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Strong start to autumn for most spot FX platforms

As autumn arrived, most spot FX platforms experienced an uptick in volumes, despite there being fewer trading days in September, compared to August. This is thanks to another month of turbulence in Italian politics, policy updates from the Federal Reserve and new US trade tariffs.

Amidst a busy trading month for financial markets, NEX reported a 2% increase in spot FX trading activity, with volumes increasing from $84.7 billion in July to $86.1 billion in September. However, on a year-on-year basis, volumes saw a significant 12% decline.

Thomson Reuters’ spot FX volumes grew 4.2% to $98 billion from August, but it too suffered a fall, dropping 4.8% when compared the same month in 2017.

Spot FX volumes on Fastmatch declined for the fourth month in a row, falling by 4% from $19.5 billion in July to $18.6 billion in September – its lowest figure of 2018. Year-on-year comparisons also show a decrease of 11.4%. Not good reading for a firm which has endured a period of difficulty following some very public staff changes.

However, it’s a cheerier story for Cboe FX, with spot volumes rising by 3.5% from August to $35.7 billion. Year-on-year growth was a healthy 8.1%.

But the biggest news continues to come from FXSpotStream, which reported an ADV of $31.9 billion, up 12.3% from August and up a huge 33% when compared to September 2017.

 

*All figures in US$

Insight

It was a strong start to Autumn for most spot FX platforms as they continued their recovery from the summer slump. They seemingly benefitted from a particularly busy news month, with plenty of column inches devoted to developments in the FX industry.

The main exception was Fastmatch. Its troubles continued as volumes dropped for the fourth month on the bounce. Euronext, which now owns 97.3% of the firm, and its founder and former CEO, Dmitri Galinov, continued their very public fallout in September. With a court case looming, it seems like headlines they could do without.

September also saw CLS’s long-serving CEO David Puth resign. A veteran of the FX industry, David played a key role in the development of the FX Global Code. Under his stewardship, CLS remained a safe pair of hands, with its core settlement service providing a unique level of safety and reassurance for trading 17 global currencies. We wish him all the best in his future endeavours.

Speaking of the FX Global Code, Edwin Schooling Latter, head of markets policy at the Financial Conduct Authority, said it is considering endorsing two voluntary codes: The Global FX Code and the UK Money Markets Code. This has put greater onus on senior managers to sign up. Expect a flurry of activity over the next few weeks.

Indeed, a report from NEX showed how its adoption has improved trading behaviour on EBS Direct, a relationship-based, disclosed platform, with a significant reduction in hold times, reject rates and a tightening of spreads.

All very positive, but it didn’t shed light on trading behaviour on its more popular, anonymous EBS Markets platform. Perhaps a second volume of the report is imminent?

Future predictions

It was reported in Bloomberg that Blackstone Group, the ownerof Thomson Reuters’ financial-and-risk arm, (also known as Refinitiv), is weighing a sale of FXall, a currency trading platform. According to people familiar with the matter it could fetch as much as $3bn.

Thomson Reuters has said it “remains a very strategic part” of its FX operations. Given the recent trend of exchange operators acquiring currency platforms to diversify their offerings, there is likely to be plenty of interest from potential buyers in the market.

Speaking of Refinitiv, confidential sources (OK, the FT…) also report that a rap song has been written by an employee to boost morale amongst staff.

In terms of currencies, the focus will be on the trade-weighted USD which continues to do well. Whether it can maintain this momentum is questionable, especially when investor attention eventually shifts to the bloating U.S. budget deficit and fading impact of the fiscal stimulus. The mid-term elections will also be in the back of their minds, with the outcome far from certain.

In Europe, the euro remains grounded by loose policy from the European Central Bank as well as a fair amount of political strife relating to Brexit and Italian politics. However, industry insiders believe it has the potential to bounce back over the coming year, particularly as investors start to expect an end to Fed tightening.

