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Global FX Trading Hits Record $7.5 trln a Day – BIS Survey

Currency trading has hit a record $7.5 trillion-a-day, a comprehensive new study has shown, with the dollar retaining its global dominance but some signs too that London’s position as the world’s top trading hub is being eroded by Brexit.

The triennial survey carried out by central bank umbrella group the Bank for International Settlements collated data from April as markets were grappling with the Ukraine war and early stages of the aggressive U.S. interest rate hike cycle.

The headline $7.5 trillion daily turnover figure marked a historically modest 14% increase from the $6.6 trillion recorded in 2019 and was driven by a mix of higher foreign exchange spot, swaps and forwards market volumes.

Turnover of FX swaps accounted for 51% of global turnover, up from 49% in 2019, whereas spot trades fell to 28% from 30% and the share of outright forwards remained at 15%.

This “was the lowest triennial growth rate in all but two Surveys since 2004,” the BIS said, “despite data collection coinciding with heightened FX volatility due to changing expectations about the path of future interest rates in major advanced economies, rising commodity prices and geopolitical tensions following the Russian invasion of Ukraine”.

The survey, which is viewed as the most comprehensive overview of global currency market trading, collected data from more than 1,200 banks and dealers in 52 countries.

Unwavering U.S. dollar dominance meant it was involved in 88% of all trades – a level it has maintained for the past decade, while the euro remained the second most actively traded currency despite a small drop in its share to 31%.

Other top currencies such as the Japanese yen and British pound maintained their near 17% and 13% respective shares, while the Chinese yuan saw the biggest rise to 7% from 4%, which hoisted it to fifth in the overall rankings from eighth.

Rouble volumes were notably not included this time around after Russia’s BIS membership was rescinded after the invasion of Ukraine, although it share had been less than 1% in 2019 anyway.


The demise of Libor and Brexit look to have reshaped the world’s over-the-counter (OTC) interest rate derivatives market, where daily turnover dropped to $5.2 trillion from $6.4 trillion in April 2019.

Banks and companies use interest rate swaps to insure themselves against unexpected moves in borrowing costs.

But after banks were fined for trying to rig the London Interbank Offered Rate or Libor, most of the rate’s permutations across five currencies were scrapped at the end of 2021 and replaced with rates compiled by central banks.

“The most significant factor contributing to the decline in turnover is the continuing shift away from Libor for major currencies,” the BIS said.

There were also shifts in activity after Britain completed its departure from the European Union at the end of 2020.

It remained the most important currency trading location globally, with 38% of global turnover, although that was down from 43% in 2019.

Foreign exchange desks in London also still recorded the highest turnover of interest rate derivatives, at $2.6 trillion, or 46% of global ‘net-gross’ turnover, but this too was down from 51% .

“Turnover in U.S. dollar swaps has partially shifted from sales desks in the United Kingdom to the United States and Asian financial centres,” the BIS said, although it is uncertain whether it is a fundamental long term shift.

“Similarly, turnover in euro swaps has shifted from the United Kingdom to the euro area.”

Brexit meant that EU banks could no longer trade OTC derivatives in London.

Turnover in euro interest swaps grew the most over the three years surveyed by BIS, reaching $1.3 trillion per day in 2022, up 38% from April 2019.

Turnover of euro rate swaps in Britain fell 18% to $1 trillion over the three years, while turnover by dealers, particularly in Germany and France more than tripled, from $124 billion in 2019 to $385 billion in 2022.

Asia’s financial hub Hong Kong saw its share of FX trading dip to 7% from 8%, which the report said was likely as result of COVID-19 restrictions.

The city only removed mandatory quarantine for incoming travellers in September and still has restrictions on the size of group gatherings, rules that have contributed to an exodus of international bankers.

Hong Kong’s regional rival Singapore, in contrast, increased its share of global turnover to 9% from 8%, though both hubs remain among the top five global venues.

Source : Kitco

Yuan at the Mercy of Overseas Traders Puts China on Alert

The onshore yuan is on track for a seventh month of losses, and things could get even worse for its less-regulated offshore exchange rate as China goes on a one-week holiday.

