Institutional Trading Calendar

hello thank you for joining our discussion today I'm Travis Bagley I head up our transition Management Group here at Russell Investments I'm also joined by Brian Cy who's in our overlay Services Group and Paul idelman who's our chief investment strategist here in North America um before we start the conversation and get into the questions I want to do a little background and set up our tool maybe we can bring that up on the screen um so as a transition manager um I frequently get two questions um one is how much is this transition going to cost and the second question inevitably is is this a good time to do the transition or we have a date in the future we like to do the event does that make sense and so we created this tool to help us gauge and schedule implementation around holidays around announcements economic releases things like that to help clients understand and set expectations for certain events um so with that said um I'll also open up for questions can be asked throughout the the webinar here so please send in your questions um I will start with the first question um as it turns out tomorrow is a Fed announcement all um I hear it's a big one do you agree uh I do agree uh for a couple of reasons first this would be the fed's first great cut for this business cycle so um that change in direction is always important as a first step it also seems like it's a more uncertain meeting than usual the FED has a state of philosophy almost that they don't like to surprise financial markets but this is a meeting where I think a lot of investors and economists don't really know exactly what the FED is going to do on Wednesday are they going to cut by a quarter point are they going to cut by a half a point um markets are priced for that to be pretty close close to a 5050 outcome on Wednesday which is really unusual we almost always know in advance what the FED is going to do on um decision day so I think that creates an environment where fed meetings always create the potential for some volatility in financial markets but this one seems like it has the potential for a little bit of an extra kick if you will in terms of creating some uh ups and downs in financial markets I think on the trading calendar we do have the FED meeting isolated and highlight as a possible event risk in Orange on the page if anything maybe you'd make it a darker shade of orange for this one because it does seem like um it it's more important than normal going forward I think we're going to continue looking at fed meetings going forward but if they can start to build a little bit of a rhythm here around rate cuts and deliver something like a steady moves at each meeting then that extra layer of volatility or anxiety if you will could start to diminish going forward but with this being the first one I think it takes on heighten importance tomorrow for investors for sure and just for the participants that calendar is available to all Russell uh clients they can access it on our website um Brian Turn to You on the overlay desk what are you seeing yeah I guess as I think about Q4 there's a couple things that come to mind first is an acknowledgement that a lot of these institutions have month-end activity as a regular course of business whether it's monthly benefit payments or redemptions from managers or fundings of new managers or Capital calls and distributions a lot of that tends to be bundled around month end so in Q4 you've got the annual challenge of what's going on at year end you've got Global Market holidays you've got early closures on the end of December well at the end of November you have the same problem the last day of November is the day after Thanksgiving so this is a a day you can expect fewer Market participants and lower liquidity as they'll be distracted by Family o ations and Black Friday sales and it's also an early close that day so while as a normal course of business you can trade on those two month end days but if you have something fairly complex or large or give a lot of lines of fixed income bonds to trade those aren't going to be your best days to trade if you have the option to pick a different day we'd suggest doing so now the other thing that comes to mind uh related to Q4 is Bank funding stress now this is a more of a global modern uh economic phenomenon if you will stemming from the global financial crisis in which Regulators look at the funding ratios of these Banks to gauge their Bank Health at year end now this comes to play in the derivatives Market where you see an increasing premium for going long Equity derivatives whether it's futures or Total return swaps and that premium gets ever more expensive as you head into the final days and weeks of year end now on the flip side if you were interested in going and drisking and going short in equity fut contract or a total return swap you can actually expect to get a bigger discount heading into year end now the point here is that if you are planning to go long and and you might have to face that premium if you can get in earlier rather than at the last minute you can expect to have some cost savings that's good um as far as looking out the fourth quarter Paul um anything that you the participants might want to know about or should be concerned about yeah so we look at a a range of possible volatility Catalyst for our institutional clients and that spans across not just sort of the economic data and releases but uh possible political events and and major corporate earnings announcements amongst um other issues as I kind of think about um the picture into the fourth quarter of this year I think uh the US economy is going to continue to be a major Focus for investors but the specific watch points I think are starting to shift a little bit in terms of points of emphasis um for the better part of the last two years now I I feel like the inflation data out of the United States and most of the developed markets has been kind of the tier one indicator driving volatility and fixed income and Equity markets because you know we came off of that major surge in inflation in 2021 and 2022 and so that was a major uh risk driver into financial markets that picture is starting to change a little bit the inflation rates not only in the United States across most of the developed worlds that started to moderate pretty significantly not quite all the way down to Central