It’s Back to the Future for Currencies With Volatility Like 2008 By Bloomberg


© Reuters. It’s Back to the Future for Currencies With Volatility Like 2008

(Bloomberg) — The global financial crisis may offer proper guidance on how currency volatility will play out beyond the current market turmoil, even though the two shocks are vastly different in nature.

What seems clear is that investors may need to say goodbye for the foreseeable future to the low-volatility regime in foreign exchange, with hedging throughout 2020 likely to be costly, compared to recent experience.

Long-term bets look set to turn more expensive compared to shorter-dated ones due to the uncertainty surrounding the coronavirus pandemic endgame. That pattern will be reminiscent of the collapse of Lehman Brothers, one of the most emblematic moments of the 2008 crisis.

Once again, monetary and fiscal stimulus has been unleashed in unprecedented size and power. But just as in 2008-2009, there will be fear in the market that it may not be enough to alter the longer-term outlook. Investors will be on watch for lurking credit risks and concerns over funding stresses will remain. Officials have managed to stabilize the markets — for now — yet the enhanced uncertainty creates unease on the outlook on conditions a year from now.

The abrupt shock in the currency volatility space last month resulted in record highs in euro gauges and has been followed by a deep sell-off. It’s been especially notable on options trades with an expiration date of one-week up to one-month. Comparing current volatility levels to past-year averages show that there is still more room for the short-term hedging premium to narrow compared to longer-dated plays.

Already, the so-called inverted volatility term structure in the major currencies — essentially a curve that shows hedging is currently less expensive at longer tenors — has taken a hit. That’s a sign investors are becoming less sensitive to coronavirus headlines and are shifting focus to upcoming meetings by policy makers.

Markets are more stable having priced in the immediate impact of the pandemic. They must now assess how circumstances will change when countries begin to phase out their lockdowns. The risk of a second wave of infections in autumn will probably keep implied volatility in the major currencies higher than the levels seen last year.

That helps explain bets that ranges will widen more on a yearly basis compared to a monthly one, as shown by the pound chart below.

  • NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

©2020 Bloomberg L.P.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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IMF Mulls Fed-Like Program to Supply Dollars to More Economies By Bloomberg


© Bloomberg. Kristalina Georgieva Photographer: Jason Alden/Bloomberg

(Bloomberg) — The International Monetary Fund may launch a new program to help address the global shortage of dollars, providing a backup to the Federal Reserve’s campaign to keep greenbacks flowing around the world economy.

IMF Managing Director Kristalina Georgieva is preparing to offer short-term dollar loans to countries that lack enough Treasuries to participate in a Fed program which enables foreign central banks to temporarily exchange U.S. debt for dollars.

The initiative has the support of the U.S. Treasury and may be launched within weeks, according to people familiar with the matter. The U.S. is the fund’s largest shareholder. The IMF is next week scheduled to hold virtual meetings of members at a time when more than 90 countries have already asked for its assistance in shielding their economies from the coronavirus and global recession.

“Our board is going to review a proposal in the next days on creating a short-term liquidity line that is exactly targeted to countries with strong fundamentals, strong macroeconomic fundamentals, that may be experiencing short-term liquidity constraints,” Georgieva said in an online briefing for reporters on Friday.

“We’re short of one instrument to provide short-term liquidity to countries that are basically strong but find themselves in a tight place,” she said, noting that Indonesia was among countries urging the IMF to look into additional ways to help with liquidity in emerging markets.

A spokesman for the IMF declined to comment, while a Treasury spokeswoman didn’t respond to a request for comment.

Dollar Rush

The coronavirus prompted a worldwide rush into dollars by wreaking havoc on a global economy that is heavily dependent on the greenback as its linchpin and relies on it as a haven at times of stress. Georgieva warned on Friday that the world recession is “way worse than the global financial crisis.”

Emerging-market borrowers who tend to rely on the IMF for aid are particularly at risk of the lack of dollars. Encouraged by low U.S. interest rates, they’ve loaded up on dollar-denominated debt in recent years. They now face a squeeze as their exports plummet, with economies shutting down worldwide to combat the pandemic.

A significantly stronger dollar can also hurt the U.S. by tightening financial conditions and making American exports more expensive on world markets.Georgieva has repeatedly touted the IMF’s readiness to deploy its $1 trillion lending capacity to fight a virus it initially failed to identify as the massive threat to global growth it now poses.

