Happenings in the FX Market. Newsletter August 2016
FX Market buzz
- MAR (Market Abuse Regulation) went into effect on July 3rd. Very little coverage in the financial press and FX blogs. We have gotten a few requests for information about this issue but otherwise this went under the radar. If you are involved in FX Trading, we would advise to read our previous post on this subject. For further questions, please feel free to contact us.
- Global Head of Foreign Exchange Cash Trading arrested at JFK airport. Accused of conspiring to commit wire fraud. This is a very wide term but gives the US Prosecutor the option to not have to proof front running or benchmark manipulation. For us this case is clear. The fact that HSBC was ripping the market before the fixing seems to be a fact but not the relevant action. When asked by the customer, Cairn Energy, why GBP was already trading much higher before the fixing. The answer “Russian name is buying” was the key ingredient of wire fraud and will be the nail in this trader’s coffin. DEFINITION of ‘Wire Fraud’: A situation where a person concocts a scheme to defraud or obtain money based on false representation or promises. This criminal act is done using electronic communications or an interstate communications facility. Once again, a FX case, where FX-specific Regulations or Codes are not relevant. The FX business is under the microscope and more lawsuits by Institutional Investors are in the pipeline. Strict internal rules and especially electronic supervision of trading activity is a “must have” in 2016 already. No need to wait for any BIS code or FX Regulations. The clock is ticking.
- Thomson Reuters to join R3, the consortium of more than 55 banks and other financial institutions. As we have learned earlier, all these members are gathering around the “Corda platform” but will not have access to R3’s development lab. Hefty entrance fees continue to be collected with no stake in any of the intellectual property, developed by R3. Despite knowledge and data sharing. Therefore, not the “old” EBS, FXALL partnership between banks.
- SmartTrade Technologies has launched smart-Analytics in order to help firms make sense of that data. The technology enables firms to store their data, retrieve that data and, crucially, to analyze that data. One of the first vendors to offer all MIFID2 “must haves” as part of the entire solution.
- While Bitcoin is not officially money, we are following developments in Blockchain and Bitcoin very closely, as we believe that both will be playing an important role in the FX-Market of the future. Setbacks, like the latest incident on Bitfinex, where a 70 Mio. USD hack/theft has pushed the value of a Bitcoin down about 20%, happened before and most likely will happen again in some form or shape. Still, this market will learn. With all the issues that fiat currencies will face in the future, Bitcoin needs to be watched closely. We will stay on top and inform you of major events.
Events from July that will keep financial markets busy in August and for the fall season.
The latest spur of terror activity in Europe, shook everybody up and has cast a rather large black cloud over this summer. After every attack, we heard similar responses of “we feel sorry and deeply moved” by the leading politicians. Much needs to be done to grab this by the tail but there is no quick fix, which so many desperately want. It is not anymore a single plane being attacked or people being killed in some distant part of the world. It has arrived in a city near you! These latest developments impact most of us. We do not wish to make any political statements based on these tragedies, but would like to point out that the changes in behavior will dramatically impact certain destinations and businesses alike. Recent and possible future events, create momentum to bring dramatic shifts to the political landscape of Europe. Where phrases like the one below, used to be standard rhetoric in the EU, it will need major adjustments by EU politicians or we will see “extremist” movements all over the continent.
“Prime Ministers must stop listening so much to their voters and instead act as “full time Europeans”Jean-Claude Juncker, May 2016
EBA Stress Tests did not reasure investors. Weak performers are getting attacked like an injured deer by a wolf pack. Credit Suisse and Deutsche Bank got booted from the Stoxx 50. Intesa Sanpaolo SpA, UniCredit SpA , Banco Popolare SC, Unione di Banche Italiane SpA getting dragged into troubeling waters by their peer Banca Monte dei Paschi di Siena. Commerzbank, the german sleeper bank, is also bumping along the bottom with need for new capital.
We do not know, how these issues will be resolved. Believing that we do know the “prescription policy of Dr. EU Politics & Dr. Centralbank” it will end up in continued liquidity injection and possible “bail out/rescue”. “Bail in” would be too much of political suicide. Pushing banks under the umbrella of governments, another move that will foster “extremist” movement and force change. (graph by ZeroHedge)
- 2016 Turkish coup d’état attempt. The empire strikes back. 50+ nuclear devices and 2.7 million Syrian refugees get us worried. 15 universities, 1,043 private schools, 1,229 charities and foundations, 19 trade unions, 35 medical institutions, 6 television channels, 23 radio stations, 45 daily newspapers, 15 magazines and 29 publishing houses were shut down, plus 1000’s of military and civilians arrested. How will the relationship with the EU and USA as well as NATO change? 50+ nuclear devices are held at the US-NATO airbase in Incirlik.The airbase has been denied electric power for days and has been circled a few times by thousands of demonstrators. There are about 2.7 million Syrian refugees within Turkey’s borders. Should the EU und the USA start with threats against Erdogan, it could get a very hot summer/fall in Europe. Should the EU and the USA not put pressure on Erdogan now, we will have many years of uncertainty and blackmail coming out of this region.
- US election. With only two main parties, the USA has only two main candidates. Both candidates are in trouble. Mrs. Clinton from her past dealings with email servers, Clinton Foundation, Benghazi and most importantly with hackers that might bring more evidence of “foul play” into the public eye. 68% of Americans do NOT trust her and this number has potential to increase. Then we have Mr. Trump, who has not noticed that the race is now between him and Mrs. Clinton only. He punches left, right and kicks whatever comes at him. From a Gold Star American Family, the press, Senator McCain (R), Senator Ryan (R), Senator Cruz (R) and anybody that does not agree 100% with him. Mr. Trump behaves like a kid on the playground, high on sugar and overtired. Not knowing when it is time to stop kicking and screaming. There is still time for the parent (GOP) to intervene and we believe that we will either see Mr. Trump to start “behaving presidential” or getting pulled on his ears off the playground. If the GOP does not react, this race might be over before the end of summer. The political landscape in the USA might change after a disasterous election. We could see the development of a “major” conservative 3rd party. The DNC with their treatment of Senator Bernie Sanders, seems to foster similar urges from the far left to split away. There is a chance that we will see the formation of parties from the conservative side as well as the ultra liberal/socialist side.
We hope to not have spoiled your long planned summer vacation. While in a summer lull, markets do not seem to be prepared to handle new developments with much grace and most likely will resort to major gaps in price action.
Best wishes and happy hunting.