Archives of “June 8, 2020” day

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Lessons from the 1918 flu for today: second wave dangers

  
Analysis, Education
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Multiple waves

In case you are wondering what all the fuss is about second waves of the flu virus here is a chart that shows the second wave of infections from 1918.
Multiple wavesIn the flu of 1918/1919 the second wave was around 5 times greater than the initial spike of cases. There were 3 different waves of illness during the pandemic. the first was in March 1918 and fell back by the summer of  1919. However, the pandemic peaked in the U.S. during the second wave, in the fall of 1918. it was this highly fatal second wave was responsible for most of the U.S. deaths attributed to the pandemic. According to the CDC around 50 million deaths occurred worldwide because of the outbreaks and around 1/3 of the entire population was infected.  Read the CDC piece here for more info.

It’s not plain sailing: market risks lurk.

  
  Analysis
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There may be trouble ahead

There may be trouble ahead
It is worth reminding ourselves that there are a number of risks around that have the potential to flare up. The market is rightly focused on the re-opening of economies post the first wave of COVID-19, but don’t forget other risks remain:
1. Brexit. Always lurking there somewhere. The UK has until the end of June to agree an extension for the EU-UK trade negotiations.
2. US-China tensions: President Trump loves picking a fight with China. The elections are looming and COVID-19 risks are, rightly or wrongly, fading. This may free up some twitter time for the US President to return to battling China. As long as it is only keyboard bashing the risk should be limited. If words turn to action then the recent risk trade can be stalled.
3. Australia- China tensions. China has taken umbrage with their trading partner over Asutralia’s desire to have an investigation into the outbreak of COVID-19. These tensions could flare up and China has the ability to harm Australia’s economy, so one to watch
4. Euro-relief fund. The German-Franco proposal stills needs all 27 members to agree. The ‘frugal four’ of Austria, Denmark, Sweden, and the Netherlands need to all agree on the terms and they are opposed to grants as opposed to low interest loans
5. And we still haven’t got to COVID-19 second wave outbreak risk. However, the likelihood of a second wave is high at some point in the next 5-9 months.

What’s ahead on Europe’s data calendar?

  
  Analysis

Quiet day

Well, it’s a quiet day on the economic data front for the European morning session. I shall be covering this session for today and tomorrow, so a very good morning to one and all from a quiet UK. Quiet, that is,  aside from the protests over the weekend.
Economic data ahead
0700: German Industrial production. Another sharp drop expected as COVID-19 lockdowns filter through the data.  You can read prior report here.
0800: Swiss Sight deposits for the CHF. Recently the sight deposits have been increasing as the SNB becomes uncomfortable with rising CHF strength. However, recent EUR strength and the NFP on Friday has given them some breathing space. See prior report here
Aside from these two releases we have a quiet session. Market focus remains on the Fed and whether they will use yield curve control midweek.

SOME WELL-KNOWN ALGORITHMIC STRATEGIES

  
Analysis, Education
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On a broad sense most commonly used algorithmic strategies are Momentum strategies, as the names indicate the algorithm start execution based on a given spike or given moment. The algorithm basically detects the moment (e.g spike) and executed by and sell order as to how it has been programmed.

One another popular strategy is Mean-Reversion algorithmic strategy. This algorithm assumes that prices usually deviate back to its average.

A more sophisticated type of algo trading is a market-making strategy, these algorithms are known as liquidity providers. Market Making strategies aim to supply buy and sell orders in order to fill the order book and make a certain instrument in a market more liquid. Market Making strategies are designed to capture the spread between buying and selling price and ultimately decrease the spread.

Another advanced and complex algorithmic strategy is Arbitrage algorithms. These algorithms are designed to detect mispricing and spread inefficiencies among different markets. Basically, Arbitrage algorithms find the different prices among two different markets and buy or sell orders to take advantage of the price difference.

Among big investment banks and hedge funds trading with high frequency is also a popular practice. A great deal of all trades executed globally is done with high-frequency trading. The main aim of high-frequency trading is to perform trades based on market behaviors as fast and as scalable as possible. Though, high-frequency trading requires solid and somewhat expensive infrastructure. Firms that would like to perform trading with high frequency need to collocate their servers that run the algorithm near the market they are executing to minimize the latency as much as possible.

Adaptive Shortfall

Adaptive Implementation Shortfall algorithm designed for reduction of market impact during executing large orders. It allows keeping trading plans with automatic reactions to price liquidity.

Basket Trading

Basket Orders is a strategy designed to automated parallel trading of many assets, balancing their share in the portfolio’s value.

Bollinger Band

Bollinger bands strategy is a trading algorithm that computes three bands – lower, middle and upper. When the middle band crosses one of the other from the proper side then some order is made.

CCI (more…)

Japan Q1 final GDP -2.2% vs -2.1% expected

  
Analysis, Economy
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Quarter-over-quarter annualized growth data

  • Most-recent estimate was -3.4%
  • q/q -0.6% vs -0.5% expected
  • Private consumption -0.8% vs -0.7% expected
  • Business spending +1.9% vs +1.5% expected
  • Prelim business spending -0.5%
The big jump in business spending led to the final reading getting a boost to -2.2% from -3.4%. Obviously that’s not going to hold up into Q2, where the consensus is -8.3%. Economists still don’t see any growth until Q2 of 2021.
This number along with the latest current account data (which was a huge miss) have had no impact on JPY.

Dollar selling creeps in, S&P 500 futures higher

  
  Uncategorized
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Risk on the theme

The new week is starting where the last one left off.
S&P 500 futures are up 0.5% to start the week after a massive rally in global equities last week, including +10% in some European equities.
Protests didn’t slow down the market last week and they aren’t having an effect today. In FX, the US dollar and yen are sagging, which is a classic risk-on stance.
So far the moves are modest with the commodity currencies up 15-20 pips. The pound was especially soft late in the day Friday but it’s got some life early, up 27 pips to 1.2695.

Oil likes what it heard from OPEC, prices edge higher early

  
Analysis, Crude
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Crude starts the week higher

Crude starts the week higher
WTI crude rose as high as $39.90 shortly after the open. It’s since ticked a few cents lower to $39.83, which is up 25-cents on the day.
OPEC+ announced a one-month cut extension on the weekend but it wasn’t all good news as some Libyan production came back online.
Keep a close eye on the $40 with crude in the March gap. The bottom end of it is $41.05.

China trade surplus hits record as medical-exports jump and crude prices plunge

  
Analysis, Economy

China May trade surplus data

China May trade surplus data
  • Trade surplus $62.93B vs $41.40B expected
  • Prior $45.33
  • Exports +1.4% y/y
  • Imports -3.3% y/y (USD)
This data was out Saturday and it’s way off consensus but it makes a great deal of sense. The first thing is that China imports massive amounts of oil and with crude prices very low in May, that’s a big help. Prices of other imports like soybeans and natural gas were also low. The value of auto imports also shrunk by 31.3% as commerce slowed down.
Secondly, exports of medical devices were up 88.5%. That’s a result of the virus and doesn’t include a 25.5% rise in textiles, which is the category that includes masks.
Finally, the resumption of Chinese activity in April/May after virus closures led to a backlog of orders that needed to be filled.
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