The currency traded in Shanghai is matching a record run of monthly losses set during the height of the US-China trade war four years ago. Its realized volatility this week spiked to a level unseen since 2020 as the exchange rate was buffeted by the dollar’s surge and Beijing’s steps to resist yuan weakness.

Next week, the offshore yuan — which is subject to less control by the central bank — loses an important anchor. With mainland markets closed for the Golden Week holidays starting next week, Beijing won’t be able to guide investor expectations with its daily reference rate, which is set each morning by the central bank and limits onshore yuan moves to 2% on either side. That would make the overseas yuan even more vulnerable to the dollar’s surge.

China’s central bank appears to be girding itself for any disorderly trading next week. The People’s Bank of China set the fixing at a stronger-than-expected level for the 27th day, the longest run of stronger fixings on record since Bloomberg started the survey in 2018. It also asked major state-owned banks to be ready to sell dollars to prop up the yuan overseas, Reuters reported Thursday citing people with knowledge of the matter. That’s after issuing strongly-worded statement on Wednesday to deter currency speculators.

That’s because some of the largest deviations between the onshore yuan’s closing price and the offshore unit have occurred when Chinese markets were closed for a holiday. The offshore yuan traded 890 pips weaker than its onshore counterpart on the May 3 Labor Day holiday, the largest gap this year. Trading during the mid-Autumn festival holiday in September 2015 was particularly volatile as the currency deviation exceeded 1000 pips.

“The PBOC is trying to bring some stability to the market, but the problem is that the dollar is too strong,” said Geoffrey Yu, senior FX strategist at Bank of New York Mellon. “If the US data remains strong, there’s not much central banks can do to stop the dollar rally.”

The central bank’s measures so far have only slowed yuan losses. That’s because China’s monetary policy is diverging further from the US, driving outflows. While the Federal Reserve retains a hawkish stance in its efforts to curb US inflation, Beijing is keeping an accommodative policy amid signs the Asian economy is cooling due to Covid lockdowns and a housing-market crisis.

Earlier this week the PBOC imposed a risk reserve requirement of 20% on currency forward sales by banks to make it more expensive to short the yuan. That’s after a move to reduce the foreign-currency reserve requirements for banks.

While the PBOC has other tools at its disposal to stem yuan losses it may be holding back from doing so for now as may be focusing on slowing the pace of the depreciation rather than defending a specific level. The yuan is also holding relatively steady against currencies of its 24 major trading partners, data from a Bloomberg real-time tracker of the CFETS RMB Index show. A weaker yuan isn’t necessarily bad for China as it could make the nation’s exports more competitive and aid in boosting the economy.

Bearishness prevails in the derivatives market. Traders added the most short yuan options this month so far this year, with the nominal value of bearish wagers standing at about four times the size of bullish bets, Bloomberg-compiled data show. Three-month risk reversals, which measure the cost of hedging against offshore yuan losses, jumped to the highest since May this week.

The offshore yuan will remain at the mercy of the dollar in the coming week, said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. The currency that trades in Shanghai may retest 7.25 per dollar into next year.

“It is not really the yuan’s fault,” he said. “The dollar is simply too strong.”

Source : BNN Bloomberg

What Stocks are Trading on U.S. Capital Hill?

Source : Statista

Chart: Record Number of Exchange-traded Funds Launched This Year

ETF inflows top $1 Trillion for first time

Source : Wall Steet Journal

Financial Contagion!

Jim Rickards wrote . . . . . . . . .

There has been a litany of bad news recently, including the U.S. August humiliation in Afghanistan, China’s aggressive actions against Taiwan and increased tensions with Iran, North Korea and Russia.

It will take the U.S. years, possibly decades, to recover from the debacle of August 2021 and the collapse of American prestige. All of these geopolitical events combine to undermine confidence in U.S. power.

When that happens, a loss of confidence in the U.S. dollar is not far behind.

And, perhaps most importantly of all recent bad news, is a market meltdown and slowing growth in China.

Greatest Ponzi Ever

I’ve long advised my readers that the Chinese wealth management product (WMP) system is the greatest Ponzi in the history of the world. Retail investors are led to believe that WMPs are like bank deposits and are backed by the bank that sells them. They’re not.

They’re actually unsecured units in blind pools that can be invested in anything the pool manager wants.