Fed Moves

The Fed has revived or introduce a series of programs aimed at supporting the international supply of dollars. Just last week it announced a temporary facility that can then be made available to companies in those countries that hold dollar-denominated debt. It had already increased the number of central banks who can borrow dollars from it on a short-term basis.

Some analysts and former fund officials have previously raised concerns about the IMF launching a traditional “swap” program and putting IMF assets at risk. In December 2017, members of the lender’s Executive Board said such a facility would “depart significantly from current fund principles and policies.”

Critics say that if the IMF provides an unsecured line of credit without conditions it risks the possibility that countries cannot repay the loan.

The IMF is probing other ways to increase its firepower. It has already asked Group of 20 leaders to support creating a sizable quantity of reserve assets called SDRs, or special drawing rights, as it did in the 2009 global financial crisis.

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Yuan Weakens Past Key Support Level as Depreciation Quickens By Bloomberg


© Reuters. Yuan Weakens Past Key Support Level as Depreciation Quickens

(Bloomberg) — China’s yuan is coming under pressure after it weakened past a support level that had held for the past two weeks.

The currency fell as much as 0.41% on Thursday to depreciate past 7.125 per dollar for the first time since October, before paring losses. Analysts cited demand for greenbacks and concern over the country’s export outlook as reasons for the declines.

Sentiment is turning more bearish in China as the central bank limits stimulus and the global economy falters. Against a basket of 24 trading partner currencies, the yuan fell for seven straight days through Wednesday, while the CSI 300 Index of shares trailed MSCI Inc.’s global benchmark by the most since 2015 last week.

There are signs the central bank will seek to limit further declines. The People’s Bank of China previously set its daily fixing at stronger levels than expected when the yuan neared 7.125. Chinese banks also helped the currency strengthen by selling dollars.

“The yuan trading weaker than 7.1 indicates souring sentiment and may make the PBOC less comfortable,” said Ken Cheung, chief Asia currency strategist at Mizuho Bank Ltd. “If market forces could not guide the yuan back to near 7.1 at the market close in Asia, we may see a firmer fixing tomorrow.”

The yuan last traded down 0.1% at 7.1042.

©2020 Bloomberg L.P.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Virus Lockdowns Confront Billions Working in the Shadow Economy By Bloomberg


© Reuters. Virus Lockdowns Confront Billions Working in the Shadow Economy

(Bloomberg) — How do governments control activity in an economy they never really controlled in the first place? That’s an urgent question being asked for those who run the $35 trillion developing world as the coronavirus takes hold.

From the slums of Manila to remote villages in Colombia, some 2 billion people ply their trades in a barely-regulated and untaxed informal economy. The effort to contain the spread of a disease that’s so far infected around a million people may soon hinge on places hamstrung by weak institutions, constrained resources, and corruption.

“How can I make a living if everything stops?” asked Caetano Sousa do Nascimento, 50, who makes about $11 on a good day selling home-made coconut candies on the outskirts of Brasilia, eking out a living in the informal economy like some 40 million other Brazilians. “People need to go back to their lives. Shutting down everything is not the solution.”

Emerging nations, home to more than 90% of the world’s informal employment, are increasingly shutting the lights on a vital hive of activity that’s disproportionately vulnerable to the disease, least prepared to survive a long cutoff and, crucially, for the most part out of reach of government support programs. An International Monetary Fund working paper estimated the average size of the shadow economy for 158 countries during 1991-2015 at 31.9% of official output. If this ratio held up in 2019, it would mean informal sectors accounted for nearly $30 trillion.

Across the developing world, the plight of informal workers is made worse by a combination of crowded slums, large families living together in small dwellings, and an absence of testing.

New hotspots for the coronavirus are appearing in places like Guayaquil, a tropical city in Ecuador that was taken over by the army last week. The intensifying economic emergency that portends prompted the Group of 20 nations this week to switch to the need to assist developing nations. During a virtual meeting Tuesday, G-20 finance ministers and central bankers said they’d look to address debt vulnerabilities in emerging economies, allowing them to focus their efforts on coping with the threat.

Lacking a financial safety net and with little access to health care, the quandary facing India’s informal workforce of 450 million people is one of the starkest examples of how social inequality threatens to undermine global efforts to contain the virus.

