CME’s Dull Trading Activity Is Likely To Affect Q4 Results

January 5th, 2018 by Trefis Team
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After a solid year-on-year performance across most of its major asset classes through October, CME Group‘s (NASDAQ:CME) trading volumes saw a dip in November and December, with its Q4 daily volumes coming in 2% below the year ago levels. Since transaction fees account for over 85% of CME’s revenue, a decline in quarterly volumes is likely to affect the company’s top line. The possibility of a rate hike in November 2016 and a hike in the following month led to a phenomenal rise in interest rate derivative volumes, and the tough year-on-year comp led to a 4% decline in Q4 2017. However, recent rate hikes and the Fed’s indications of further hikes in the year ahead has resulted in continued investor interest in the asset class, with trading volumes 8% ahead of the levels seen in Q3.

Energy derivatives maintained solid volumes, but the marginal decline from the year ago levels was likely due to the strong demand towards the end of 2016, with a surge in oil prices due to cuts in production. Meanwhile, metal derivatives saw 26% growth in trading volumes. We expect further volume growth going forward with further improvement in the U.S. economy.

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We have a $120 price estimate for CME’s stock, which is below the current market price.

See the full Trefis analysis for CME Group.

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