Archives of “market liquidity” tag

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Brexit – UK says not afraid to walk away from talks. Less than 20% chance of a deal.

  
Analysis, Forex
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A couple of UK media items on Sunday with Brexit developments.

The UK’s chief Brexit negotiator David Frost spoke with the newspaper the Mail on Sunday
He said that the UK would leave the transition arrangement “come what may” in December. That is, deal or no deal the UK is out.
Meanwhile in the Sunday Times:
  • planning for no-deal has ramped up
  • senior figures in government have predicted that the chance of securing a Brexit trade agreement with Brussels is now less than 20%
Links for each (may be gated) if you’d like more
GBP is trading on wide spreads in early movement. Its just before:
  • 8 am in NZ
  • 6 am in Sydney
  • 5 am in Tokyo
  • and 4 am in Singapore & Hong Kong
If you are familiar with how forex market times work you’ll know that liquidity right now Is super thin. GBP swinging a little:
A couple of UK media items on Sunday with Brexit developments.

Quick Compilation of Market Crashes

  
Analysis, Education
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With the current liquidity/credit crisis, I thought it will be interesting to take a look at past crashes. Here’s a quick compilation (not comprehensive):

  • 1901 – 1903 (17 Jun 1901 – 9 Nov 1903) – 46.1% drop in DJIA.
  • 1906 – 1907 (19 Jan 1906 – 15 Nov 1907) – 48.5% drop in DJIA.
  • 1916 – 1917 (21 Nov 1916 – 19 Dec 1917) – 40.1% drop in DJIA.
  • 1919 – 1921 (3 Nov 1919 -24 Aug 1921) – 46.6% drop in DJIA.
  • 1929  (3 Sep 1929 – 13 Nov 1929) – 47.9% drop in DJIA. Kicked off the great depression.
  • 1930 – 1932 (17 Apr 1930 – 8 Jul 1932) – 86% drop in DJIA.
  • 1937 – 1938 (10 Mar 1937 – 31 Mar 1938) – 49.1% drop in DJIA.
  • 1973 – 1974 (11 Jan 1973- 6 Dec 1974) – 45.1% drop in DJIA.
  • 1987 – Black Monday (19 Oct 1987)
  • 1989 – Friday the 13th mini crash (13 Oct 1989)
  • 1990 – Savings & Loans collapse.
  • 1997 – Asian financial crisis (27 Oct 1997)
  • 1998 – Long Term Capital Management
  • 2000 – 2002 (15 Jan 2000 – 9 Oct 2002) – 37.8% drop in DJIA.
  • 2002 Summer – freezing up of corporate credit

China Securities Journal: PBOC may cut OMO rates this month

  
  Analysis
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People’s Bank of China open market operations are one tool used to manage liquidity

  • rates may be cut this month reports the CSJ
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China Securities Journal is a national securities newspaper – part of official Xinhua News Agency.

Ahead of markets in China opening for Wednesday – support measures so far and here is what is still to come

  
  Analysis
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Nomura provide a summary of the market-supporting actions out of China (these have been discussed on ForexLive in prior days this week but this a nice summary)

PBOC:
  • cut the OMO rate by 10bps for both 7 and 14 day RRs
  • Monday PBoC injected CNY 2.1tln of short-term interbank liquidity (maturing loans offset some of this)
  • Tuesday the PBoC injected a further CNY net 00 bn yuan in RRs – largest single-day addition since January 2019
CSRC:
  • suspended securities lending from Monday until further notice
  • some funds were told to avoid actively selling stocks
    prop traders at brokerages told they were not permitted to be net sellers of equities this week
    would halt night sessions for futures trading
  • to allow some share pledge contracts to be extended by as long as six months
MoF:
  • an interest subsidy scheme for new loans ear-marked for medical supply companies fighting coronavirus
  • policies to extend loans to entrepreneurs and SMEs which have been hit by the coronavirus
They go on with what is still expected to come:
PBOC expected to cut RRR by 50 to 100bp
  • more MLF operations and OMOs coming (to inject long & short-term liquidity into the banking system)
  • MLF rate cut (by 10bps) – to be relfected in the February Loan Prime Rate (on the 20th)
Other:
  • tax/fee cuts, waivers
  • boost to u/e and insurance benefits to people who have lost income or been infected with the virus
  • higher fiscal deficits
  • local governments to get more flexibility in easing restrictions on the property sectors

China is closing gap with United States on research spending

  
  Analysis
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China’s central bank said it will inject 1.2 trillion yuan ($173.8 billion) worth of liquidity into the markets via reverse repo operations on Monday, as the country prepares to reopen its stock markets amid a new coronavirus outbreak.

China’s authorities have pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support companies affected by the virus epidemic, which has so far claimed 305 lives, all but one in China.

The People’s Bank of China made the announcement in a statement published on its website on Sunday, adding the total liquidity in the banking system will be 900 billion yuan higher than the same period in 2019 after the injection.

