CME profit tops views as investors ready for rate hikes, shares hit record high

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FILE PHOTO: Men enter the CME Group offices in New York

By John McCrank

NEW YORK – CME Group Inc on Wednesday reported a fourth-quarter profit that topped Wall Street expectations, helped by increased usage of the futures exchange operator’s interest rate hedging tools as investors prepare for central bank tightening.

With the U.S. economic recovery in full swing and inflation surging, markets are pricing in more than a 70% chance of a 25-basis-point rate hike by the U.S. Federal Reserve and a nearly 30% chance for a 50-basis-point hike when policymakers meet in March, according to CME’s FedWatch Tool.

That outlook has helped CME, which saw its average daily volume rise 26% from a year earlier to 20.5 million contracts, mainly driven by a 56% increase interest rate futures contracts, a 16% rise in energy futures contracts, and 15% growth in equity index products.

“We’ve got now five tightenings priced into the curve for the coming year. That’s the first time I’ve seen that in a very long time,” Sean Tully, senior managing director at CME, said on a call with analysts. “Every single Fed meeting could be in play.”

The Chicago-based company said its net profit rose to $625.2 million, or $1.71 per share, in the quarter ended Dec. 31, from $424 million, or $1.18 per share, a year earlier.

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Stripping out one-time costs, the company earned $1.66 per share, 2 cents above the consensus estimate of analysts, according to Refinitiv IBES data.

CME shares hit a record high after the results were released, and were last up 6.32% at $256.68.

Total quarterly revenue rose 4.5% to $1.1 billion.

For the current quarter, CME said its daily activity in January was up 28% from a year earlier at 24.6 million contracts, with equity index and interest rates continuing to lead the way with year-over-year growth of 56% and 33%, respectively.

(Reporting by John McCrank; Editing by David Gregorio)