Most of these men and women work for, on average, as little as $2 a day. They don’t have the option to work from home, take time off or avoid public transportation to practice social distancing.

Yet India’s informal sector — from roadside food vendors and migrant workers on construction sites to landless laborers working in agriculture or running small shops in the countryside — contributes half of its almost $3 trillion gross domestic product. It employs more than 90% of the total workforce, according to a government estimate.

With train and bus services largely suspended, migrant workers have begun walking hundreds of kilometers to get back to their villages, while police and vigilantes at roadblocks have been beating people who venture out in violation of the curfew.

Small traders in Nigeria were bracing this week for a lockdown on its two biggest cities, Lagos and Abuja. Africa’s most populous nation surpassed India as the country with the largest number of people living in extreme poverty in 2018, and the size of its informal sector is estimated at as high as 65% of the economy.

Usman Saleh, a trader at Abuja’s Wuse market, had just taken delivery of two truckloads of fresh strawberries worth $5,100 when he heard the government would close all businesses. The fruit will probably go to waste, he said, and losing the money could end up ruining his business.

“What am I going to do now?” he asked. “I can’t store this much in my freezer, I simply don’t have the capacity.”

Seeking Relief

Organizations representing millions of informal workers have begun to advocate for a share of the massive stimulus packages being rolled out.

A collection of 10 organizations in South Africa, representing nearly 5 million workers, have called on the government to establish a “living cash grant” that would allow informal workers to be able to self-isolate without suffering economic hardship. The groups also called for the mass provisioning of masks and gloves, as well as soap and hand sanitizer in public places with lots of informal work.

Much of the Indonesian government’s early initiatives to deal with the pandemic have been targeted to relieve the stress on the informal sector. It provides for 56% of people with jobs — about 70 million — with little or no safety net, leaving them severely exposed in an economic crisis.

But unlike more advanced economies that are better able to target and compensate workers for lost wages, developing countries will struggle to throw informal workers a lifeline, according to Priyanka Kishore, head of India and Southeast Asia at Oxford Economics in Singapore.

“If it’s a large informal sector, I’m very concerned about a prolonged lockdown,” Kishore said.

“Clearly, the challenge is targeted measures — because you need to target the most vulnerable now,” she said. “The larger the share of that part in your economy, the more social pain you’ll see in terms of malnutrition — or deaths.”

Nowhere is the challenge greater than in Africa, where the informal economy accounts for more than 85% of employment, according to an International Labor Organization report. The president of Benin, which depends almost entirely on smuggling goods to and from neighboring Nigeria, said this weekend that it can’t even afford a lockdown.

Getting Pushback

Benin is an exception. Most governments are moving to tighten the screws — even though locking down parts of the economy usually hidden from view may trigger defiance and backfire.

South Africa, the country with the highest inequality in the world, last week deployed the army to enforce a national 21-day lockdown. Aid for the informal sector has been slow to come, with the government rolling out a stimulus package that largely ignored the hundreds of thousands of people who earn their incomes as hair dressers, street hawkers or food sellers.

“Many African governments have taken a copy-and-paste model from Spain and Italy and applied it here, but if you carry on with a lockdown for more than 21 days the impact will be too severe and people will end up ignoring it,” said GG Alcock, a South African who’s written several books about the informal sector.

“The relief measures that are being considered are ignoring a whole part of our economy,” he said.

Violence, Tensions

Hundreds of Moroccans protested the enforcement of emergency measures, marching and belting out religious chants a day after a lockdown was implemented in Fes, Tetouan and Tangier.

The North African kingdom, where 60% of the workforce has no health insurance, is enforcing tight restrictions on movements in public areas that emptied out the traditionally bustling souks and streets. Anger erupted even after authorities promised small stipends to informal breadwinners in a country where the shadow economy is estimated at over a third of GDP.

“The lockdown creates a tough situation for the whole North Africa region because occupying the street is the main feature of a heavy informal economy,” said Rachid Aourraz, an economist at Rabat-based MIPA think tank.

Hard to Afford

Across the world in Colombia, the government is trying to enforce a lockdown until mid-April, but it’s meeting resistance from workers who live hand-to-mouth.

The nation’s vast informal labor force has been swollen in recent years by nearly 2 million migrants fleeing Venezuela’s economic collapse. Most are undocumented, and the mass shutting of restaurants, hair salons and other businesses leaves many of them penniless and facing eviction.

