CME Earnings: Low Trading Volumes Hindered Revenue Growth

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CME Group (NASDAQ:CME) recently reported its Q3 fiscal 2016 results, with revenues and EPS marginally lower year over year. This was in stark contrast with the trend observed in first half of the year, which saw 11% y-o-y growth. Trading accounts for nearly 85% of CME’s revenues, and the business saw third quarter volumes suffer as the growth in metals and energy derivative volumes was offset by the a sharp decline in equities, foreign exchange and commodity trading volumes. Increased volatility in oil and metal markets, driven by a demand-supply gap, have continued to drive their trading volumes. We expect this to continue in the near term. With the likelihood of an improvement in macro conditions, we believe that volumes are likely to improve in the coming quarters. We also expect the company’s innovation initiatives to drive volumes over the long run.

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Metal And Energy Trading Volumes Surge Due To Increased Volatility

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Amid a subdued global macroeconomic environment, gold and silver have attracted investor interest as a safe haven investment option. With the company generating about 5% of its revenues from metal trading, continued increase in these volumes will likely have a positive effect on the company’s top-line. Meanwhile, energy derivatives account for almost 20% of CME’s overall revenue. With oil price uncertainty and volatility likely to continue in the near term, we expect the exchange’s volumes and revenues to remain solid in the coming quarters.

Equities Decline Unexpectedly, Likely To Recover Soon

In contrast to the impressive performance of equity derivatives in the first half of the year, equity derivatives declined this quarter. With the expectations of an improvement in U.S. macro conditions, cash equity volumes are likely to recover. We also expect interest rate derivative volume to show impressive growth with the likelihood of a rate hike in 2017.

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