August FX activity boosted by EM sell-off

As the summer lull comes to a close, it has become apparent that there was no ‘sleepy summer’ for spot FX traders this year. Data from ECNs that publicly report their volumes has revealed that trading activity was largely up across the board in August.

NEX reported a 3% increase in spot FX trading activity as its volumes increased from $81.9 billion in July to $83 billion in August. Year-on-year volumes saw a slight increase of 2%.

Thomson Reuters’ spot FX volumes remained flat at $94 billion, but August’s trading activity represents a 14.7% increase when compared to the same period in 2017.

Cboe FX’s spot volumes rose by 3.9% from July to $34.5 billion. Year-on-year growth was an impressive 27.3%. The venue has now had 12 months during which ADV has been in excess of $30 billion per day.

Spot FX volumes on Fastmatch fell by around 2.5% from $20 billion in July to $19.5 billion in August. This follows a 9% decrease the previous month. However, year-on-year comparisons show an increase of 20%. Although it didn’t see an increase in ADV, its FX Tape saw a record amount of activity, averaging $83.6 billion a day in August.

FXSpotStream reported an ADV of $28.4 billion, up 2.5% from July and up a whopping 47.6% from August 2017.

CLS reported a 2.2% increase in August’s ADV to $425 billion. However, this is down 1.9% for the same period last year.

Spot FX*All figures in US$


Insight

After a very slow start to the summer trading season in July, data shows that most platforms experienced a slight recovery in spot FX volumes in August.

Despite the seasonal decline, trading activity in the market was stable, aided by volatility in emerging markets.

Once again, political events have played a major role in volatility. After the Turkish central bank lost its independence, the lira went into freefall.

The Argentinean peso was another currency in the crosshairs of currency traders. At the tail end of August, the central bank ratcheted up interest rates to a whopping 60%. Despite this drastic action, the currency continued to plunge 12%.

The Russian ruble experienced its worst month since April against the dollar, on the back of US announcements to introduce new sanctions against Russia

The decline in these currencies helped trigger a broader sell-off in the developing world’s markets, with JPMorgan’s emerging market currency gauge sliding 1% at one point to a new record low.


Future predictions

Industry insiders think that what happened in August is a sign of things to come over the next few months.

Political factors are continually weighing on currency movements. With prospective rate hikes from the US Federal Reserve coming into play before the end of the year and Trump’s Twitter account continuing to wreak havoc, many expect volatility to continue.

Some predict that the lack of stability and transparency in Turkey will drive more business away from the lira to ‘safe-haven’ currencies.

Closer to home, Brexit negotiations remain the topic of focus. There seems to be no end to near-term uncertainty; in fact, a Reuters poll predicts a no-deal Brexit could see GBP fall as much as 8%!

Spot FX volumes show impressive year-on-year growth

NEX reported a 5% decrease in spot FX trading activity as its volumes dropped from $101 billion in May to $96 billion in June. This follows a 21.7% increase in May from April. Year-on-year volumes are up a healthy 15.7%.

Thomson Reuters’ spot FX volumes have seen a small rise of 1.9% to $109 billion in June. It has experienced month on month growth since April when it recorded $95 billion, its lowest ADV since December 2017. June’s ADV represents a 17.2% increase when compared the same period in 2017.

Cboe FX’s spot volumes suffered the most in June, dropping 7.3% to $38 billion, compared with May’s $41 billion. Year-on-year painted a more positive picture for the platform with growth of 36% in spot FX volumes.

Spot FX volumes on Fastmatch fell by around 4% from $23 billion in May to $22 billion in June. This represents a 10% increase year on year.

FXSpotStream experienced the biggest increase this month, rising 7% from $28 billion in May to $30 billion in May. This represents a substantial 50% growth from the $20 billion recorded in June 2017.