Bank targets but a long way down and so that's fading uh as a risk driver somewhat and more recently what we're starting to see is business Cycles slow a little bit particularly out of uh the labor markets in uh the United States or Canada for that matter where job growth is slowed we're seeing unemployment rates start to rise a little bit so I think the question shifting now away from from inflation to more growth and recession concerns and so I think with that as a setup or a context in mind some of the key watch points for us going into the fourth quarter really key into what's happening with um the US Labor Market so we obviously get employment reports out of the United States um every single month uh we have those coming up on October 4th uh November 1 and December 6 so I think those are going to be really um key drivers of potential volatility in financial markets going forward from an economic perspective um and then around politics uh obviously uh to No One surprise there's a big election coming up here um in November with uh the the results in uh election figures getting tabulated on on November 5th that's one where we know the event risk itself is on the 5th but it can take some time to count all the votes across states in the United States particularly as investors are thinking about the balance of power in Congress which can be quite important particularly in fixed income markets where there's a lot of focus around whether or not we'll have a way of election and kind of continue aggressive fiscal policy or maybe Congress will be split and moved into more of a gridlock regime uh and so I think that'll be a really consequential watch point to have our eyes on as we move into the the fourth quarter uh and then from time to time uh this isn't always the case but sometimes we'll put a focus onto corporate earnings results when there's uh a major release on the cards sometimes that can be around periods of banking stress we'll focus in onto those early results from um the big banks for example right now there's a lot of investor interest into the idea of Market concentration the Magnificent s the rise of companies like uh Nvidia that have uh really performed strongly over the last couple of years and so as we move into the fourth quarter for example Nvidia reports their earnings results on November 26 as Brian was mentioning that's not too far away from the Thanksgiving holiday period and normally pretty light period for liquidity to begin with so I think that could be a volatility event as well for more of a a corporate earnings perspective as we move into the fourth quarter good interesting um I'm GNA change subject here a little bit because one of the questions came in um but I'm gonna talk about holidays everybody loves a good holiday right get the day off but they do create problems for International or Global um transitions or events um Brian how can you use derivatives or the overlay program to help manage around those holidays yeah the most common contracts that we trade are us Equity Futures and US Treasury future so think of the S&P 500 futures contract or the 10year US Treasury future now these trade incredibly they're incredibly liquid during Us hours and even after hours essentially trade about 24 hours a day from Sunday afternoon to Friday afternoon now you can even trade these on holidays uh Market is open that day you're going to expect less liquidity you'll pay more in bid ask spreads but you can execute that day now those trades will have uh the trade date assigned of the following business day which may not be much of a consideration for a portfolio management or exposure management perspective but it might be a consideration for some institutions regards to reporting or accounting now um Futures contracts are great for hedging these risks uh I mentioned that those contracts can trade overnight and I think one consideration I'd like to flush out is this overnight Gap risk that most institutions are facing when they're doing a big change whether it's on holiday or whether it's not the overnight Gap risk is that difference between today's closing price and tomorrow's opening price a lot can happen overnight as we've seen just in recent history I mean consider back to the 2016 presidential election in which the results of that weren't known to late in the evening and that was a very volatile night uh in terms of Futures contracts pricing fast forward to covid and Global pandemic and lockdowns a lot of that news was coming out overnight Russia's invasion of Ukraine geopolitical events in the Middle East even the most recent volatility Spike with the unwind of the UN carry trade that was overnight too a lot of this happens while you're sleeping furthermore as Paul was alluding to you've got these economic announcements coming out at 5:00 a.m. our time Pacific 8:00 a.m. eastern jobs reports inflation reports there's an increasing interest in monitoring those reports as this imminent fed pivot which likely is tomorrow but people are very interested in these reports because they want to know when and how much the fed's going to be easing all of that is happening in between the close and the open if you have the ability to hedge that risk which is a non-material risk and Futures contracts being so inexpensive and capital efficient to trade we'd recommend doing so good and and on the holiday front the question was what's one of the most difficult holidays to to manage around and I can answer that one directly uh just from uh markets open and managing exposures uh the Christmas New Year's holiday is difficult um and there's a couple of reasons for that one is liquidity and markets are closed U particularly New Year's which is a global holiday the one and only Global holiday um but Christmas um a lot of Europe shuts down obviously the US shut down as well so managing around that is difficult but the other practical aspect that gets overlooked is there's a lot of people taking vacations right so you know you look at your custodian your managers all the people you need to work with in a transition you may not have the A Team right you may have the B Team um and there's just a lot of work to get done and that that problem is not going away we all know we all need need to do more with less and the custodians we're seen at the custodians we're seen at the managers um so that problem will not go way anytime in the near future so