What is Happening In Global Flows ?
It’s a new week and I am struggling to make sense of what is going on.
EM Outflow Trend Continues
“We continue to see consistent outflows in EM Bond funds. EM bond funds had USD 1.3bn (0.55% of AUM) outflows in the week ending 17July. In the breakdown, EM hard currency bond funds saw USD 633mn (0.6% of AUM). EM local currency funds had USD 616mn (0.6% of AUM) outflows and blended funds registered USD 76mn (0.2% of AUM) outflows. Local currency bond funds have so far lost 5.7% of AUM, since the EM bond outflow wave started in the beginning of June. The trend has definitely reversed in local ccy bond funds (which saw a small recovery in flows 2 weeks back). This week we saw outflows in local currency bond funds catching up to their hard currency counterparts.” Taken from Citibank
“US funds registered RECORD inflows this week of USD 17.4bn (0.6% of AUM), Japan country-funds saw an intake of USD871mn (+0.5% of AUM), and Western European funds absorbed a net USD885mn (+0.1% of assets).”
New measures are nothing to shout about because virtually no borrowers enjoys the 30% discount in the first place. It is the fear or rather, hope of further policy actions (on deposit rates ?) to come that is keeping spirits up.
“PBOC announced today that the remaining lending rate
restrictions will be removed, effective tomorrow. Specifically, (i) the
lending rate floor (currently 70% of the benchmark rate) will be
eliminated; (ii) restrictions on bill discounting rate will be lifted
(currently bill discounting rate is set as a markup of the re-discount
rate; (iii) lending rate ceiling will no longer be applied to rural
credit cooperatives. The only exception is mortgage rate, for which the
floor of 70% of the benchmark rate will continue to apply to curb
speculative activity at the property market.”
“According to PBOC report, nearly 90% of the loans were priced at or
above the benchmark rates (Figure 2). For the remaining 10-12% of the
loans, the discount relative to the benchmark is usually less than 15%
according to Citi bank analysts, and virtually none enjoyed the 30%
Funds are reportedly still bearish on China’s banks (http://online.wsj.com/article/SB10001424127887323993804578615401929997858.html?mod=rss_world_markets) but last week’s FDI was way off the radar coming in 20.1% YoY when only 0.7% was expected. Strangely, not a lot of emphasis on that headline.
The pressure heats up. All eyes on the Wall of Cash.
“Investors will likely welcome the result.This will strengthen Abe’s position, since he can now claim a mandate in favor of his policies. HOWEVER, the victory is also a double-edged sword: It gives him the opportunity to push many new initiatives, but it also denies him any excuses for failure.” ~ Morgan Stanley research
“If the BoJ is able to lower JPY interest rates, Japanese institutional investors are likely to put funds into the US treasury market.
Heightened expectations that Japan money will cap increase in US interest rates could offer the Fed and opportunity to proceed with its exit strategy.
Individual Japanese investors may also look to the US. This could lead to an investment boom in the North American energy revolution in the future. If the BoJ is able to lower JPY interest rates, Japanese institutional investors are likely to put funds into the US treasury market.” Citi Long Term JPY Outlook
Something happened in Gold after Bernanke said he did not understand it. They say it is short covering and coincidentally when JPM’s eligible gold holdings for delivery fell to the lowest it has ever held, just 1 ton.
Rumours over the weekend on a fire in the JPM gold vault. Why bother ? It is near empty right ?
I do not like what is happening in the all the policy and regulation fronts.
- Bloomberg : SEC Tries Last Ditch Move to Put SAC’s Cohen Out of Business
- FT : Wall Street quizzed over physical commodities
- “The Basel III leverage ratio should be able to capture more risks…the leverage ratio set out by the Basel Committee last month will force banks not only to hold capital against all assets – even those carrying minimal risk – but also bring in exposure accounted for off-balance-sheet. Banks must weight loan commitments at 100% unless the facilities are unconditionally cancellable at any time, in which case a 10% weighting applies. Derivatives must also be included gross of collateral and reverse repos without netting in most circumstances to capture the magnitude of these risks”
- A raft of computer glitches that have plagued markets in recent years amid a burst of high-speed trading is sparking a widening crackdown by Wall Street overseers.Regulators are focusing on the complex computer systems deployed by high-frequency trading firms, with an eye on whether the systems have adequate safeguards against chaotic trading that can destabilize markets and harm investor confidence.”
So excuse me if I sound confused. As it is, I am fuming mad trying to fix my faulty computer’s sound system, realising that English is a terrible language to be using with a help desk located offshore.