In some parts of rural Colombia the state barely exists, and the rules are set by private armies financed by cocaine.

“In countries with large informal economies, a complete lockdown may just force you into closer proximity with someone who could infect you,” said Kishore of Oxford Economics. “And if cases are not coming under control despite these lockdowns, then the lockdown will continue, compounding the economic and social pain.”

 





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Floating Storage Appears In LNG as Traders Battle Boil-Off By Bloomberg


© Reuters. Floating Storage Appears In LNG as Traders Battle Boil-Off

(Bloomberg) — Liquefied traders are following the latest trend in the oil market by storing huge amounts of the commodity on tankers, hoping prices will rise before the ship docks.

But while crude can sit for months or even years in a tank, super-chilled LNG tends to evaporate even in the specialized vessels that handle it. That limits the amount of time “floating storage” is feasible.

“Keeping gas frozen is extremely expensive because of the energy cost to maintain the ultra low minus-265-degree Fahrenheit temperature,” said Francisco Blanch, head of global commodities and derivative research for Bank of America Corp (NYSE:). in New York.

The number of vessels used for floating storage peaked at 17 late last month, but has now eased to 13 after some unloaded their cargoes in India, according to data intelligence company Kpler. Three vessels have been idle for more than 10 days, Kyriakos Mezopoulos, director for LNG at Affinity, said in a note.

More ships acting like storage tanks might be a sign the LNG industry is poised to cut production. They’re reacting to a crash in prices as demand slowed, the result of two warm winters in a row and the coronavirus, which has shut huge parts of the global economy.

U.S. LNG producer Cheniere Energy Inc (NYSE:) is already sourcing cargoes in Europe, with some traders and analysts speculating that this could be ahead of temporary production cuts.

Spot LNG in Asia, the biggest consuming region, slumped to a record this week, and prices in Europe are also testing all-time lows. And unlike in oil, where markets indicate a rebound in prices in the months ahead, a surge in forward rates for LNG is too far off to matter.

“We clearly see floating storage as a safety valve in the next couple of weeks and even in the next couple of months,” Jefferson Clarke, managing director for LNG at shipbroker Poten & Partners Inc, said at the webinar.

In the market, plunging prices triggered a huge contango, where traders anticipate gains in future months and have an incentive to put the commodity into storage for months or years. They’ve hired tankers because storage sites on land are almost full.

Oil Tanker Rates In Prolonged Rally as Excess Oil Seeks Storage

The dynamics are different in the gas industry, where gas storage sites on land that should be near empty still have fuel from last year, and any price rebound is too far into the future to make a difference. Also, the “boil-off” rate is a factor for LNG. Between 0.07% to 0.15% on average evaporates from LNG tankers per day for the majority of the global fleet. That means over a 75 day voyage, about 5% to 11% of the original cargo could be lost.

Last fall, some traders loaded cargoes at low prices in August and discharged in early November when rates were rising. A typical journey from Qatar to the U.K. via Suez Canal, for example, takes about two weeks.

While new vessels have better technology that limits the evaporation rate, the difficulty containing the gas over long periods means using tankers as storage has a physical limit.

“Floating storage is less about stockpiling, but more about slow-steaming until hopefully the rates pick up,” Iain Ross, chief executive officer of shipowner Golar LNG Ltd., said at the webinar organized by Capital Link Inc. and Citigroup Inc (NYSE:).

While benchmark Asian LNG has lost about half its value this year, the storage trade is a bright spot for vessel owners. They can charge more than 40% more per day for a typical tanker in the Atlantic than at the same time a year ago, according to data from shipbroker Fearnleys A/S.

Unusual Trend

The latest trend is unusual for this time of year, said Oystein Kalleklev, chief executive officer of Flex LNG Ltd. The company has six vessels that it rents out. Unlike oil, LNG demand is largely seasonal, with a peak in winter when heating is in demand and another smaller lift in the summer for cooling.

More floating storage may appear in September and October, when tanks on land are full and winter chills have yet to arrive. Demand for vessels later this year is already rising, said Mark Kremin, CEO of shipowner Teekay Gas Group Ltd.