I'd say that Christmas holiday New Year's is by far probably one of the more difficult times uh to do implementation I know clients like to do that because it's a nice fresh start to the new year but you really think about doing that earlier in December to get yourself where you need to be before those holidays start thanks Bri um so as we talked about holidays uh some of the what you're doing on the derivative side are there any other interesting derivative strategies that you see your clients using yeah there's been a spike this year in doing non- Delta one option strategies so think of a typical investor here that might be concerned more about the downside than about the opportunities for upside but they don't want to sell their stocks or or bonds instead they can use an option contract to hedge the tail risk of of a potential downside event if hey I've had a good run this year maybe I'll lock it in for the rest of the year maybe I'll lock it in through the election or longer period of time puts like and put spreads are trading at historically attractive levels because volatility has been low for the most part all year long and skew is elevated so you can get historically attractive pricing there so I'd say that's one of the main reasons one of the better strategies we've used recently I'd say we've also seen an increase in having an always on tail hedge uh we haven't seen a lot of asks for this until just this year but if you can uh basically put on option structures that have a low cost but a high convexity and that convexity will help pay off when there's a volatility Spike you can put something on like that that would help protect say a one in 10e tail event as we've seen in the 21st century good um another question that just came in was uh how much can costs increase during volatile uh Market periods and I can answer that one a little bit as well but what we've seen is um you know all costs in transactionally are models so we have these models that help us develop understand what the costs are in transactions um we saw let's uh we'll take the global financial crisis what was happening during that period of time um costs in some cases were as much as three times as as as high as they were in normal times um and the reason being is volatility drives bit offer spread it drives Market impact costs and so as that volatility increased you saw increase in costs um and I'll differentiate a little bit between fixed income and equities on this because on the equity side of the equation volatility actually creates a lot more volume so you can actually get a lot done it's just more expensive to do it generally at that point in time um on the other side of it the fixed income side you're talking credit markets the esoteric credits municipes those markets start to get very illiquid during volatile times it's hard for dealers or counterparties to take risk on um it's very expensive and offer spreads get really wide but it's just carrying that risk becomes very difficult for those Banks or counterparties at the point in time and so it's hard to get things done there are times where we've had fixed income events where basically we couldn't trade a lot of the portfolio because it just wasn't available and the marks that we were seeing were so far from value we had to pull back a little bit there so there is a big difference between um equities and fixed income and those volatile Market markets as far as liquidity but you can just assume that your cost can be significantly higher um when when volatility picks up yeah I probably add a couple things to that on the derivatives space so when volatility spikes you probably have a less of a premium to go long in equity exposure so right now there is a premium because there's so many asset managers that are long derivatives exposure right now long Equity so when volatility spikes equities go down that premium goes down as well in derivative space on the fixed income side uh you have a lot more volume going into treasuries you have a lot more derivatives in CDX so credit derivatives as people rush to trade something that they can trade as opposed to trading physical credits so you see an increase there as well um and we got a question in uh are there any days in 200000 your remain 2024 that would you should completely avoid and um with the exception of probably the election day or the day after uh I don't think there's anything you should completely avoid and uh probably good to to clarify this the calendar that we're providing really gives you a gauge or a schedule to help you set expectations um are there good days and bad days uh to start an implementation um potentially there are but we just want to set expectations for folks and so if you need to trade on a certain day and I know there are certain investors 40 act funds DC um you know funds that you know they set a date and that's the date they're going to trade um you can still trade on those dates as long as you have the expectation of okay we have an a Fed announcement coming out that day so we should expect some volatility or we have a holiday International here that's going to create some challenges and maybe we need to use derivatives to help us manage around that and so that's the the point that's the the benefit of the calendar it's not going to tell you don't trade on this day or do trade on this day it's just going to allow you to set expectations and so I would say there's not a day that you can't trade or that you shouldn't trade but you should take into consideration all of those factors and maybe looking out a little bit further maybe into 2025 right um Paul I don't know if you have any thoughts on things to watch forward for 2025 as we go into the new year after the fourth quarter yeah I think um a lot of the key Focus areas for us will continue to be important into the new year as well we're going to continue to focus on and look at uh the employment reports as volatility Catalyst we continue to look at what uh the FED is doing with their interest rates is there a macro risk or interest rate risk angle there around news releases um one wrinkle as we start to move into 2025 that's been put on the back burner for recent months though is on um the fiscal side where um the US Congress put into in place a um suspension of the debt ceiling when they negotiated an agreement on that many months ago um that suspension uh terminates at the start