Low Tide In Europe
“Fallout from Switzerland’s wildly swinging currency (alt) ricocheted around the world, hitting global banks with tens of millions of dollars in losses and triggering the collapse of some brokerage firms. Deutsche Bank AG suffered about $150 million in losses on Thursday…Barclays PLC also racked up tens of millions of dollars in losses…a major U.S. currency broker warned its equity was wiped out, a U.K. retail broker entered insolvency and a” — you get the point. FX brokerages are going under because their clients are going under thanks to leveraged one way trades on the Swissie. As you might imagine, there is a lot of frustration out there. Tom Buerkle offers four takeaways: (1) “Draghi’s ECB will not disappoint next Thursday when the governing council meets to decide whether to embark on quantitative easing…the Swiss are expecting a big move and don’t have the stomach for the massive intervention it would take to defend the exchange rate,” (2) currency wars are here to stay, (3) negative deposit rates and an expensive Swiss franc = even more demand for bonds = rates lower for longer, (4) nothing in monetary policy is sacred. Meanwhile, Izzy Kaminska argues that (4) is precisely the point of all this: “Not only do regulators want to bring caveat emptor back into the markets — especially around the shadow banking periphery — they also want to expose liquidity air pockets that have taken root in the market but which so far have been stubbornly ignored by participants.” Furthermore, “if you’re strategy is focused on beating your own clients, you should take more care to make sure your clients actually have the capital to pay you.” Meanwhile, cue the queues!
ps. do yourself a favor and watch this video if contango is something you’re into. Contango is bearish for futures contracts, and bullish for the current spot price.