC), which was set up back in 2006. ECC not only services EEX, but also another eight exchanges and is connected to 22 transmission system operators (TSOs) across Europe. “Integrated clearing is a key factor in what is an increasingly global and multi-asset market” says EEX chief executive officer, Peter Reitz. “By offering this service, our customers who are active on several markets are able to benefit through easier netting of positions and cross margining effects.”

The establishment of EPEX SPOT in 2008, through a co-operation between EEX and Powernext, was the next step in integrating power spot trading for Germany, France, Austria and Switzerland. Today, EPEX SPOT has become a centre of gravity in European power spot trading and a leading player with regard to market integration, through the involvement in various market coupling projects.

The overarching goal of European market integration still remains a guiding principle for EEX, and it took a significant step towards achieving this goal in 2013. Building on its long term co-operation with France-based Powernext, it launched the Pan-European gas cooperation, known as PEGAS. The initiative covers the German, French, Dutch, Belgian, Italian and UK gas hubs, consolidating these individual markets onto one common trading platform. It was an important development for the exchange, with the move harmonising a significant proportion of the European gas market. Since the beginning of 2015, all natural gas markets within EEX Group now run on the PEGAS platform operated by Powernext, which will be fully consolidated into EEX.

EEX’s activity in the European power markets has always remained a focus, and the exchange has consistently built upon its success in core markets such as Germany and France in order to enter new territories. In late 2013, the exchange began offering trade registration in Italian power derivatives and commenced order book trading on the Italian market in spring 2014 – a region in which EEX has since grown significantly. The exchange also expanded into the Spanish market, again initially through the launch of trade registration services, and at the beginning of 2015, EEX introduced location spread trading on the power derivatives markets, fostering improved cross-border liquidity.

EEX 3The Management Board, European Energy Exchange AG From left to right: Dr. Tobias Paulun, Chief Strategy Officer, Dr. Egbert Laege, Executive Director Gas Markets, Peter Reitz, Chief Executive Officer, Iris Weidinger, Chief Financial Officer, Jean-François Conil-Lacoste, Executive Director Power Spot Markets, Dr. Thomas Siegl, Chief Risk Officer, Steffen Köhler, Chief Operating Officer, supplied December 2015.


More recently, the Nordic region has been a focus for further development, with the launch of Nordic power futures and the opening of its new Oslo office in September this year. This expansion into new geographical regions, says EEX, is in direct response to customer feedback. Moreover, working directly with exchange stakeholders on new market development has been a central pillar of its growth strategy. Reitz explains: “It’s vitally important to listen to your customers and create a product that meets their needs. A good example of this was in Italy, where we took the time to fully understand what was important to our customers in the region and created a product, tailored to the specific needs of the market.”

EEX has also taken steps to diversify its business fields beyond energy and beyond Europe. Through the acquisition of the Singapore-based Cleartrade Exchange (CLTX) at the beginning of last year, EEX expanded its core asset class offering with the addition of freight, iron ore and fertiliser products. The move into the Asian market enables European market participants to build a more diversified product portfolio and utilise clearing services under the umbrella and rule book of a regulated market in Europe. In May this year, the exchange also successfully took over responsibility for agricultural derivatives from Eurex. “Our expansion into new commodity-focused markets is an important facet of the EEX corporate strategy,” states Reitz.

EEX operates in a highly competitive environment (there are still more than 20 power exchanges in Europe) and clearly, last year’s step into commodity-focused asset classes has added a new dimension to its growth story. For EEX, the broadening of its portfolio into new countries and asset classes promotes choice between trading platforms in the major geographic hubs for customers – be this for energy, energy related or other trading commodities and stimulates competition between marketplaces. “This is clearly something that the market as a whole can benefit from, and this includes EEX Group companies, customers and partners alike,” adds Reitz.

Closer to home, Europe’s energy market still remains fragmented at a policy level. The market has become increasingly regulated and complex in recent years and as a result, it is exchanges that have stepped in to provide pan-European solutions that help consolidate the market and promote liquidity. It has provided an opportunity for the exchange to further implement its long term strategy to simplify trading for its customers and remove technical, legal and regulatory barriers within the market.

Broadly speaking, change in Europe can be divided into two segments: natural market evolution on one side and the impact of regulation on the other. Both segments have the potential to pose challenges to the existing business and risk management models of commodity trading firms, suppliers and other involved stakeholders in energy wholesale trading, including exchanges such as EEX.

The future of European energy market design is another key focus for EEX – it works extensively with the relevant authorities and organisations to lobby on behalf of the market and its customers on policy issues. Taking EEX’s home market of Germany as an example, The Energy Turnaround or Energiewende as it is known, has far reaching consequences throughout Europe in terms of how electricity market design will develop in respect to the growing influence of renewable power. In response, the exchange introduced ‘Cap Futures’ in September – the first of a new range of Energy Turnaround products that the exchange launched to help its market participants to cope with new risk profiles.

This innovation promotes flexibility within the market by providing firms with the ability to hedge against price peaks caused by intermittent renewable power generation. Furthermore, by launching the product, EEX became the first exchange in Europe to offer a derivatives market product referring to the intra-day market.

Looking ahead, the exchange has demonstrated that it is ready and able to meet the opportunities and challenges that will present themselves in the context of its wider strategy for growth. By further strengthening its European foundations, the exchange will look to the region as a springboard for success. Reitz is clear about what lies ahead, “Our global ambitions are underpinned by our strength in the core European energy markets. Our strategic plan is to develop into a global multi-commodity exchange and as a company, we are looking forward to the new opportunities that 2016 will bring.”