CME Group’s profit beats on rising US Treasuries-related derivatives demand

11:02 am Wednesday, April 24th, 2024

By Jaiveer Shekhawat and Laura Matthews

(Reuters) -Exchange operator CME Group’s first-quarter profit beat analyst expectations on Wednesday, helped by record growth in futures and options contracts tied to U.S. Treasuries as well as more trading activity in commodity markets.

While investors believe the chances of a soft landing, where inflation falls without a recession or big job losses, have improved over the past few months, the trajectory of interest rates continues to be uncertain.

Shares were down 2.3% at $211.69, likely because the exchange maintained its forecast for full-year expenses, despite lower than expected costs in the quarter, said Owen Lau, senior analyst at Oppenheimer & Co.

He said investors expect the company to incur higher costs later this year.

Volatility due to changing rate-cut expectations helped increase CME’s average daily volume (ADV) in the quarter as customers used its offerings to manage risks. The exchange had its third highest quarterly ADV ever, behind the first quarters of 2020 and 2023, when markets were rocked by the onset of a global pandemic and a regional banking crisis, respectively.

CME Group’s ADV in its U.S. Treasuries futures and options grew 12% year over year, reaching an all-time high of 7.8 million contracts per day, the company said, adding that ADV in its commodities markets rose 14% to 4.7 million contracts.

The ADV for its energy and agricultural products both rose 16%. For options, it rose 2% to a record 5.9 million contracts.

“Our performance in the first quarter was strong evidence of the ever growing need for risk management globally,” said Terry Duffy, CME chief executive officer, on an analysts’ call.

He said the fact that all six of CME’s assets classes increased in the quarter illustrates the health of clients who are managing their risks globally.

Clearing and transaction fees, from which CME makes most of its revenue, edged up 0.7% to $1.21 billion. Its total revenue rose 3% to $1.49 billion in the first quarter.

On an adjusted basis, CME earned $2.50 per share, compared with analysts’ estimates of $2.45, according to LSEG data.

(Reporting by Jaiveer Singh Shekhawat in Bengaluru and Laura Matthews in New York; Editing by Shounak Dasgupta and Michael Erman)