Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

Jefferies Group released results for its fiscal second quarter on Tuesday, and so begins the tea-leaf reading for what they portend for the bigger firms whose calendars are a month behind the independent investment bank.

The leaves sure make it look as if the tea was tasty. Jefferies reported a 55 percent surge in bond-trading revenue, its biggest increase in two years, as Laura J. Keller reported. It reinforces some brewing optimism that suggests the worst of a trading slump for banks might be over. JPMorgan Chase's Daniel Pinto said at the beginning of this month that "probably we are getting toward the end of the cycle of contraction." Citigroup boss Michael Corbat said trading and investment-banking revenue for the period should be “up slightly” from the first quarter.  

Here's how Jefferies Chief Executive Officer Richard Handler described the quarter to Keller: “This was not a great trading environment, but it was a normal trading environment without painful and violent swings. You can’t say it’s all clear and the worst is over, but you can say there’s more stability and more natural client flow.”

Trading Places
Banks rely in varying degrees on their fixed-income, currencies and commodities and equity trading desks
Source: Company filings via Bloomberg Intelligence

However, there's a big elephant in the room, and it has an English accent: Jefferies' quarter ended in May, so it doesn't include the uptick in volatility in June as the prospects for a British exit from the European Union ebbed and flowed. 

While volatility in asset prices was traditionally considered the lifeblood of Wall Street trading desks, a distinction between "good volatility" and "bad volatility" has emerged in recent quarters as trading revenues took a hit. 

One thing is certain, volatility in June has so far looked a bit more like the first quarter than the first two months of the second quarter in the equity market ...

VIX Wakes Up
Equity volatility picked up June compared with the quiet first two months of the quarter
Source: Bloomberg

... as well as in the bond market, after the risk of Brexit pushed the Federal Reserve to become more dovish on interest rates:

Treasury Moves
The benchmark guage of Treasury market volatility also picked up in June
Source: Bloomberg

The foreign-exchange market became the focal point of volatility in June as the British pound swung wildly: 

Currency Currents
Volatility in foreign-exchange markets spiked in June amid swings in the British pound

Is this the good kind of volatility or bad kind? We probably won't know until the banks start reporting results next month, and even then there could be lingering question marks given the tradition of limited disclosure on what worked and didn't work on trading desks. It's worth remembering that when the Swiss franc was revalued in 2015, it was a positive for some banks but a negative for others.   

But one thing is clear: the markets' turbulence in the last month of the second quarter has been a lot different from what it was in the first two months, so it may end up being the most important one for trading desks. And there's still a chance the storms could return with a vengeance. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Michael P. Regan in New York at

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