Most WMP funds have been invested in the real estate sector. This has led to asset bubbles in real estate (at best) and wasted developments that cannot cover their costs (at worst). When investors wanted their money back, the sponsor would simply sell more WMPs and use the money to pay back the redeeming investors.

That’s what gave the product its Ponzi characteristic.

The total amount invested in WMPs is now in the trillions of dollars used to finance thousands of projects sponsored by hundreds of major developers. Chinese investors are all-in with WMPs.

Now the entire edifice is collapsing as I predicted it would.

The largest property developer in China, Evergrande, is quickly headed for bankruptcy. That’s a multibillion-dollar fiasco on its own. Evergrande losses will arise in WMPs, corporate debt, unpaid contractor bills, equity markets and unfinished housing projects.

China’s entire property and financial system is on the verge of a world-historic crack-up. And it won’t remain limited to China.

It comes back to contagion.

Financial Contagions Are Like Biological Contagions

Unfortunately, since early last year, the world has learned a painful lesson in biological contagions. A similar dynamic applies in financial panics.

It can begin with one bank or broker going bankrupt as the result of a market collapse (a “financial patient zero”).

But the financial distress quickly spreads to banks that did business with the failed entity and then to stockholders and depositors of those other banks and so on until the entire world is in the grip of a financial panic as happened in 2008.

Disease contagion and financial contagion both work the same way. The nonlinear mathematics and system dynamics are identical in the two cases even though the “virus” is financial distress rather than a biological virus.

And unfortunately, each crisis is bigger than the one before and requires more intervention by the central banks.

The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

Today, systemic risk is more dangerous than ever because the entire system is larger than before. This means that the larger size of the system implies a future global liquidity crisis and market panic far larger than the Panic of 2008.

Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

Contagion and The Old Man and the Sea

To understand the risk of contagion, you can think of the marlin in Hemingway’s The Old Man and the Sea. The marlin started out as a prize catch lashed to the side of the fisherman Santiago’s boat.

But once there was blood in the water, every shark within miles descended on the marlin and devoured it. By the time Santiago got to shore, there was nothing left of the marlin but the bill, the tail and some bones.

An even greater danger for markets is when these two kinds of contagion converge. This happens when market losses spill over into broader markets, and then those losses give rise to systematic trading against a particular instrument or hedge fund.

When the targeted instrument or fund is driven under, credit losses spread to a wider group of fund counterparts that then fall under suspicion themselves. Soon a marketwide liquidity panic emerges in which “everybody wants his money back.”

This is exactly what happened during the Russia/Long Term Capital Management (LTCM) crisis in 1998.

To the Brink of Collapse

It was an international monetary crisis that started in Thailand in June 1997, spread to Indonesia and Korea and then finally to Russia by August 1998. It was exactly like dominoes falling.

LTCM wasn’t a country, although it was a hedge fund as big as a country in terms of its financial footings.

I was right in the middle of that crash. I was the general counsel of that firm. I negotiated that bailout. The importance of that role is that I had a front-row seat.

I was in the conference room, in the deal room, at a big New York law firm. There were hundreds of lawyers. There were 14 banks in the LTCM bailout fund.

There were 19 other banks in a $1 billion unsecured credit facility. Included were Treasury officials, Federal Reserve officials, other government officials, Long Term Capital and our partners.

I was on point for one side of the deal and had to coordinate all that.

Wall Street Bailed out Itself

It was a $4 billion all-cash deal, which we put together in 72 hours with no due diligence. Anyone who’s raised money for his or her company or done deals can think about that and imagine how difficult it would be to get a group of banks to write you a check for $4 billion in three days.

Systematic pressure on LTCM persisted until the fund was almost broke. As Wall Street attacked the fund, they missed the fact that they were also the creditors of the fund. By breaking LTCM, they were breaking themselves. That’s when the Fed intervened and forced Wall Street to bail out the fund.

Those involved can say they bailed out Long Term Capital. But if Long Term Capital had failed, and it was on the way to failure, $1.3 trillion of derivatives would’ve been flipped back to Wall Street.

In reality, Wall Street bailed out itself.

