OTC Derivatives
With the recent blow up of MF, the clearing of risk must be guaranteed. The OTC market is carrying the largest exposure, and must be overseen efficiently. DB on OTC Derivatives and their future.
Derivatives have a long-standing history as financial instruments for managing financial risks stemming from changes in macroeconomic conditions. They thus represent important risk management tools for companies, authorities and financial institutions as they can be used to manage exposure to interest rate, currency, commodity price or other risks. Globally, the OTC derivatives market volume amounts to USD 600 trillion; nearly 85% of the world’s out- standing derivatives market volume is accounted for by OTC derivatives.
Derivatives range from fully standardised to tailor-made products: fully standardised derivatives are usually traded on exchanges, whereas customised contracts are traded over-the-counter (OTC). Thus, as OTC derivatives markets are generally characterised by flexible and tailor-made products, satisfying the demand for bespoke contracts customised to the specific risks that a user wants to hedge, OTC derivatives often comprise privately negotiated contracts, with only the participants having access to detailed information. In contrast, exchange-traded derivatives, which are by definition standardised contracts, leave a transparent trail in terms of positions, prices and scale of exposures while OTC derivatives markets have historically been largely unregulated with respect to the disclosure of information even though operations in these markets were executed by supervised entities. As a result, information available to market participants and supervisors has long been limited.1
HFT Art
Art becomes interested in the code of money when money as we know it is in structural or systemic crisis. At the present moment, money’s functioning as a store of value is in question, and as its grip on the material world is loosening, its role as pure sign comes to the fore. For a brief time, it appears as a freely re-assignable means of social exchange. We are interested in artists that seize on such chances to reshape dominant systems of value and belief, people that understand the risk of this undertaking, and the productive possibilities of failure. Finance has become a central subject of critical metaphysics. We think it fertile to consider every economist an artist, and every artist an economist, and wish to both explore the financialization of high art and the art of high finance, as well as speculate as to what may lie outside this figure of eight.
Market Update as no volume market goes vertical
Fed’s Evans & Co managed to take the market higher. As we slowly approach Christmas season, volumes are drying up, and the few HFT Algos around are churning whatever there is to churn.
A few comments by the Fed members via Reuters;
ST. LOUIS FED PRESIDENT JAMES BULLARD, November 15
“To take further action would require the real economy to deteriorate further.”
SAN FRANCISCO FED PRESIDENT JOHN WILLIAMS, November 15
“Additional monetary policy accommodation — either in the form of additional asset purchases or further forward guidance on our future policy intentions — may be needed to bring us closer to our mandated objectives of maximum employment and price stability.”
More from the Fed Gang here.
Some short term market levels below.
Ciao Silvio
These days it’s all about Italy. Spiegel’s take on Silvio and what mess he has left….Fed rulezzz the World
Fed does it again. Fed’s Evans comments “expects the policy rate to stay low for longer than mid-2013“, are lifting the Markets under the no volume regime. The negative channel is broken, and the HFT squeeze is on. Well, somebody had to lift the market, it can’t go down forever…Next is Evans on CNBC at 11 a.m ET.
Pre US Market Update as the MIB reverses earlier losses
Markets have managed to bounce back some from the levels seen earlier today. The MIB was down close to -3%, and is now trading around flat levels. Both the ES and Stoxx 50 futures are still within the short term negative trend, despite the fact that the ECB was seen buying bonds earlier today. Let’s see what the US session brings. Charts below.
Rates and spreads exploding
If you just woke up. Italian rates are spiking above 7%. Spanish rates are joining. Don’t forget, it didn’t take many weeks with rates above 7%, before the other PIIGS asked for bail outs. The contagion is spreading to other countries. Belgium joining the party…. France next?
Silvio come back.
Live Debate by Rosenberg/Krugman vs Summers/Bremmer
“We are concerned about the World Economy”.
Listen to a great debate by some of the brightest economists of the world. Rosenberg/Krugman and Summers/Bremmer. Must see video below.
Who’s Zew, Zew is dead
Government crises in Italy and Greece have further increased the uncertainty about the economic development in the Eurozone. This might have contributed to this month’s decline of the ZEW Indicator of Economic Sentiment.
“World trade is weakening and the public debt problems in the Eurozone and in the United States weigh heavily on business activity. These risks could even gain more importance and thus could further harm economic growth in Germany,” says ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.
The assessment of the current economic situation in Germany is still in the positive territory, but it has once again worsened compared to the previous month. The corresponding indicator has dropped by 4.2 points to the 34.2 points-mark. Economic expectations for the eurozone have decreased by 7.9 points in November. The respective indicator now stands at minus 59.1 points. The indicator for the current economic situation in the eurozone has dropped by 8.1 points and now stands at the minus 39.8 threshold.
Chart, Markit
Market Update as Risk Off contagion spreads in Europe
Markets have been selling off for the past 30 minutes. Renewed fear of the Italian disease is spreading in Europe. Italian spread spiking higher, banks shares selling off aggressively, while the yield curve is inverting. Just as we wrote earlier this weekend, “Italy’s problems are not solved by Silvio resigning”. The Euro is trading close to 1,35, while the MIB index has fallen 6,2% compared to yesterday’s highs…With volumes rather light, expect volatility to stay high, as no “serious” investor can manage to hedge effectively. Important charts below.
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