“Where is everyone?” asks former fund manager and FX trader Richard Breslow as trading volumes across equity, debt, and FX markets remain lackluster to say the least, amid an optimistic bounce (so far) today.
Once again, stocks are all hovering at their all-important moving-averages unable to break up, or down, for now, despite all the headlines proclaiming the worst is over…
One thing that caught my eye this morning was news about the submission of the Italian budget to the European Union. A positive development, for a change. Assets rally as political tensions ease. Yields all along the BTP curve are lower and equities are having a solid up day. And then I got to the kicker. Trading volumes in futures are running at about 50% of their 10-day average. That’s too much movement on thin air. And while the direction is positive, it suggests there are enough traders showing skepticism and just staying away.
Looks healthy on the outside, queasy on the inside. Yet Italian asset strength is being credited with lightening the mood across European markets.
It’s one thing to accept that Italy is a fairly unique case. Caution can reasonably be expected. Everything is but one headline away from sharp reversals. But how does that explain a general dearth of participation generally? As our London team reported, the flows in the major foreign exchange currencies have been thin, with the occasional large piece of business having an outsized effect. Choppy has been the word of the day to describe the price action.
If traders are being cautious in spot trading, maybe they’re expressing their views by using options? No, not there either. Volume in that space is barely reaching 70% of normal. A look at equity markets portrays a more mixed picture, but the story is largely the same. And it doesn’t seem to have mattered whether you are talking Japanese shares, which were up nicely, or Chinese markets that suffered through another disappointing day.
Even Treasuries, so much in vogue of late, can’t bring out the volume. Here we have the 10-year yield holding resistance at 3.15% and it doesn’t even feel like a battle is being waged.
So where is everybody? Wasn’t the fourth quarter supposed to be when traders were going to jump in and ride year-ending trends to victory?
It turns out that two factors have combined to throw a wrench into those plans. Confusion and uncertainty are rife, and fear of loss has gained the upper hand over greed. That’s a prescription for very unhealthy markets with informational content that should be consumed with care.
It’s hard to get overly worked up by normal economic numbers and even nascent trends when in the back of everyone’s minds there are big issues that can’t be handicapped. How do you trade emerging markets when you’re not even sure of how tenuous is the relationship between the world’s two biggest economies? Therefore you get daily and weekly swings based on just the latest news, such as it is, on volume that screams of lack of conviction. And meandering ranges for months at a time. Although, you wouldn’t really know it given the supreme confidence expressed in so many commentaries.
Probably the best way to describe these markets is that they are in a holding pattern. Up one day, down the next. Brexit is solved today, a mess tomorrow. There are too many shoes waiting to be dropped. And it is clear that ranges or not, no one is convinced things are at all stable.
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