In part, floating storage in LNG now is a result of quarantines, Flex’s Kalleklev and his peer from Hoegh LNG Holdings Ltd., Sveinung Stohle, said in interviews. Other reasons are cargo deferrals and diversions, as the virus hit demand and delayed unloading, the shipping executives said at the webinar.

“We will see increased inefficiencies with regards to discharge and possible ships having to wait 14 days from loading to discharge as well as increased level of floating storage compared to what customary at this time of year,” Kalleklev said in an emailed response to questions.

 



China Starts Buying Oil for State Reserves After Price Crash By Bloomberg


© Reuters. China Starts Buying Oil for State Reserves After Price Crash

(Bloomberg) — China is moving forward with plans to buy up oil for its emergency reserves after an epic price crash, according to people with knowledge of the matter.

The world’s biggest importer is taking advantage of a 60% plunge this year to snatch up cheaper barrels for its stockpiles, a source of considerable speculation in the market because of the government’s reluctance to release information about their formation, size or use.

Beijing has asked government agencies to quickly coordinate filling tanks and using financial tools like options to lock in current low prices, the people said, asking not to be identified because the matter is confidential.

In addition to state-owned reserves, Beijing may use commercial space for storage as well, while also encouraging companies to fill their own tanks, the people said. The initial target is to hold government stockpiles equivalent to 90 days of net imports, which could eventually be expanded to as much as 180 days when including commercial reserves.

China is also planning to announce the fourth batch of strategic reserve sites, the people said. The expansion project has the dual advantage of creating larger emergency reserves and as an economic stimulus project to spur construction opportunities as the country recovers from the coronavirus.

Officials at the National Development and Reform Commission, the top economic planner, didn’t immediately respond to requests for comment.

, the international benchmark, extended gains on Thursday to rise almost 13% to $27.88 a barrel as of 7:08 a.m. in London.

Before the government’s directive was made public, consultancies SIA Energy and Wood Mackenzie Ltd. both estimated that China could probably add 80 million to 100 million barrels to reserves this year before it ran into logistical and operational constraints. According to SIA, China had about 996 million barrels of oil combined in strategic and commercial storage as of March 31.

In September, the head of development and planning at the National Energy Administration said the country had total oil reserves, including strategic stockpiles, for about 80 days. In December, state-owned China National Petroleum Corp. said on its website that the government intends to boost the capacity of its strategic petroleum reserves to 503 million barrels by the end of this year, an indicator of the maximum amount the government can store.

The U.S. currently holds about 635 million barrels in its Strategic Petroleum Reserve, according to government data. A Trump administration plan to buy more oil for the national stockpiles was thwarted last month after Democrats blocked a request for funds.

(Updates with oil prices in seventh paragraph)

©2020 Bloomberg L.P.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



‘Highly Bullish’ Survey May Mean Stock Bottom Not In, RBC Says By Bloomberg


© Bloomberg. Pedestrians pass in front of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Feb. 26, 2020. U.S. equities swung between gains and losses as investors digested fresh evidence of the widening coronavirus outbreak. Photographer: Michael Nagle/Bloomberg

(Bloomberg) — Institutional U.S. equity investors are very bullish on stocks — which could mean investors haven’t yet capitulated and the bottom hasn’t been reached in the coronavirus sell-off, according to RBC Capital Markets.

Respondents to RBC’s survey of American stock investors were the most bullish since it began in early 2018, encouraged by what they see as attractive valuations, faith the Federal Reserve will continue to support equities and a belief that the economic damage from the coronavirus crisis will be manageable, strategists including Lori Calvasina said in a note Thursday.

“This surprisingly high level of bullishness supports our own view that we haven’t yet seen investor capitulation, echoing what we’ve seen in other data sets,” the strategists wrote. “We view capitulation as a necessary, though not sufficient condition for stock market bottoms in major drawdowns.”

The figures stand in contrast to the December 2018 survey “when bears spiked and bulls eased back,” they added.

Nearly two-thirds of the 185 institutional investors responding thought the S&P 500 Index would bottom at 2,100 or higher, according to the survey, which was conducted between March 25 and 31. The U.S. benchmark reached an intraday low on March 23 around the 2,192 level and closed just below 2,471 Wednesday.

