Forex Market Commentary
The wheel goes round: fixed income, currencies, equities and commodities
are all inter-linked in the 21st century economy. A single ripple in either market could shake up the rest of global markets.
The PBOC devalued it's currency Yuan fix rate the week before last and the fundamental reason investors piled out of Chinese equities was not because of the implication of a stronger Euro currency or the US Dollar vs Yuan but
because of an over-whelming perception that the Central bank of China was not focusing on the real issues of the economy like a looking credit bubble crisis, vast structural under-employment, lop-sided urban development vs regional investment and a residential and commercial property market threatening to drag many exposed banks to ruin. Exporting your way out of a slowing economy depends upon the demands created by the importing nation. China does not export high end industrial goods like an Boeing aircraft, BMW motor vehicle or General Electric refrigerator but is more widely diverse in semi-finished and finished products like garments and electronic items and therefore the export dynamics of higher income earned are not as greatly affected by a currency devaluation.
With the devaluation of the Yuan we did not see a massive change in the US Dollar price range as can be reflected in the front end contract of the USDX future. But over the last 2 trading sessions from Thursday to Friday a massive sell off in Chinese equities occurred with investors piling out of the troubled Asian equities and seeking the top bond markets like the German Bund and the US Treasury notes as a safe haven to park money until the dust could be settled. US equities faced a blood bath as a result.
In the futures markets in the Bonds markets, on the front end and second contract the volume of trading of Fed Funds 30 day on the 19th on wednesday the futures contracts daily volume on the FFU15 was approx 4,500 contracts but then the volume jumped to 13,000 and 10,000 on the 2 days the equities rout began on Thursday and Friday. The August FFQ15 was closing as the front end but even that saw a spike from 425 to 4,000 on the last day. along the yield curve to the US Treasury 10 year note the front end TYU15 jumped from 744,608 volume on Wednesday to 1,320,397 contracts traded on Thursday and 1,086,808 on the Friday as the equities markets crashed and investors piled in along the forward yield curve in US Treasuries. That's quite a dramatic leap in daily trading volume in Treasuries.
In addition as outright trading the Futures in treasuries can be used as hedging instruments by funds like ETF's who may have held on to some of their Chinese equities whilst hedging the downfall in prices if they remained long in the equities markets in China.
In sequence as simple as we can portray this global institutional investors on Thursday and Friday sold off Chinese equities, received the Chinese currency and bought US Dollar and with US Dollar bought US Treasuries.
Here is an elementary book for free download on the Bond Markets at BookBoon.
http://bookboon.com/en/bond-market-an-introduction-ebook
By Prof. Dr AP Faure Rhodes University.
are all inter-linked in the 21st century economy. A single ripple in either market could shake up the rest of global markets.
The PBOC devalued it's currency Yuan fix rate the week before last and the fundamental reason investors piled out of Chinese equities was not because of the implication of a stronger Euro currency or the US Dollar vs Yuan but
because of an over-whelming perception that the Central bank of China was not focusing on the real issues of the economy like a looking credit bubble crisis, vast structural under-employment, lop-sided urban development vs regional investment and a residential and commercial property market threatening to drag many exposed banks to ruin. Exporting your way out of a slowing economy depends upon the demands created by the importing nation. China does not export high end industrial goods like an Boeing aircraft, BMW motor vehicle or General Electric refrigerator but is more widely diverse in semi-finished and finished products like garments and electronic items and therefore the export dynamics of higher income earned are not as greatly affected by a currency devaluation.
With the devaluation of the Yuan we did not see a massive change in the US Dollar price range as can be reflected in the front end contract of the USDX future. But over the last 2 trading sessions from Thursday to Friday a massive sell off in Chinese equities occurred with investors piling out of the troubled Asian equities and seeking the top bond markets like the German Bund and the US Treasury notes as a safe haven to park money until the dust could be settled. US equities faced a blood bath as a result.
In the futures markets in the Bonds markets, on the front end and second contract the volume of trading of Fed Funds 30 day on the 19th on wednesday the futures contracts daily volume on the FFU15 was approx 4,500 contracts but then the volume jumped to 13,000 and 10,000 on the 2 days the equities rout began on Thursday and Friday. The August FFQ15 was closing as the front end but even that saw a spike from 425 to 4,000 on the last day. along the yield curve to the US Treasury 10 year note the front end TYU15 jumped from 744,608 volume on Wednesday to 1,320,397 contracts traded on Thursday and 1,086,808 on the Friday as the equities markets crashed and investors piled in along the forward yield curve in US Treasuries. That's quite a dramatic leap in daily trading volume in Treasuries.
In addition as outright trading the Futures in treasuries can be used as hedging instruments by funds like ETF's who may have held on to some of their Chinese equities whilst hedging the downfall in prices if they remained long in the equities markets in China.
In sequence as simple as we can portray this global institutional investors on Thursday and Friday sold off Chinese equities, received the Chinese currency and bought US Dollar and with US Dollar bought US Treasuries.
Here is an elementary book for free download on the Bond Markets at BookBoon.
http://bookboon.com/en/bond-market-an-introduction-ebook
By Prof. Dr AP Faure Rhodes University.
Thank you
Pieter Bergli - DeLoren Trust Holdings
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