Moody’s affirms USA credit rating at Aaa, outlook stable

Moody’s not interested in a lawsuit

Print all you like, spend all you like. No one is downgrading the USA after S&P did and the government sued them for $1.5B for mortgages. Even the company knew what it was all about.
At the same time, a country that prints its own money can’t default. But they can devalue.

Flood of Japanese money rushing to USD assets

Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets

  • “The presence of the Japanese as the main carry trade driver seems to be growing as they must turn to overseas investments”
Demand for higher-yielding American assets growing
  • In April, Japan’s money managers bought the most U.S. corporate debt in eight years and the second-highest amount of equities in five years
  • “Japanese investors use yen to fund purchases of Treasuries or U.S. corporate bonds, for instance, to seek credit spreads and these flows are continuing,” said Koichi Sugisaki, a strategist at Morgan Stanley MUFG Securities Co. in Tokyo.
Check out USD/JPY … its net more or less unchanged, even a little lower, since November last year …. Without all the Japanese money leaving yen into USD it’d have to be lower I guess?
Bloomberg report on Japanese investors, facing ongoing negative rates domestically, are buying dollars and risk assets 

Fitch Revises India’s Outlook to Negative, Affirms IDR at ‘BBB-‘ Full Text

Fitch Ratings has revised the Outlook on India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the rating at ‘BBB-‘.

 

KEY RATING DRIVERS

The revision of the Outlook to Negative on India’s Long-Term IDRs reflects the following key rating drivers:

The coronavirus pandemic has significantly weakened India’s growth outlook for this year and exposed the challenges associated with a high public-debt burden. Fitch expects economic activity to contract by 5% in the fiscal year ending March 2021 (FY21) from the strict lockdown measures imposed since 25 March 2020, before rebounding by 9.5% in FY22. The rebound will mainly be driven by a low-base effect. Our forecasts are subject to considerable risks due to the continued acceleration in the number of new COVID-19 cases as the lockdown is eased gradually. It remains to be seen whether India can return to sustained growth rates of 6% to 7% as we previously estimated, depending on the lasting impact of the pandemic, particularly in the financial sector.

The humanitarian and health needs have been pressing, but the government has shown expenditure restraint so far, due to the already high public-debt burden going into the crisis, with additional relief spending representing only about 1% of GDP by our estimates. Most elements of an announced package totalling 10% of GDP are non-fiscal in nature. Some further fiscal spending of up to 1 percentage point of GDP may still be announced in the next few months, which was indicated by a recent announcement of additional borrowing for FY21 of 2% of GDP, although we do not expect a steep rise in spending. Continue reading »

Fed says it’ll expand its “main street” lending program even further – to provide credit access for non profits

Improved credit access for non-profits – are they referring the vast majority of hedge funds?

That is a joke folks, K?
Here we go, headlines via Reuters:

Fed proposal to expand its main street lending program to provide access to credit for nonprofit organizations

  • says it is seeking public comment on its proposal for nonprofits by Monday, June 22
  • proposed expansion would offer loans to small and medium-sized nonprofits in sound financial condition before coronavirus pandemic hit
  • interest rate, deferral of principal and interest payments, and five-year term are the same as for main street business loans

There are further T&Cs but I won’t go into them here.

Stocks rally into the close but still off highest levels

Stocks have worst week in 3 months

The major stock indices rallied into the close but are still selling off the highest levels.

  • The stocks have the worst week in 3 months
  • Dow and S&P have their 1st positive day after 4 days down
  • stocks rebounded after the plunge on Thursday
a snapshot of the major indices at the close shows:
  • S&P index +39.21 points or 1.31% at 3041.31
  • NASDAQ index rose 96.02 points or 1.01% at 9588.80
  • Dow rose 477.37 points or 1.9% at 25605.54.
Although higher, the gains were well off the highs but also well off the lows (closing around mid range).
  • S&P index was up as much as 2.88% but was as low as -0.59%
  • Nasdaq index was up as much as 2.91% but was as low as -0.83%
  • Dow was up as much as 3.33% but was as low as -0.20%.
Below are the % high, low and closes for the major NA and European indices for today.
Stocks have worst week in 3 months For the week, the major indices all fell with the Dow the weakest.
  • S&P, -4.78%
  • Nasdaq, -2.3%
  • Dow, -5.55%

FOMC central tendencies and dot plot for projected rates. Fed projects rates to remain at current levels through 2022.

Central tendencies and dot plot for June 2020

The last time the central tendencies and dot plot was released was way back in December 2019.  At that time, the world was different place.

At the time in December, the Central tendencies saw 2020 numbers at:
  • GDP 2.2%
  • unemployment rate 3.5%
  • PCE inflation 1.9%
The 2021 projections saw:
  • GDP 1.9%
  • unemployment 3.6%
  • PCE inflation 2.0%
The projection for the Fed funds rate at the end of 2020 was 1.6%.  For 2021 the rate rose to at 1.9% with the 2022 rate at 2.1%.
The current median estimate for central tendencies shows 2020 numbers at:
  • GDP -6.5%
  • unemployment 9.3%
  • PCE inflation 0.8%
The projections for the Fed funds rate at the end of 2020 comes in at 0.1%. For 2021 the rate targets 0.1% with the 2022 rate targeted also at 0.1%.
Below is the chart of central tendencies from the Federal Reserve
Central tendencies
Below is the dot plot with all participants keeping the rate at 0.1%.  In 2022, there are two voting members to forecast day higher rate.  The market was looking for the Fed to keep rates low through 2022
Dot plot

NBER says US recession began in February

Business Dating Cycle Committee says contraction ongoing

The US National Bureau of Economic Research says the American economy fell into recession in February to end an expansion that started in June 2009.
It was the longest expansion in US history at 128 months.
In determining the date of the monthly peak, the committee considers a number of indicators of employment and production. The committee normally views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a clear peak in February.
There’s no magic in determining a recession but the NBER generally gets the privilege of making the call in the US.

SOME WELL-KNOWN ALGORITHMIC STRATEGIES

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 Continue reading »

Dollar selling creeps in, S&P 500 futures higher

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.

Jake Bernstein on Faulty Learning from Positive Reinforcement

  • The tension of riding a profit or loss may be quite intense for some investors. By liquidating too early, they are relieved of the tension, and, therefore, the mere termination of this situation will have the same result as a positive experience. They will be more likely to behave the same way in future trades.
  • Those who ride losses to unacceptably large amounts also tend to experience the positive effects of relief. Again the relief can serve to reward an otherwise inappropriate act. It’s like the man who, when asked why he kept banging his head against the wall, replied, “because it feels so good when I stop.”