With the foreign exchange market in full swing, Wall Street banks, along with related broker-dealer exchange traded fund, could capitalize on the greater trading action.
The iShares US Broker-Dealers ETF (NYSEArca: IAI), which tracks U.S. investment banks, discount brokerages and stock exchanges,has increased 1.7% over the past month and is up 0.6% year-to-date.
Going in to the earnings season, analysts argue that turbulence across the forex market in response to global central bank policies should have bolstered profits in the trading units of financial firms, reports Peter Rudegeair for the Wall Street Journal.
For instance, the start of the European Central Bank one trillion euro quantitative easing program and the Swiss central bank’s surprise lift on pegging the franc currency bolstered forex market activity and fueled volatility that banks required to lift their trading businesses.
According to Deutsche Bank AG, volatility int he currency market jumped 18% between the start of the year and mid-March, driving sales and trades. The volatility across the first quarter helped prompt changes in portfolio strategies, forcing investors to buy and sell securities through banks’ trading desks, which generate commissions for the brokers.
“The foreign-exchange quarter was a blowout,” Nancy Bush, an analyst at NAB Research LLC, said in the WSJ article. “You’ve got two ingredients there, volume and volatility, and you had both of them in the first quarter.”