I read an interesting piece from overnight by Jim Reid of Deutsche bank. Here are a few excerpts to put yesterday's stunning Swiss National Bank's (Swiss Central Bank) move in perspective.
"The main story (yesterday) was the SNB's currency play which led to a once in several generation move for the Swiss Franc... Indeed as a one-day upward move in a major currency its had few peers through history and is firmly in the top 10 of daily upward moves for any currency (vs the dollar) that we have data for which in many cases goes back into the nineteenth century. Most of the others in this top 10 are EM (Emerging Market) countries."
"What makes this move shocking is that just last month the SNB committed themselves to preventing their currency appreciating beyond 1.20 to the Euro and vowed they would enforce the policy with "the utmost determination". The risk for the global financial system is that if the SNB can make such a dramatic u-turn could other central banks follow at some point....The ECB might actually look at the wider market moves yesterday and be scared to disappoint."
"Once you artificially impact a market, changing course can be very painful. The other fear we have is with such volatility recently (and big declines), particularly in Oil and FX, will there be someone holding very bad positions and steep losses that will seriously impact their business and cause dislocations in other markets as stressed liquidations are forced upon them? Experience tells you there's a chance but its not easy to anticipate. One to consider though and already people are looking to Eastern Europe where there are many Swiss currency mortgages (Hungary). Also Bloomberg is reporting this morning that a NZ FX broker is shutting down its business and the largest US retail FX broker is facing some risk due to client losses both as a result of the move."
As a result, numerous FX brokers are going belly up literally overnight, how's that for a surprise move that ruins your business model/business?
Alpari Limited (UK) had so many client losses that as a result, the losses are transferred to the company and it has entered insolvency overnight with a statement from Alpari's CEO,
"I'm sure this isn't the last we'll hear on the subject and the SNB are going to be heavily scrutinised in the coming weeks for what appears to be a horribly irresponsible move on their part. For years central banks have tried to avoid days like today by being transparent and making moves like this over time while drip feeding their intentions to the markets. The SNB have shown themselves to be amateurs today and there is many people that will suffer considerably as a result."
You'd do well to remember Yellen's recent statements warning of F_E_D moves, the F_E_D telling the market what they are going to do and if the market doesn't listen, she washes her hands of it. The most recent statement that traders are mistaken if they think the F_E_D will have their backs on wrongly placed bets, obviously a warning to the "Buy the dip" crowd who think the "F_E_D has their back".
Also New Zealand brokerage Excel Markets is discontinuing operations, saying, "The majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity. When a client cannot cover their losses it is passed on to us.".
FXCM (Forex Capital Markets) may have to shutter as they are seeking a way to stay afloat,
"Due to unprecedented volatility in EUR/CHF pair after the Swiss National Bank announcement this morning, clients experienced significant losses, generated negative equity balances owed to FXCM of approximately $225 million.
As a result of these debit balances, the company may be in breach of some regulatory capital requirements.
We are actively discussing alternatives to return our capital to levels prior to today's events and discussing the matter with our regulators."
Global Markets Limited has sustained a total loss of operating capital.GBL can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business.
As Goldman Sachs recent earnings confirmed, they had their worst FICC quarter since Lehman, thus their admission overnight that they too were short the Swiss Franc, certainly doesn't help, especially as it was one of their "Top 10 trades for 2015"...
"In our portfolios with currencies, we have been short the CHF on the grounds that it was an expensive currency which we expected would experience capital outflows as European growth normalized. We were surprised by the sudden removal of the peg. Although the CHF real effective exchange rate is lower than during the European crisis of 2011, it has actually appreciated in recent months. We exited a substantial portion of our CHF short today and are monitoring the situation closely."
As many have speculated, especially in the wake of the SNB action (Jim Ried above), the ECB continues to drop hints that QE is coming next week, this morning the ECB’s Coeure provided some insight into the main event next week and said that in order for QE to be efficient, 'it would have to be big'.
Gold moved higher last night and this morning, but I'm not concerned about yesterday's speculative put GLD position, it looks like GLD is in a reversal process.
The 1 min GLD chart did not confirm this morning's gap up.
In the US, Industrial Production missed after a strong November. Remember the negative surprise index for the US since Thanksgiving, it has been virtually a one way street with macro data coming in weaker than expected, which makes you wonder about the dichotomy between the F_E_D's data dependency and Yellen's continual hints of an impending rate hike.
The EUR/USD lost ground overnight, quite a lot...
USD/JPY vs ES (purple).
While the market opened near yesterday's close for the typical op-ex open, it does look like we are going to finally get the conclusion of the oversold bounce we have been looking for after 5 days of losses.
Right now this is a rough guess, but a reasonable one. I find the market's moves are rarely reasonable...
This is the TF 5 min positive, recent lows look to be the head fake that got this move started.
And ES 10 min
As well as NQ 15 min. Most of the positives are right at the head fake/stop run lows and small rounding bottom.
I'll be looking in to this a bit further, especially the larger SPY "W" base and if that is indeed 1 or two separate events. In any case, it looks like we have our bounce, what is important now is how the charts respond to higher prices, whether there's confirmation which I expect to see early on or whether there's distribution which I expect to see once wwe've cleared some local resistance.
More to follow...I'm sure much more as the spider-web cracks of the SNB fall-out are just beginning...
Remember Lehman Contagion....
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