The panic of 2008 was an even more extreme version of 1998. We were days, if not hours, from the sequential collapse of every major bank in the world. The 2008 panic had its roots in subprime mortgages but quickly spread to debt obligations of all kinds, especially money market funds and European bank commercial paper.

Think of the dominoes again. What had happened there? You had a banking crisis. Except in 2008, Wall Street did not bail out a hedge fund; instead, the central banks bailed out Wall Street.

Systemic Risk Is Greater Than Ever

The point, again, is that today systemic risk is more dangerous than ever, and each crisis is bigger than the one before.

Remember, too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

The ability of central banks to deal with a new crisis is highly constrained by low interest rates and bloated balance sheets, which have exploded even higher in response to the pandemic.

The Fed’s balance sheet is currently about $8.5 trillion. Last March it was $4.2 trillion. In September 2008, it was under $1 trillion, so that just shows you how bloated the Fed’s balance sheet has become since the Great Financial Crisis.

The threat of contagion is a scary reminder of the hidden linkages in modern capital markets.

The conditions are in place.

But you can’t wait for the shock to occur because by then it will be too late. You won’t be able to get your money out of the market in time because it’ll be a mad rush to the exits.

The solution for investors is to have some assets outside the traditional markets and outside the banking system.

Source : Daily Reckoning

Squid Game Cryptocurrency Rockets in First Few Days of Trading

Katie Silver wrote . . . . . . . . .

If you’re a fan wanting to express your devotion to the hit Korean Netflix show Squid Game – well, there’s a cryptocurrency for that.

Gamers have created an online version of the programme, for which you need the Squid cryptocurrency to play.

On Tuesday, it was worth a modest 1 cent, but by Friday it had exploded in value, reaching $4.39 (£3.18).

But Squid has been criticised for not allowing investors to resell their tokens.

The dystopian series – which tells the story of a group of people forced to play deadly children’s games for money – has become a viral sensation.

Squid is what is known as a “play-to-earn” cryptocurrency, where people buy tokens to play in online games where they can earn more tokens. These can then be exchanged for other cryptocurrencies or fiat money.

In the case of Squid, many buyers will be gamers looking to play in the online game of the programme, which begins in November.

“The more people join, the larger reward pool will be (sic),” according to the issue document, which says developers will take 10% of the entry fee with the remaining 90% given to the winner.

“More importantly, we do not provide deadly consequences apparently!”

Individual rounds have costs to join – for example, playing Round 1: Red Light, Green Light will cost a player 456 Squid – with six rounds in total that get more expensive as they go along.

Buyer beware

But prospective buyers should beware with crypto price-tracking website CoinMarketCap issuing a warning that many users have been unable to resell their tokens on cryptocurrency exchanges.

Its market capitalisation, or total volume in the market, has reached $184m (£133m).

One trader told the BBC on Twitter they have $7,500 (£5,442) tied up in the currency that they are hoping will be released in 48-hours.

It is unclear why this is happening, but the company says it is using “innovative” anti-dumping technology that limits people from selling their coins if there are not enough coins being bought in the market.

The company has not immediately responded to the BBC’s request for clarification.

“This cryptocurrency joins a long and growing list of digital coins and tokens that piggyback on random memes or cultural phenomena,” Cornell University economist Eswar Prasad told the BBC.

“Remarkably, many such coins rapidly catch investors’ fancy, leading to wildly inflated valuations. Naïve retail investors who get caught up in such speculative frenzies face the risk of substantial losses.”

Play-to-earn games: the future of gaming?

Play-to-earn games have grown increasingly popular during the pandemic as the surge in online gaming encouraged the development of the GameFi technology sector which combines entertainment with real tools for earning money.

The metaverse is expected to help this sector develop even further.

It’s not just crypto traders that have benefited from Squid Game’s popularity.

Netflix’s subscriptions saw a bounce when the program was released. According to Bloomberg, the Korean series is thought to be worth some $900m to the streaming giant, after costing just $21.4m to make.

Source : BBC

Infographic: Big Tech CEO Insider Trading During the First Half of 2021

See large image . . . . . .

Source : Visual Capitalist

Individual Investors Bought Record Amount of US Equities and ETFs in July, 2021

Source : J.P. Morgan





Source : 中国证监会

Short USD Trade Is Overcrowded As USD Rises

Source : Bloomberg