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IMF Working Papers-Liquidity Management under Fixed Exchange Rate with Open Capital Account
March 18, 2019--Summary:
This paper introduces a theoretical framework for liquidity management under fixed exchange rate arrangement, derived from the price-specie flow mechanism of David Hume. The framework highlights that the risk of short-term money market rates un-anchoring from the uncovered interest rate parity due to money and foreign exchange market frictions could jeopardize financial stability and market development.
The paper then discusses operational solutions that stabilize money market rates close to the level implied by the Uncovered Interest Rate Parity (UIP). Liquidity management under fixed exchange rate with an open capital account presents specific challenges due to: (1) the larger liquidity shocks induced by foreign reserve swings that challenge the development of money markets; and (2) more complicated liquidity forecasts. The theoretical framework is empirically tested based on the estimate of "offset" coefficients for Denmark and Hong Kong SAR.
view the IMF Working Papers-Liquidity Management under Fixed Exchange Rate with Open Capital Account
Bassanese Bites: Two or less?
March 18, 2019--Week in Review
Confidence returned to global equities last week-after a modest pull back over the previous week-largely due to reassuring US economic data. US retail sales rebounded nicely in January-after worrying softness in Q4-while the US CPI also remained comfortably benign.
Lurking in the background is growing confidence that the US and China will eventually settle their trade differences, although there is no longer an explicit deadline in place. Even more important than the actual deal itself is growing recognition that neither side appears to have the appetite to escalate tensions further-through tit-for-tat tariff increases. In terms of key market moves, US and Australian 10-year bond yields broke to new lows in the downtrend that has been in place since late last year.
Economic news was less reassuring elsewhere. German industrial production was weaker than expected in January, though temporary factors like strikes and model change-over disruptions were blamed. China’s monthly “data dump” was also soft, with ongoing weakness in retail sales and industrial production-though again hope springs eternal that the Government is set to re-stimulate the economy.
In Australia, the negative news also continued: the NAB index of business conditions slipped back in February, consumer confidence dropped and home loan approvals dropped further.
APs Embrace Equity ETFs in February, While Fund Investors Turn Risk-Averse
March 18, 2019--For the second month in a row, investors were net purchasers of mutual fund assets, injecting $64.4 billion into the conventional funds business (excluding ETFs, which are reviewed in the section below) for February. However, the headline number is slightly misleading.
While investors continued to embrace news that trade talks between the U.S. and China were advancing and cheered a softer, gentler Federal Reserve Board-pushing the Dow Jones Industrial Average to its ninth consecutive week of plus-side returns-they turned a cold shoulder to equity funds. For the ninth month in ten, stock & mixed-asset funds witnessed net outflows (-$10.3 billion) for February. With investors' renewed search for yield, the fixed income funds macro-group witnessed net inflows for the second month in a row, taking in $36.3 billion-their largest haul since February 2018.
Flow Traders releases February 2019 ETP Market statistics
March 15, 2019--Flow Traders N.V. ("Flow Traders") (Euronext: FLOW), today releases the monthly ETP (Exchange Traded Products) market statistics for February 2019. This refers to general market observations only.
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IEA-Oil Market Report: Supply cushion insures against losses
March 15, 2019--The electricity crisis in Venezuela has paralysed most of the country for significant periods of time. Although there are signs that the situation is improving, the degradation of the power system is such that we cannot be sure if the fixes are durable. Until recently, Venezuela's oil production had stabilised at around 1.2 mb/d.
During the past week, industry operations were seriously disrupted and ongoing losses on a significant scale could present a challenge to the market. As it happens, 1.2 mb/d is also the size of the output cuts agreed by OPEC countries and some non-OPEC producers. The cuts were implemented in January and compliance by OPEC reached 94% in February, with Saudi Arabia cutting back by about 170 kb/d more than required. The non-OPEC countries are complying more slowly at a rate of 51%, with Russia reducing its output very gradually.
BIS-Statement on crypto-assets
March 13, 2019--The past few years have seen a growth in crypto-assets. While the crypto-asset market remains small relative to that of the global financial system, and banks currently have very limited direct exposures, the Committee is of the view that the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks.
While crypto-assets are at times referred to as "crypto-currencies", the Committee is of the view that such assets do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value. Crypto-assets are not legal tender, and are not backed by any government or public authority.1 Through this newsletter, the Basel Committee is setting out its prudential expectations related to banks' exposures to crypto-assets and related services, for those jurisdictions that do not prohibit such exposures and services.
Strategic Beta ETF Market Still Expanding
March 13, 2019--Net new inflows into strategic-beta exchange traded products globally amounted to $87 billion, an organic growth rate of nearly 11%.
Strategic or smart exchange traded products (ETPs) continued to expand in 2018, with net new inflows of $87 billion, translating to an organic growth rate of nearly 11%.
Over the past decade-plus, strategic-beta ETPs' market share has expanded considerably. Growth has been driven by new cash flows, new launches, and the entrance of new players—some of which are traditional active managers. However, more recently, the pace of these products' market share gains has decelerated as exchange-traded funds tracking more-traditional benchmarks have been garnering their fair share of net new flows.
At the end of December 2018, there were 1,493 strategic-beta ETPs, with collective assets under management of approximately $797 billion worldwide.
OECD-G20 GDP Growth Fourth quarter of 2018
March 13, 2019--Growth of real gross domestic product (GDP) in the G20 area was stable at 0.8% in the fourth quarter of 2018. according to provisional estimates while it slowed marginally in the OECD area (to 0.3%. from 0.4%).
Growth rebounded in Japan to 0.5% in the fourth quarter of 2018, following a contraction of 0.6% in the previous quarter.
Growth also picked up in Korea (to 1.0%. from 0.6%) and India (to 1.6%. from 1.5%) while it was nil in Germany following the previous quarter's contraction (of 0.2%). GDP growth was stable in France and the European Union (at 0.3%).
Cyber attacks up 160% in finance
March 13, 2019--The number of cyber attacks on financial services more than doubled last year as a study reveals that 67% of financial organisations surveyed have reported an increase in cyber attacks over the past 12 months, while destructive attacks have increased 160% over the past year.
According to Carbon Black and Optiv Security, two cybersecurity firms, the attackers have become more aggressive in their approach and developed a strong will to persist with their campaigns.
ETFGI reports assets invested in global ETF and ETP industry reached a record US$5.32 trillion at the end of February 2019
March 12, 2019-ETFGI, a leading independent research and consultancy firm covering trends in the global ETF/ETP ecosystem, reported today that ETFs and ETPs listed Globally gathered net inflows of US$44.31 billion in February, bringing year-to-date net inflows to US$61.66 billion.
Assets invested in the Global ETF/ETP industry finished the month up 3.15%, from US$5.16 trillion at the end of January, to reach a record US$5.32 trillion, according to ETFGI's February 2019 Global ETF and ETP industry landscape insights report, an annual paid-for research subscription service. (All dollar values in USD unless otherwise noted.)
Highlights
Assets invested in the Global ETF/ETP industry reached $5.32 Tn in February 2019, the highest on record.
Happy 39th anniversary to the ETF industry-first ETF the TIPs-Toronto 35 Index Participation units was listed in Canada on March 9, 1990.
