Proactive Investors - Run By Investors For Investors

Swiss Franc Slumps in Mini 'Flash Crash' as Japan Curse Strikes

Swiss Franc Slumps in Mini 'Flash Crash' as Japan Curse Strikes

Your free daily email from Fuller Treacy Money

Comments of the Day

12 February 2019

 

 

Video commentary for February 11th 2019

 

 

Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Dollar firm, bonds ease, stock markets steady, gold pauses, discussion of Chinese easing, the outlook for inflation and the need for a higher reaction low before concluding the corrective phase has ended.  

 

 

Swiss Franc Slumps in Mini 'Flash Crash' as Japan Curse Strikes

This article by Michael G. Wilson and Ruth Carson for Bloomberg may be of interest to subscribers. Here is a section: 

The Swiss franc swooned almost 1 percent at the start of Asian trade Monday as thin liquidity caused by a Japan holiday led to a mini recurrence of the “flash crash” that roiled FX markets early last month.

The Swissie slid from 1.0004 per dollar around 7 a.m. in Tokyo to as weak as 1.0096, the lowest since November, within a matter of minutes before almost as suddenly reversing the move to trade 0.2% stronger on the day. The round trip created a trading range for Monday of almost 110 pips, about double this year’s daily average of 56.

The move was a smaller cousin of the whiplash that saw the yen jump almost 8 percent against the Australian dollar early on Jan. 3, when Japanese markets were nearing the end of a week-long New Year holiday break. A spokesman at the Swiss National Bank declined to comment on the franc’s drop on Monday.

“Lack of liquidity is a common factor in these events,” said Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank Ltd. in Sydney. “Traders and strategists now have Japan holiday calendars printed in a big font at their desk!"

 

Eoin Treacy's view

Currency markets are generally very liquid so when we witness two major moves in the space of a month, both tied to illiquidity around Asian trading that tells us there is a lot of money chasing a very specific type of trade. Generally speaking it is only through the use of algorithms that these inefficiencies can be spotted and by now everyone knows to watch Yen crosses during Japanese holidays.

 

 

Trump Has China Where He Needs It

This article by J. Kyle Bass and Daniel Babich may be of interest to subscribers. Here is a section:

“Water keeps the boat afloat but can also sink it” is a Chinese proverb that neatly summarizes the nation’s current economic predicament. The debt that has hydrated the Chinese financial system for the past 10 years is now drowning it.

During the darkest days of the financial crisis in 2008, China launched a 4 trillion renminbi ($593 billion in today’s dollars) infrastructure plan that was accurately described as pulling the global economy out of recession. This infrastructure stimulus plan never ceased, and by 2017 the 4 trillion of spending ballooned to 14 trillion, according to China’s National Bureau of Statistics.
 
At first, China benefited from the economic reforms of the 1990s, its ascension into the World Trade Organization and the resultant inflow of foreign investment by Western companies. By 2009, the previous decade of strong growth meant wages and price levels had risen such that China was no longer a low-cost manufacturer. This made it implausible that exports could drive economic growth. Therefore, China’s central bank printed money to fund a gargantuan stimulus program. 

History tells us that growth that is funded by excessively rapid credit and money creation can lead to a variety of asset bubbles and to financial, credit and currency crises. A broad measure based on data from the People’s Bank of China and other agencies that includes both bank assets and shadow banking assets such as wealth management products, trust beneficiary rights and trust loans, places China’s total credit at $48 trillion, about 3.7 times its gross domestic product. That compares with $24 trillion for the U.S. despite China having an economy that is 37 percent smaller. China’s decade of rapid credit creation and investment spending has led to soaring property values, despite high vacancy, and low wage levels. These led to tepid export growth and a stagnating economy as the export industry lost competitiveness.

 

Eoin Treacy's view

China has a mountain of debt that is concentrated in the regional banking sector and municipal governments. In attempting to wean the economy off of reliance on stimulus they have closed off successive avenues of credit ranging from interbank loans, P2P lending/shadow banking, US Dollar denominated debt. That withdrawal of credit has been one of the primary contributing factors in the underperformance of Chinese assets over the last 18 months.

 

 

Fear of Filing? Some Taxpayers Finding Tax Bills, Not Refunds

This article by Ben Steverman and Laura Davison for Bloomberg may be of interest to subscribers. Here is a section: 

“Most people don’t know how much they pay in taxes,” said Bob Kerr, who leads the National Association of Enrolled Agents, a trade group for tax preparers. “But the refund is the wrong
metric to measure it.”

Right or wrong, the drop in expected refunds is creating fear and anger in accountants’ waiting rooms. “Every single person” who walks in is dreading how much they’re going to owe the IRS, said CPA Gail Rosen, who heads the Martinsville, New Jersey, office of WilkinGuttenplan. “They come in and they worry.”

But telling people they paid fewer taxes throughout the year doesn’t help the sticker shock felt by filers who’ve become accustomed to getting a check, not writing one. Only about 5 percent of taxpayers -- about 7.8 million people -- are expected to pay more under the new law. But about 5 million, according to the Government Accountability Office, will find their typical tax refund replaced by a tax liability. “A lot of people are going to be surprised,” Rosen said.

 

Eoin Treacy's view

Every politician knows that when it comes to policy, perception is often much more important than substance. If people had been asked whether they would prefer more money every month in lieu of receiving a chunky refund cheque they might not be nursing a surprise now. The reality is many people are likely coming out better off. However, if they had been using the refund as a saving mechanism, instead of saving monthly from their paycheques, this situation is going to feel like a tax hike.

 

 

 

 

 

 

 

The information provided on this website (www.FTMoney.com) is for the purposes of information only.  This website and its content is not and should not be considered or deemed to be an offer of or invitation to engage in any investment activity.  Nothing FT Money does and nothing on this website is intended to operate or be construed as the giving of advice or the making of a recommendation by FT Money to any investor or prospective investor.

FT Money and any other group or associated company of it is not authorised or regulated by the Financial Conduct Authority in the UK or any other regulatory body in any other jurisdiction.  

By means of your login to our service you are deemed to thereby accept our current Terms of Business including this notice,

Except for permission to download a single copy for personal use, the research published by FT Money may not be reproduced, distributed or published in whole or in part by any recipient for any purpose, without the prior express consent of FT Money.

Information featured on the website is based upon information and data provided by FT Money and remains the intellectual property of FT Money.  Some of the information may also be provided by third parties and whilst FT Money will seek to ensure that information featured the website is updated on a regular basis, FT Money does not accept any responsibility for, and disclaims any and all liability for, any such information (including the accuracy of such information) or views or opinions expressed on the website. 

Any person considering an investment opportunity as a result of data presented on the website should give full regard to all the content of the website, and should perform their own due diligence and obtain advice from suitably qualified professional advisers before investing.  Prospective investors are also encouraged and recommended to take their own independent legal and taxation advice together with any other advice that they may consider necessary to consider the benefits and risks attached to any investment opportunity.

No representation or warranty, expressed or implied, is or will be made or given by FT Money  (including its executives, employees, agents, contractors and advisors) in relation to the accuracy or completeness of the contents of the website, save that any such liability is not excluded in respect of fraudulent misrepresentation.

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use