Not Enough Liquidity and TEU Many Empties?
Over at a financial forum...
1. if and when the Fed utilizes its RRP with full allotment to unwind QE, there are NY branches of foreign banks currently holding $1T in ER funded with yankee and Eurodollar CD and CP issued to prime money funds, as well as interoffice loans from headquarters also funded by Eurodollar deposits and Euro/U.S. dollar basis swaps.
This makes offshore dollar and short term HQLA liquidity an issue. An uncapped mechanism could cause market dislocations as rapid flows would exacerbate eurodollar and short term UST liquidity issues, in addition to causing another dollar squeeze especially vs Euro. We don't know yet when the Fed is going to do this.
Something we can estimate the timing of....
2. Noting the rollover dates on swaps (FX, interest rate,etc.) contracts can give one a potential market inflection (depending on previous market action) on the particular currency pair, index or commodity.
Due to a global shortage of short term HQLA, China and other EM's are utilizing swaps as a LARGE part of their FX reserves. Making trading days near or on those settlement or rollover dates, potentially more tradable for liquidity volatility and market dislocations. In the case of CHINA, the only reserves they report are the Hong Kong special trading zone.
You know, where all that double booked export product that never actually left the HK warehouse, and sits as collateral for eurodollar loans and currency swaps in carry trades?
FYI, China recently cut a load of it loose as the Long Beach Port (#2 in US behind Los Angeles) had record inbound TEU's (20 ft equivalent units, cargo containers) in July and August. And the cheerleaders were screaming rebound, economic recovery on the horizon.
Just one little problem, SEPT YOY % ROC Inbound Loaded -1.9%; Outbound Loaded +6.1% EMPTY +14.6%.
But wait, it gets better... through Sept 2015, 9 of the last 10 calendar months saw 12% more Outbound Teu's EMPTY than LOADED. Read that again.
2015 YTD
Outbound loaded 1,146,413 = 44%
Outbound EMPTY 1,494,913 = 56%
But wait, that's not all you get, Fiscal YTD (Oct 1 - Sept 30th) Inbound Loaded +2.1%; Outbound Loaded -8.2%; EMPTY +20.4%
There's no economic contraction going on here, all is well, carry on as you were. If you believe that then close your eyes and tap your heels together three times, and think to yourself, there's no place for truthful economic news at home, there's no place for truthful economic news at home, there's no place for truthful economic news at home....
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