21 Century Economic Report Chen Zhi Shanghai Report
Without any warning, the foreign exchange market experienced a "flash crash" across the board in the early morning of the 3rd.
Under the impact of the Japanese yen's 400 basis points surge against the U.S. dollar, which jumped 4% all the way (the largest single-day increase since 2009), the Australian dollar's exchange rate suddenly fell by more than 4% against the U.S. dollar, setting a new low since March 2009. points; Turkish lira exchange rate against the US dollar also fell by more than 4%, refreshing the lowest point since November 2018; the euro and pound exchange rates fell by more than 1% each.
"At that time, the entire Wall Street financial institutions were stunned and had no idea what was happening." Andy Wester, a strategic analyst at Proficio Capital, told reporters that the current market generally blames Apple for the flash crash in the foreign exchange market in the early morning of the 3rd. The company issued a profit warning for the first quarter, which caused the entire financial market to further worry about the slowdown in global economic growth, triggering a continued rise in risk-averse investment sentiment - a large amount of money poured into the Japanese yen as a safe haven and pushed up the Japanese yen exchange rate, triggering Japan Mrs. Watanabe They were forced to reduce the scale of Japanese yen carry trades, causing high-interest currencies such as the Australian dollar and Turkish lira to plummet, as well as carry currencies such as the euro and pound to suffer declines.
In his view, the Japanese yen's one-day rise against the US dollar once exceeded 4%, which was undoubtedly a "catastrophe" for Japanese yen arbitrage trading capital. Because the sharp appreciation of the yen will eat up the average annualized risk-free return of 3%-4% of the yen arbitrage trade, forcing more than 100 billion US dollars of yen arbitrage trade to leave the market. Affected by this, high-interest currencies that were originally favored by the Japanese yen arbitrage trade immediately suffered an abnormal plunge, causing a flash crash in the foreign exchange market.
However, in the opinion of industry insiders, if rising risk aversion drives the yen to rise like this, it will trigger a series of domino effects. First, Japan's exports will face greater pressure due to the rise in exchange rates, putting the Japanese economy into a new dilemma of weak growth. , and Japan’s deflationary pressure will continue unabated. Second, the cost of traveling to Japan has increased, which has affected the enthusiasm of Chinese people to go to the United States to “buy, buy, buy” around the Spring Festival. The yen exchange rate has continued to rise in the past two weeks, causing the RMB exchange rate to fall by about 6% against the yen. , leading to an additional increase of about 6% in consumer spending in Japan. Third, the financial market began to pay close attention to the specific trends of the Bank of Japan's intervention in the foreign exchange market to suppress the Japanese yen exchange rate, and was always ready to short-sell the Japanese yen on highs for arbitrage. "If the Bank of Japan can intervene in the foreign exchange market as soon as possible, it may be good for Chinese people's tourism consumption in Japan." A domestic travel agency person joked.
The return of the yen arbitrage trade "caused trouble"
html The yen sharply appreciated by 4% in the early morning of 03, triggering a flash crash in the foreign exchange market, which was indeed beyond the expectations of most investment institutional traders."Most Wall Street hedge funds believe that the main reason why Apple warned about its first-quarter profit prospects is that there are errors in Apple's own product pricing and business strategies, and it is unlikely that it will be linked to the slowdown in global economic growth." An American hedge fund The manager admitted to reporters, but an indisputable fact is that after Apple warned of its first-quarter profit prospects, the yen quickly entered a unilateral upward trajectory against the U.S. dollar, rising from 109.5 to 107.5 in just one hour.
Reporters have learned from many sources that Japan’s Watanabe wives played a huge role in significantly reducing the scale of Japanese yen arbitrage transactions. The Japanese Watanabe wives have always been relatively sensitive to global economic trends. At the slightest sign of trouble, they will significantly withdraw their Japanese yen arbitrage trading positions (mainly investing in high-interest currencies such as the Australian dollar, as well as currencies they believe are undervalued, such as the Euro and the British pound), triggering the Japanese yen Sudden and substantial appreciation.
As the yen-dollar exchange rate suddenly rose above 107.5, a large number of programmed trading models joined the chasing yen camp, causing the yen-dollar exchange rate to rise all the way to 104.70 in just 30 minutes, hitting the highest level since April 2018. value.
The reason is that a large number of hedge fund programmed trading models have set up a large number of Japanese yen short stop-loss operation orders in the 106.5-107.5 price range. As the Japanese yen exchange rate continues to break through these key prices, they have automatically sold the Japanese yen short positions with stop-loss orders. market, coupled with the insufficient liquidity of the entire foreign exchange market in the early morning of the 3rd, further amplifying the rise of the yen.
"If the market were not worried that the excessive rise of the yen would trigger the Bank of Japan to intervene in the foreign exchange market, it would attract a lot of speculative capital to short-sell the yen for arbitrage at high prices, suppressing the exchange rate of the yen against the US dollar to fluctuate between 106.7-107.8, and the Australian dollar, Turkish lira, etc. The decline in high-interest-rate currencies may be greater," he believes.
In Andy Wester's view, the current US dollar has become the big winner in this flash crash in the foreign exchange market. Affected by the 1% drop in the euro and pound, the U.S. dollar index rebounded from 96.11 to an intraday high of 96.90 on the 3rd, marking the largest single-day increase since November 13 last year.
The lack of long-term stable capital
has caused arbitrage capital to stir up trouble
According to many industry insiders, another deep-seated reason for the flash crash in the foreign exchange market on the 3rd is that the long-term stable capital currently left in the secondary market such as foreign exchange stocks continues to shrink, causing Arbitrage capital was able to make waves.
"Since the outbreak of the subprime mortgage crisis in 2008, long-term stable capital focused on investing in the global secondary market has continued to shrink." A business executive of a large international asset management institution revealed to reporters that this is most vividly demonstrated in the cross-border flow of capital. . The latest data from the McKinsey Global Institute shows that since 2007, the scale of cross-border capital flows has shrunk by about 70%, from US$12.7 trillion to US$5.9 trillion. In particular, a large amount of long-term stable capital has withdrawn from secondary markets such as stocks and foreign exchange, resulting in the ebb and flow of long-term stable capital structures - as of 2017, the market share of foreign direct investment (FDI) and cross-border equity investment in cross-border capital flows , a sharp increase from 26% in 2007 to 54%.
He even believes that if the investment scale of long-term stable capital in the secondary market can be maintained at the level of 2007, the return wave of about 2 billion yen arbitrage transactions initiated by Mrs. Watanabe on the 3rd will never cause the foreign exchange market to appear. Flash collapse across the board.
reporters have learned from many sources that the shrinkage of long-term stable capital in recent years is also closely related to changes in the global economic development pattern - global trade protectionism is on the rise, more and more countries have adopted stricter approval of foreign investment, and geopolitical risk events have emerged one after another. Factors such as these have made many large investment institutions believe that it is more difficult to obtain stable long-term returns, and they either continue to reduce the scale of long-term investment or withdraw investment funds from many countries and secondary markets.
"If we want to attract long-term stable capital to flow back into secondary markets such as stocks and foreign exchange, we must first resolve these uncertainties, but this cannot be solved overnight." Michael Purves, chief global strategist at Weeden Co. Michael Purves) believes that this means that flash crashes across the foreign exchange market will continue to come as risk aversion rises (the yen exchange rate rebounds sharply).
(Editor: Zeng Fang, if you have any comments or suggestions, please contact [email protected])
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