Volatility Erupts Everywhere as Trade War Becomes a Currency War

Aug 7, 2019

Lead Stories

Volatility Erupts Everywhere as Trade War Becomes a Currency War
Luke Kawa – Bloomberg (SUBSCRIPTION)
Volatility is here and set to spread.
That’s the view from Wall Street, which holds that Tuesday’s rebound in risk assets from the biggest decline in the S&P 500 Index of 2019 is just a lull in what has traditionally been a rocky month.

Specter of Forced Selling Sinks Risk Appetite as Stocks Tumble
Luke Kawa – Bloomberg (SUBSCRIPTION)
Investors slammed the eject button without a clear and immediate catalyst on Wednesday morning, turning what was poised to be a positive open into a sea of red.

Hedge fund bullishness means hidden danger for investors
Laurence Fletcher – Financial Times (SUBSCRIPTION)
If investors ever needed a reminder that equity markets can suddenly change direction, then the past few days have provided a timely example.
The S&P 500 index, which hit a high towards the end of last month, fell almost 5 per cent this month, while the continent-wide Stoxx Europe 600 lost 4 per cent. US president Donald Trump’s promise of further tariffs on Chinese imports, a slide in the renminbi that threatens to exacerbate the trade war and the Federal Reserve’s perceived caution in cutting interest rates have all weighed on stocks.

Why the ‘tail risk of a currency war can’t be ruled out’ as U.S.-China tensions mount
William Watts – MarketWatch
It isn’t the base case for most economists, but the threat that the trade fight between the U.S. and China could turn into a currency battle can’t be ruled out.
“There is little doubt that there has been an escalation in the trade war between the U.S. and China in the past few days. What is in question is whether recent events will trigger a full blown currency war and how far the crossfire will extend,” said Jane Foley, senior FX strategist at Rabobank, in a note.

China’s Yuan Fix Is Unmissable These Days for Currency Traders
Tian Chen – Bloomberg (SUBSCRIPTION)
China’s central bank is under pressure to issue its weakest currency fixing in more than a decade, a move that risks spurring more losses in the yuan.
The People’s Bank of China set its daily currency reference rate only marginally stronger than 7 a dollar on Wednesday. That leaves it little headroom if it wants to track the spot rate, which fell 0.3% to 7.0463. While the yuan breached the key 7 level this week for the first time since May 2008, the fixing hasn’t.

Sterling stuck near two-year lows, markets see more selling
Olga Cotaga – Reuters
Traders paused their heavy selling of the pound on Wednesday but the British currency remained stuck near its weakest since 2017 and analysts are predicting renewed volatility.

Brace for a 2nd wave in stock-market volatility — and this one could be ‘Lehman-like,’ says Nomura
Mark DeCambre – MarketWatch
A rally in stocks on Tuesday may take shape after an ugly Monday selloff, but any rebound ought to be treated with a heavy dose of skepticism, and as preparation for the next wave of selling, warns one quantitative analyst at Nomura.


OCC Blog: How OCC Uses Low Code To Transform Its Business Processes, By Adeel Javed, OCC Manager Of Enterprise Technology Solutions, August 6, 2019
Press Release
OCC, the world’s largest equity derivatives clearing organization, clears approximately 19 million options and futures contracts a day. As you might imagine, this involves a lot of moving parts; heightened regulatory expectations in OCC’s role as a Systemically Important Financial Market Utility require the need for accuracy.
At OCC we are always looking for ways to improve our processes and strengthen our resiliency. One solution we recently identified is further pushing the bounds of automation, using two low-code tools: Appian, an application development platform, and Blue Prism, a robotic process automation (RPA) platform.


Inside Volatility Trading: August 6, 2019
Kevin Davitt – Cboe
The previous two Inside Volatility Newsletters shone a light on relatively low levels of implied volatility for 1-month VIX options as well as muted historical volatility for the S&P 500 Index (SPX). The confluence of these types of vol events could portend a potential shift in sentiment. At the very least, the options market was pricing in a fairly unusual level of complacency.

U.S. Rates Volatility on Policy Uncertainty Roller-Coaster Ride
Tanvir Sandhu – Bloomberg (SUBSCRIPTION)
A surge in U.S. rates volatility faces the uncertain life expectancy of an ageing business cycle.
The market is tilting toward a more conventional easing cycle from the Fed rather than a scenario of just insurance cuts. That means that volatility can move higher, especially if recessionary impulses force policy makers to cut to zero. If, on the other hand, the Fed and the economy convince the market into pricing an insurance-easing scenario, then short-term rates volatility will decline.

VIXY: Sell The Volatility Pop
Seeking Alpha
Over the last month, substantial volatility has been seen in the ProShares VIX Short-Term Futures ETF (VIXY) with shares rising by 24%, erasing the month-to-date decline in a single week. As seen in the following momentum table, however, long-term returns of the ETF remain to the downside by a fair margin.

What a Rapid-Fire VIX Double Means for Stocks
Andrea Kramer – Schaeffer’s Investment Research via Yahoo Finance
After falling every single day last week, stocks on Monday suffered their worst one-day sell-off of 2019, as the U.S.-China trade war came to a boil. As a result, the Cboe Volatility Index (VIX) — also known as Wall Street’s “fear gauge” — skyrocketed into territory not charted since early January. In fact, the VIX’s surge was so dramatic it set off a signal seen only four other times in the index’s history. Below, we take a look at what that could mean for stocks over the next year.

ETFs With The Most Liquid Options
Options just got a lot more expensive. An escalation of the trade war between the U.S. and China sent stocks plunging and volatility surging on Monday, boosting the cost of options on stocks and ETFs.
The CBOE Volatility Index (VIX), which measures the “implied volatility” of S&P 500 Index options based on how much investors are willing to pay for them, jumped to nearly 25, its highest level since early January.


Big Money Starts to Dump Stocks That Pose Climate Risks
Kelly Gilblom – Bloomberg (SUBSCRIPTION)
Earlier this year, one of Meryam Omi’s deputies at Legal & General Investment Management sat down with board members and managers from Exxon Mobil Corp. to discuss how the oil giant could address climate change. LGIM, which manages about $1.3 trillion, is one of Exxon’s top 20 shareholders.

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