the trader
Volumes, algos and other stats
With markets in full August vacations mood, volumes have been hitting new lows.
July’s total average volume of 6.2 billion shares traded a day was the lowest since June 2007, according to Ana Avramovic at Credit Cruisse. Perhaps even more eye opening is how “decidedly back-loaded” some of the volume patterns have become this summer, on both a weekly and daily basis.
Since Memorial Day, daily volume has been higher on Thursdays and Fridays than during the first three days of the trading week. On a daily basis, a flurry of activity is typically picking up toward the end of a trading session.
“Intraday volumes have become so concentrated at the end of the day that nearly 10% of the day’s volume happens in the last 10 minutes now,” Avramovic says.
Charts of declining volume and some more in this WSJ article.
Falling Chinese Charts
In these days of HFT Algos, Spanish yields, Grrek dramas and other subjects, investors seem to have forgotten about China?
The slowmotion fall of the “perfect” economy should receive more attention. From Macrobusiness.
A recent staff report by the International Monetary Fund (IMF) shows an estimate of capacity utilisation in China. Interestingly, according to IMF’s estimation, China has been operating below capacity (albeit not unreasonably) even at the peak right before the 2008/09 financial crisis, and that was supported by external demand which no longer quite exists now. China has built even more capacity since then, which is able to serve the demand from a global economy does not exist. Capacity utilisation has dropped from about 80% before the crisis to a mere 60% in 2011. That compares with about 78.9% for the US currently for total industry (which is not very high by US’s historical average), and 66.8% at the financial crisis trough according to the Federal Reserve. In other words, current capacity utilisation in China appears to be even lower than that of the US during the 2008/09 financial crisis. (Full artcle here).
A Step Toward Gold Confiscation?
Guest post by Azizonomics.
In attempting to stimulate risk appetite by taking “safe” assets out of the market, the Fed has actually achieved precisely the opposite of stimulating productive investment. First, it has turned bond markets into a race to the bottom as bond flippers end up piling into the very assets that the Fed is trying to discourage ownership of — because what’s the point of holding bonds to their maturity when the Fed will jump in at an even lower price floor, thus assuring the bond flippers of a profit? Second it has energised other safe asset markets (such as gold) as longer term investors look for alternatives to preserve their purchasing power in the context of a global economic depression.
The Fed is firing at the wrong target; the real problem — the thing that is causing investors to scramble for safe assets — is an economic depression brought on by (among other non-monetary causes) the deleveraging costs of an unsustainable debt bubble. Without addressing the problem of excess total debt, the Fed is firing blanks.
However, there seems little prospect that the Fed will listen to the debt-watchers who actually predicted the crisis. The likelihood is that the Fed will continue to attempt to take safe assets out of the market. And after treasuries, what will the Fed try to take out of the market?
Roubini Highlights
On the occasion of Dr. Nouriel Roubini’s participation in Bloomberg Businessweek’s ‘Interview Issue’, a look back at some of the economist’s sharpest words from the last year.
Bloomberg video below.
Remember China?
Yes, sometimes the economy matters.
White Shanghai index, green industrial production YoY.
Courtesy Macrobusiness.
ECB’s Discreet Help for Greece
It has been a truly “inverse” European summer with the Eurostoxx ripping higher. With the EUphoria one almost tends to forget about Greece and the situation developing there. Some takes via Spiegel.
“There is no time to lose,” Jean-Claude Juncker warned just a few days ago. Leaders must use “all means at their disposal” to save the currency union, the head of the Euro Group said. But one thing is becoming clear: Politicians are increasingly pushing the dirty work on to the European Central Bank (ECB).
Take Greece, for example, where liquidity is becoming scarce. The government in Athens needs to repay a maturing bond worth €3 billion ($3.7 billion) to the ECB by Aug. 20. The solution to that problem seems paradoxical: The ECB itself is pumping money into Greece, so that the country can in turn repay the ECB.
It’s a controversial plan, because the central bank is prohibited from financing governments directly. As a result, no one is talking openly about the absurd flows of money. The ECB has only hinted that it will extend a helping hand to Greece.
Japan Update
Guest post by Marc Chandler.
Does Easy Monetary Policy Enrich the Financial Sector?
Guest post by Azizonomics.
Yesterday, I strongly insinuated that easy monetary policy enriches the financial sector at the expense of the wider society. I realise that I need to illustrate this more fully than just to say that when the central bank engages in monetary policy, the financial sector gets the new money first and so receives an ex nihilo transfer of purchasing power (the Cantillon Effect).
The first inkling I had that this could be the case was looking at the effects of quantitative easing (monetary base expansion) on equities (S&P500 Index), corporate profits and employment.
Herding Cats and Credit Market “Weakness”
Guest post by Peter Tchir of TF Market Advisors.
Herding Cats and Obstinate Politicians
The mental image is so clear. Draghi, Hollande, and Obama, wiping the sweat from their brows with dust covered hands, having successfully corralled the Merkel. She’s still feisty and not happy about being in the pen, but they have managed it for now. Job well done, time for a well deserved refreshment after a long day.
It’s only then that they realize the Rajoy isn’t in the pen. They can’t believe their eyes. There is that damn Rajoy sitting on the other side of the river licking his paws preening himself. They cannot believe. They are stunned, flabbergasted, and about to go ballistic.
Seriously, after all the effort to cobble together something that they managed to convince the markets would turn into action is being derailed by the person who is most to benefit?
It is absolutely ridiculous, but it’s not as though they will just give up. They will corral Mr. Rajoy. It is inevitable and the real risk is whether Merkel is able to escape while their attention is focused on Rajoy.
So while it is concerning that Spain is not playing along, I think the pressure brought to bear will be great and Spain will accept something to keep the EU, ECB, and Obama happy.
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