Spot FX

Insight

So far this year, electronic trading platforms have seen strong performances in the spot FX market. June 2018 was no different with overall volumes across Thomson Reuters, FX SpotStream, Nex, Cboe FX and Fastmatch up 21% on June 2017.

Spot FX platforms have bounced back after a slow start to Q2. In April, all of the platforms recorded a decrease in trading activity, with the exception of Fastmatch.

Following large increases for all platforms in May 2018, we have seen a mixed picture of trading activity for the five spot FX platforms in June.

Key currency pairs came out of the wait-and-see mode they experienced in April. This is reportedly because volatility increased in May and June due to rising geopolitical tensions, concerns about trade wars and the prospect a global economic growth boom is nearing its peak.

A key focus over the past month or two was on the regulatory side with the Global Foreign Exchange Committee (GFXC) meeting taking place in South Africa on 27 June. At the meeting in Johannesburg, the GFXC appointed new Chair, Simon Potter, and Co-Vice Chairs, Adrian Boehler and Akira Hoshino.

It also revealed that more than 300 institutions have now signed up to the FX Global Code.

The GFXC has established a new group to deepen engagement with the buy-side, so all eyes will be on these institutions over the coming months.

Future predictions

The US-China trade war came to fruition with a first round of tariffs on $34 billion of Chinese imports on July 6, followed by a second round on $16 billion of imports.

The US’s trade partners including the EU, Canada and China are set to respond to latest U.S. trade barriers with retaliatory tariffs of their own. Starting in July, we could be getting dangerously close to a full-blown trade war.

Hopefully policymakers can put economics ahead of politics and come to a resolution to ensure unimpeded trade flows.

SEB chief EM strategist, Per Hammarlund, told FX Week that this trade spat could support the dollar in the short term, given the risk-off sentiment.

But, over the longer term, the event will undermine US growth, as well as its economic leadership, and weigh on EM currencies “for years”, Hammarlund says.

“Once countries lock themselves into a tit-for-tat battle, they will find it very difficult to get out of the spiral.” “If growth continues to slow, the EM FX sell-off will be prolonged, even if markets would see a temporary rebound if the US and China reach an agreement,” he says, adding that any interest rate hikes by the Federal Reserve will trigger a sell-off in EM currencies.

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A Reuters bon voyage… and welcome

So it’s bon voyage to Reuters’ Patrick Graham who is moving to India after almost four years covering the FX market.

Patrick covered the largest and most liquid financial market from its main trading centre in London through a period of profound change.

He now heads to Bangalore, where he will be overseeing over forty journalists at Reuters’ largest news bureau.

Chatsworth has worked closely with Patrick for many years and we wish him well as he embarks on this new stage of his career.

We also extend a warm welcome Patrick’s colleague Saikat to London, as joins the London FX team from his previous role covering Asian financial markets.

Daily traded currency values from banks and funds around the globe hit USD 4.96 trillion in April

A surprise from the global currency markets which have been in something of a state of flux of late.

Daily average value submitted to the CLS global settlement system hit USD 4.96 trillion in April, up 5.7% from the previous month, and up 6.9% from the USD 4.64 trillion in April 2015.

Volumes have been below USD 5 trillion a day for most of 2016 so far but the new CLS figures show that April was the busiest month this year.

And this April matters a great deal because the month’s trading activity feeds into Bank of International Settlement’s triennial survey of the foreign exchange market released in September.

The survey is the most holistic picture of global FX market activity, showing detailed activity broken down by trading centres, counterparty types and currency pairs.

The global currency markets remains in a state of flux. Diverging monetary policy, changes in liquidity provision, venue usage and the profile and diversity of trading counterparties are all factors changing the shape of the market.

Take trading venues. Despite the uptick in month on month CLS settlement activity in April, trading volumes actually fell on some of the major trading platforms.

EBS reported USD 82.3 billion last month, which was actually a drop of 15% on the USD 96.9 billion last year recorded in April 2015. It was a similar picture over at Thomson Reuters.