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Traders work after the opening bell at the New York Stock Exchange on July 16. Photo: Johannes Eiselle /AFP/Getty Images
The stock market has been unusually calm this year, prompting traders to place increasingly large bets on low market volatility. But they could be setting themselves and the broader market up for big losses.
What's happening: The S&P 500 hasn't moved more than 1% in either direction in more than 5 weeks, according to Datatrek co-founder Nicholas Colas. That defies historical trends and is leading more investors to take short-sell bets that the Cboe Volatility Index (VIX), which tracks big, unexpected moves in the market, will decline.
Why it matters: The big losses triggered in short-volatility trading instruments helped lead to the stock market selloff in December that pushed the Dow and S&P 500 to their worst December since 1931.
Threat level: With the Fed expected to cut interest rates this month and at least once more in 2019, central banks around the globe have initiated a cycle of easy monetary policy, increasing liquidity in capital markets.
The big picture: Investors raised short volatility bets to the highest level in 6 years in April, according to analysts from Nordea Bank, who spoke to Refinitiv's IFR.
What to watch: "It's a worrying sign," Andreas Steno Larsen, senior global strategist at Nordea told IFR.
Yes, but: Larsen made the comments in April and the market has continued to rise — and VIX has continued to fall — since then.
The British pound fell to its lowest level against the dollar since April 2017 on Wednesday, as concerns about a no-deal Brexit grew and the likelihood of Britain remaining in the EU shrank.
Axios' Kim Hart writes: The triumph of rich cities may hog the demographic headlines, but midsize cities' turnaround struggles under the shadow of automation will shape the urban future in the U.S., according to the author of a new McKinsey Global Institute report.
Why it matters: While 2 dozen high-performing cities are poised to pull further ahead of the rest of America, the cities to watch are those in between the mega-cities and the low-growth rural areas — the places McKinsey calls "niche cities" and the "mixed middle," according to report author Susan Lund.
Niche cities — "small powerhouses" like Reno, Nevada, "silver cities" like The Villages in Florida and "college towns" — have found success by leveraging unique features or locations.
The "mixed middle" is home to about a quarter of the U.S. population, and these cities' economic fates could go either way depending on how proactive their strategies are.
Go deeper: Read the full story here.
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Illustration: Sarah Grillo/Axios
Axios' Courtenay Brown writes: The flush U.S. consumer is lifting profits for the big banks, busily pouring free cash into savings and checking accounts while spending on credit cards and borrowing money to buy homes.
Why it matters: The strength and optimism of the American consumer continue to underpin the record-long economic recovery — and stand as a contrast to the gloomy outlook expressed lately by business leaders.
Driving the news: Just about all the big banks opened up their books this week, showing strong second-quarter earnings that put consumers in the starring role. The results dovetailed with high retail sales figures for June, which beat expectations and augured well for the economy.
What they're saying: "The market keeps doubting the sustainability of the health of the consumer — and the consumer keeps confounding the market," Kevin St. Pierre, who covers the banks at KSP research, tells Axios.
Yes, but: Fed Chairman Jerome Powell has all but said the central bank will pare back interest rates later this month — and might do so again later this year. This poses a risk for banks, which make money by charging borrowers higher, longer-term interest rates while paying out low rates on deposits.
Axios' Sara Fischer writes: Netflix stock fell more than 10% in after-hours trading Wednesday following the company's announcement that it lost more than 100,000 U.S. subscribers last quarter. It was expected to gain roughly 300,000 subscribers.
Why it matters: Analysts weren't expecting the streaming giant to lose subscribers, especially since rival streaming services, like HBO Max, Disney + and NBCUniversal's new service, aren't expected to launch for another year or so.
Details: Netflix also announced that it missed on guidance for international subscriber additions. Investors were hoping Netflix could continue to grow international subscribers while domestic subscriber growth stalled.
Be smart: Netflix increased prices this past quarter, which may have impacted subscriber growth.
The big picture: The company is struggling to convince investors that subscriber growth won't be impacted by the loss of hit catalog series, like "The Office," which is moving to NBC, and "Friends," which will be available on HBO Max.
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