Still, 57% of respondents expected a trough in the second quarter, compared with 19% who think the lows have already occurred, according to the report. Those bulls have company, with Morgan Stanley’s Mike Wilson saying the benchmark was unlikely to retest the March lows, and JPMorgan Chase (NYSE:) & Co.’s John Normand writing that the market rout is probably past its worst point.

GDP Key

On the economic front, most respondents think U.S. gross domestic product won’t fall by more than 20% in the worst quarter and that a recession will end in the fourth quarter. This is an important piece of data for market watchers, the RBC team argued.

“If evidence that the most negative GDP quarter will be worse than 20% and that the contraction will last beyond 3Q emerges, it is likely to destabilize the market,” the strategists wrote. “If evidence emerges that the impact will be less severe, it can help the stock market stabilize and move higher.”

Other results from the survey include:

  • Only 17% think a greater fiscal response is needed for the worst-hit companies and industries, indicating that “additional fiscal measures are unlikely to provide much support to equities”.
  • Those expecting President Donald Trump to be re-elected fell to 52% from 76% in the last survey.
  • The U.S. was “highly favored” in terms of geographies, “well ahead” of emerging markets, developed Europe, developed Asia and Canada.
  • Large caps, growth and cyclicals were the non-geographic trades seen most likely to outperform.

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



The Financial Market’s Stress Is All About the Dollar By Bloomberg


© Reuters. The Financial Market’s Stress Is All About the Dollar

(Bloomberg Opinion) — Good riddance to the worst first quarter in history. But that doesn’t guarantee Spring sunshine and flowers as winter ends. Eminent investors such as Oaktree Capital Group LLC co-founder Howard Marks and DoubleLine Capital’s Jeffrey Gundlach are warning that the worst may not be over. April really could be the cruelest month for equities as a brief bear market rally peters out and the lows are tested again. Until there’s evidence that the worst of the virus contamination is under control, the economy and financial markets are at its mercy.

Fixed-income assets have a tendency to show where equities are headed during crises and yet again U.S. Treasury bond yields are pushing lower, a clear warning of a renewed flight to quality.

While central banks have swiftly enacted the playbook learnt from the financial crisis more than a decade ago, and even parsimonious governments such as Germany’s are reaching for the fiscal checkbook, the emergency aid is only reaching higher-quality assets.

Sub-investment grade companies and non-agency mortgage debt are trapped in a downward spiral. Marks pointed to mounting job losses and business defaults and said the range of negative outcomes is wider now. Gundlach said the current economy resembles a depression and that he expects many defaults, although he advocates a hardline approach with “no government bailouts whatsoever.” That might not meet with popular approval.

The critical faultline in the coronavirus-induced selloff has been the sudden strength in the dollar, as banks and investors globally liquidate assets and scramble for cash — above all, dollar cash. Until the Federal Reserve can satisfy onshore and offshore demand for the greenback, the economic effects of that will spread like wildfire. Everybody is desperate for liquidity, from the commercial property market to blue-chip Exxon Mobil Corp (NYSE:)., which had to come to the bond market recently as it couldn’t get the size of funding it wanted in commercial paper. 

With this lack of access to liquidity rising all over corporate America — especially in junk-rated companies —  assets everywhere are being used as ATMs to raise urgent funds.

Some of the Fed’s liquidity measures won’t become fully operational until April 6, such as the crucial commercial paper funding facility, where the central bank will buy directly from eligible U.S. issuers. Until that backstop measure to ease borrowing in the corporate market kicks in, there will be little respite.

We have also just passed the end of the Japanese financial year, and there has been super-strong demand from the country’s banks for dollar liquidity. It’s been running at a rate of nearly 10 times that of European Banks, which is bound to have an impact.

Until the volatility in the dollar money markets subsides there will no be peace for other asset classes and the intense pressure for liquidation will persist. The Fed is alive to the problem and has extended its dollar swaps lines to all foreign central banks (if they have an account with the New York Fed), allowing them to park U.S. Treasury bonds in return for cash.

The dollar is the world’s reserve currency and the Fed is now acting as the central bank to all. Only by pumping out liquidity globally can it possibly prevent an even more almighty rush into dollars. Until it has put a lid on the money-market stress, the rest of the financial markets remain in peril. 

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

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

©2020 Bloomberg L.P.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Turkey Widens Emergency Response With Central Bank’s Bond Buying By Bloomberg


© Reuters. Turkey Widens Emergency Response With Central Bank’s Bond Buying

(Bloomberg) — Turkey’s central bank on Tuesday added to its emergency program to help contain the economic fallout from the coronavirus outbreak with new measures to ease lenders’ access to credit and support liquidity in the government bond market.