According to Reuters calculations based on official central bank data, 1.05 trillion yuan worth of reverse repos are set to mature on Monday, meaning that 150 billion yuan in net cash will be injected.

Investors are bracing for a volatile session in Chinese markets when onshore trades resume on Monday after a break for the Lunar New Year which was extended by the government.

China’s stock, currency and bond markets have all been closed since Jan. 23 and had been due to reopen last Friday. (more…)

It’s PMI day in Europe to kick start the new year

  
  Analysis
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But markets are still plagued by poor liquidity conditions for the most part

2020

Happy New Year, everyone! Hope that all of you had a great celebration or time off and that you’re refreshed for another new trading year ahead.
Markets are still largely affected by thin conditions with liquidity still rather lacking and I would expect things to stay that way until tomorrow or next week at least.
In the major currencies space, things are a little mixed with the pound finding itself on the back foot while the aussie and franc are also mildly weaker on the day so far.
Looking ahead, we’ll have manufacturing PMI releases in the European morning but these will be final readings for December, so they won’t really matter all too much.
0815 GMT – Spain December manufacturing PMI
0845 GMT – Italy December manufacturing PMI
0850 GMT – France December final manufacturing PMI
0855 GMT – Germany December final manufacturing PMI
0900 GMT – Eurozone December final manufacturing PMI

(more…)

Asian markets return today, but holiday mode will persist – here is what’s on the calendar

  
  Analysis
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Coming up today on what will be a lower than usual liquidity session:

2330 GMT Tokyo inflation data for December – Tokyo area CPI (national level CPI for the month follows in three weeks). The y/y rate has received a wee boost from the October 1 sales tax hike. But not much.

  • Tokyo CPI y/y, expected 0.9%, prior was 0.8%
  • Tokyo CPI y/y excluding Fresh Food, expected 0.6%, prior was 0.6%
  • Tokyo CPI excluding Food, Energy y/y, expected 0.7%, prior was 0.7%

Also at 2330 GMT Japan Jobless (Unemployment) rate for November

  • expected 2.4 %, prior 2.4%

and Job to applicant ratio for November

  • expected 1.57, prior 1.57

2350 GMT Bank of Japan monetary policy meeting ‘Summary of Opinions’ of the December meeting

  • this precedes the minutes of that meeting by many, many weeks.

2350 GMT Japan Retail sales for November

expected 5.0% m/m, prior -14.2% (the huge drop was helped along by that sales tax hike I mentioned above)

  • expected -1.7% y/y, prior -7.0%

2350 GMT Japan Industrial Production for November (preliminary)

  • expected -1.0% m/m, prior -4.5%
  • expected -8.1% y/y, prior -7.7% (trade wars have weighed on exports which in turn have impacted IP)

0130 GMT China Industrial Profits for November % y/y

  • prior -9.9% (trade war and negative PPI big factors in this)

Two lessons from the road

  
  Education
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– It only takes a small slip-up to create big negative effects. Conversely, the road to success in many of life’s ventures seems to be more incremental. Think of the engineering behind cars, space shuttles etc. One small error can lead to total disaster, but for everything to work, so many things have to be ‘right’. A related pattern is the  carry trade in the currency market, where returns are incremental as the high yielding currencies slowly appreciate, but when we witness episodes of carry trade unwinding, things are not nearly as orderly.

– Missing my junction would be less of a problem if I was less tired and fatigued, because I would feel less downhearted at having to do the additional driving. However, it is when we have energy and are wide awake that we are least likely to miss our junctions, and we are more likely to miss them when we least want to. This reminds me of insurance not working when it comes to claiming, of correlations heading to one in times of crisis, and of markets being flush with liquidity, only for it to dry up right when it counts.

Michael Lewis’ Flash Boys: A Wall Street Revolt -A Remarkable Read

  
  Education
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Michael Lewis has a spellbinding talent for finding emotional dramas in complex, highly technical subjects. He did it for the role of left tackle in American football in The Blind Side (2006), and for the science of picking baseball players in Moneyball (2003). In Flash Boys, he turns his gaze on high-frequency computerised trading in US stock markets.

In terms of sheer storytelling technique, Flash Boys is remarkable. High-frequency trading, although often in the news when things go wrong, as in the 2010 “flash crash”, is hard for a specialist to understand, let alone the average reader. It is as if a violinist, bored with the repertoire, opted to play Paganini right-handed as a challenge.

Lewis reaches a stark conclusion: US stock markets are now rigged by traders who go to astonishing lengths to gain a millisecond edge over their rivals. As the innocent investor presses a button to buy shares, they leap invisibly into electronic markets to profit from the order and thousands of others, siphoning off billions of dollars a year.

The rise of high-frequency trading (HFT) was encouraged by a regulation passed in 2005, which aimed to open large exchanges such as the New York Stock Exchange and Nasdaq to stiffer competition. The idea was to make trading fairer; it instead unleashed, in Lewis’s view and that of other critics, a tidal wave of algorithmic front-running by traders whose superfast connections to stock exchanges allow them to react to buying and selling before others can. (more…)

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