of 2025 and there's an expectation that the treasury Department can kind of kick off Extraordinary Measures again and run down their cash balances to keep the government going for a period of time but I think as we start to get closer to the spring period of 2025 that uh thorny thatb SE issue that never seems to want to go away could make another come back again and create some kind of additional fiscal noise on top of the normal sort of macro incorporate fundamental type landscape uh as a volatility Catalyst for investors interesting and maybe coming back to the election again kind of our um uh interpretation or what we think the risks are around the election um coming up in in November uh potentially right before that or right after that would we expect to see most to the volatility regarding the the election or is it too hard to predict at this point in time as of right now um the prediction markets in the polling is so close that we're not seeing a lot of sort of EX an Market volatility around the ups and downs of the election that could certainly change as we get closer to uh November 5th it's normal for um liquidity to maybe dry up a little bit ahead of the event as investors kind of lock in positioning and wait to start to see the results I think uh going into the evening of the fifth itself as results come in and with that potentially continuing into the sixth and seventh I think that is likely to be um a key moment for investors and you have a lot of things happening at the same time there where there's actually a November fomc meeting on the 7th right after the election so a lot going on there from our perspective around what uh fundamentals actually have the potential to change in November I think it's a key Focus around fixed income markets around the fiscal trajectory of the United States and government spending the impact of that onto the longer end of the treasury yield curve in particular would be a focus and then there's a lot of even if it doesn't move the equity Market that much in the aggregate there's a number of equity sectors or styles that demonstrate a lot of sensitivity to interest rate Dynamics for example the most obvious one being uh the utilities sector that trades a lot like uh an equity Bond if you will and so I think that's going to be quite important not just on the fifth but for a couple of days on other side um interesting question came in as well we talked a lot about fed announcements um what jobs reports and earnings announcements talk touched on that a bit CPI I know was a big number but becoming less of an issue of these announcements which ones should clients be most Focus um it's it's time varying to a degree as I was trying to allude to before the the major macro drivers onto markets can evolve over time so we've shifted from inflation being the primary focus now concern centering more around growth so as of today right now conceptually and I think what we're seeing in terms of Market action is a greater emphasis on um the jobs reports driving uh a recalibration of inv attitudes uh towards uh Equity markets and fed policy for that matter because fed does have a dual mandate that's not just inflation but um employment as well my best sense right now now is that that focus is likely to continue but we have a few tricks that we use to try to stay on top of this there's a number of different um options vehicles that can show us how markets are pricing uh volatility risk ahead of events and um thus far the data is showing a similar narrative to what I just talked about where there's a lot of Step UPS in implied volatility ahead of inflation releases for the better part of the last couple of years we actually haven't seen that for the last month or so around the CPI announcements increasingly uh we're seeing that now more so for um the FED decisions I think again one tomorrow is likely to be a more significant one than than normal given it's the right so first move for the cycle but also these employment releases as well and even secondarily sometimes if markets get spooked by a jobs report then everyone kind of goes down to the the nerdier second tier data releases and we'll look at initial jobless claims or a whole bunch of other figures to really try to help them resolve uncertainty when um conditions start to get a little bit more opaque but yeah best guess right now is really the labor market and the FED that are key in inflation sort of fading Anis yeah and I think that's an important point about the calendar and what we created this is it's a new tool we're developing it still um but as we've found out as we go through time um certain numbers become more important and relevant than other numbers and so it's important for us as we build this calendar out that we take into account well this was important maybe last quarter and the last two quarters but these numbers are now becoming more important and let's make sure we highlight those to our clients so if they are doing implementation um they can they and at least set expectations around this um one other thing point to add on here is um on the holidays again back to holidays uh the Christmas holiday this year falls on a Wednesday which uh is is probably the most difficult day from just an implementation because now you've kind of have some people are going to be out probably the before that right um and then you have some that going to be out after so liquidity on that whole week is probably not going to be great going into the end of the year there'll probably be good break after that where you could get some things done just before the New Year's um and and before you roll into 2025 but that that Wednesday date for for Christmas uh is a bit challenging you like to have it on a Friday right I like to have it on a Monday three-day weekend uh but we're not going to get that this year so um just something to take into consideration um let me see if there's any more questions coming in from anyone no okay well I think we can probably wrap it up here uh want to thank our our participants who joined us today again we have this calendar out there for you to use um and schedule set expectations uh around your events around your transitions around your large implementation we're always here to help um if you need anything um reach out to your Russell representative um and they'll point you to the right people thank you for your time today e e for