Key Takeaways From CME’s Q2 Earnings

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After a unimpressive first quarter, CME Group (NASDAQ:CME) performed better in Q2, with revenues increasing by 2% year-on-year. The revenues from the trading business, after showing moderate growth for most of the year, grew nearly 3% in the second quarter. Interest rate and energy derivatives continued to garner investor interest, with double-digit growth in comparison to the prior year quarter. Consequently, the exchange’s average daily volumes hit a record 16.5 million contracts, up 9 percent year-over-year. Moreover, the company’s international investments are paying off, with over 22% and 33% growth in trading volumes during Asian and European trading hours, respectively.

Despite the recent declines, the company remains bullish on its Market Data and Information Services segment, with new products in the pipeline with enhanced business intelligence and machine learning capabilities. The company has managed to gain traction by offering data services to its customers largely free of charge until recently, and we expect that many of its existing customers will be willing to pay for more advanced products.

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Transaction fees account for over 85% of CME’s revenue. Among the various asset classes, interest rate derivatives had the strongest trading volumes, and grew by 21% during the quarter, driven by the Fed’s interest rate hikes in March and June. The continuous shift in gold and silver prices – due to the strengthening of the U.S. dollar and other economic and political factors in the U.S. – has continued to boost metals derivative volumes. Energy derivatives saw over 13% improvement in volumes as OPEC’s stance on capping production led to price volatility throughout the quarter. However, equities and foreign exchange derivative volumes continued to decline, primarily due to a more volatile and favorable trading period last year, and partly due to investors remaining wary of these asset classes. As the company continues to expand its product line and gain in trading volumes due to the recovery in U.S. macroeconomic conditions, we forecast a nearly 9% increase in transaction revenues.

See the full Trefis analysis for CME Group.

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