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 ?

Regulatory Developments

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
  • “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.

More later.