Policy makers said they could make the bulk of planned purchases of government-issued bonds in a “front-loaded manner” and the program’s “limits may be revised depending on market conditions.” The latest step, unveiled two weeks after the central bank’s first round of emergency measures, amount to “Turkish QE,” or quantitative easing, said Timothy Ash, a strategist at Bluebay Asset Management in London.

“They were always going to do this, given their unorthodox bent,” he said.

The Turkish central bank has already stepped up its government bond purchases at a dramatic clip, propping up a market reeling from unabated capital flight and the prospect of increased borrowing needs. Over the past five bond-buyback auctions, it snapped up 1.56 billion ($240 million) of local-currency debt from the secondary market, the fastest pace in a decade and more than double the average this year.

Currently, the size of the central bank’s government bond holdings can reach 5% of its balance sheet, according to a policy statement in December.

Foreign investors pulled a net $742 million dollars out of Turkey’s local-currency bond market over five days through March 20. That’s the seventh straight week of outflows, taking the exodus over the past year to $6.4 billion.

The yield on government bonds has jumped more than 130 basis points this year. The lira is down 9.4% against the dollar so far in 2020.

On Lockdown

President Recep Tayyip Erdogan’s government is rushing assistance at a time hundreds of thousands of businesses remain shut down because of the outbreak. The number of fatalities from the pandemic reached 168 on Monday as the number of infected people climbed to almost 11,000.

A gauge of confidence among Turkish manufacturers fell in March by the most since the 2008 global financial crisis.

While the central bank purchases are part of a beefed-up program designed to manage the banking system’s liquidity, its scale suggests policy makers are using their balance sheet to soften the blow of accelerating capital flight, while absorbing any pressure the market may come under if the government is forced to scale up its borrowing.

Earlier this month, Erdogan unveiled a 100 billion-lira plan to help businesses ride out the economic storm caused by the coronavirus pandemic. Authorities also doubled the allotment for the Credit Guarantee Fund, through which companies access borrowing with the government acting as a guarantor.

Turkey’s economy relies heavily on foreign inflows to finance growth and has more than $170 billion of external debt coming due over the next 12 months. Foreign investors now hold less than 10% of the local-currency debt stock in Turkey, an all-time low.

As part of its measures announced on Tuesday, the central bank also pledged to boost the amount of cheap cash it offers to eligible commercial lenders that extend credit to the non-financial sector.

Companies exporting goods and services will have access to a new batch of lira-denominated credit under new limits set for the so-called “rediscount loans,” according to a statement.

It could also accept banks’ asset and mortgage-backed securities as collateral, another step that would allow commercial lenders some flexibility in their liquidity management.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Fed Starts Repo Facility to Provide Dollars to Central Banks By Bloomberg


Fed Starts Repo Facility to Provide Dollars to Central Banks

(Bloomberg) — The Federal Reserve has opened a temporary repurchase agreement facility for foreign central banks to support the smooth functioning of financial markets.

The program will allow participants to temporarily exchange U.S. Treasuries for dollars, which can then be made available to institutions in their jurisdictions.

“This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market,” the Fed said in a statement Tuesday.

The pared its gains after the announcement, while short-end Treasury yields held steady and U.S. stock futures remained down on the day.

The program, available April 6, is a new weapon in the Fed’s arsenal to stabilize dollar funding markets. The U.S. central bank said it “reduces the need for central banks to sell their Treasury securities outright and into illiquid markets,” helping stabilize trading in the world’s most secure and important asset.

“By allowing central banks to use their securities to raise dollars quickly and efficiently, the facility will also support local markets in U.S. dollars and bolster broader market confidence,” the Fed said. “Stabilizing foreign dollar markets, in turn, will support foreign economic conditions and thereby benefit the U.S. economy through many channels, including confidence and trade.”

The facility was authorized by the Federal Open Market Committee, according to the statement.

The Fed said the term of the repos will be overnight, but can be rolled over as needed. Transactions will be conducted at a rate of 25 basis points over the interest rate on excess reserves.

Outstanding transaction totals will be made public in the Fed’s weekly balance sheet report.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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