Central Banks Disperse Happy Pills to the Markets

We knew there would be a bounce after last night’s news. When six separate central banks coordinate an effort to amp up global liquidity, you’re going to see people getting excited. From Forbes:

The U.S. Federal Reserve, after a similar effort in September, will “lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points.”

Wednesday’s move from the Fed was matched by corresponding actions from the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank. The new pricing applies to operations conducted as of Dec. 5, and the authorization of the swap arrangements has been extended to Feb. 13. (Read the FOMC press release here.)

After weeks (or, more realistically, months) of the financial world bemoaning the inaction of governments and inadequacy of solutions pertaining to the Eurocrisis, such a rescue has fostered a sense of elation in the markets. Across the board, we’re seeing prices jumping substantially. How substantially are we talking about?

Disclaimer: Past performance is not necessarily indicative of future results.

Palladium shot out of the gates like a rocket this morning, but right now, Copper is leading the pack. Generally speaking, the collective moves have been impressive- as always, with a handful of exceptions. Some were expected to fall (flight to safety plays like the U.S. Dollar and U.S. treasuries), and others are surprisingly responsive to traditional fundamental influences (like Cocoa falling on news of higher production). Others are anyone’s guess. Natural Gas, for instance, continues to make us believe it is a flight to safety play more than a risk on asset.

On the managed futures side of things, there are probably a fair amount of managers out there doing a face-palm and crying, “Not again…” The severity and abrupt nature of this up swing after a generally down November seems vaguely (by which we mean very) reminiscent of the early October swing- which, as you’ll remember- was also very unkind to most CTAs. There are several managers we track that came into today short Copper, Coffee and the S&P- all markets that have been skyward-bound today. For some of the multi-market programs that were posting gains earlier in November, the month’s end may wind up pushing them into the red- which is not what any of us wanted to see.

Even with this movement, there’s a few things to remember. As always, one day does not make a trend (is there an echo in here?), and it’s still early in the day. It’s entirely possible that some of this pressure will deflate as the hours tick on, especially since we know how responsive the markets have been to headlines. Perhaps most importantly, we have to think about the durability of this good news. What do we mean? The same Forbes article referenced above hits the nail on the head:

While the effort to provide more liquidity may temporarily soothe the symptoms of Europe’s debt crisis and allow financial institutions easier access to funding, it does little to address the underlying roots of overburdened governments that need to be propped up while they drastically cut spending.

In other words, this effort is a bandaid. Now it’s simply a matter of waiting to see how long it takes the markets to bleed through its coverage, or whether it actually has a chance to scab over. Given the dysfunctional Eurozone dynamic these days, we aren’t holding our breath on a speedy recovery. That being said, the markets aren’t exactly behaving logically these days, so who knows?



  1. Forex News says:

    Where do you get time to write so good articles?

Speak Your Mind


Interested in distributing or reprinting this content? Check out our reprint policy here.


Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Managed Forex Disclaimer:

Trading in foreign exchange is speculative and may involve the loss of principal; therefore, funds placed under management should be risk capital funds that if lost will not significantly affect one's personal financial well being. They are intended for sophisticated investors and are not suitable for everyone.

Managed forex accounts can subject to substantial charges for management and advisory fees. The performance numbers reported for Managed Forex programs on this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Due to the unregulated nature of the foreign currency exchange markets, not all managed forex account advisors are registered with the CFTC.

Unlike Futures Commission Merchants clearing futures trades, Forex brokers are not required to segregate customer funds. Further, there is no equivalent of the Securities Investors Protection Corporation insurance as applicable in the case of securities broker dealers' bankruptcies. Accordingly, in the event of a bankruptcy of a client's Forex broker, the client could be unable to recover any of its assets held by such broker.