After the worst annual performance since 2011 for currency managers last year, exaggerated price swings during the first two trading days of this year have traders on alert.
Investors returning to their desks saw foreign-exchange volatility jump to the most in a month as Chinese stock markets plunged and tensions escalated in the Middle East.
Morgan Stanley said swings would persist.
Photo: AP
While Deutsche Bank AG sees a “minor retreat” in volatility, it said more turmoil might come from China and rising US interest rates.
Foreign-exchange funds are looking to better capitalize on volatility after bets on monetary-policy divergence disappointed last year.
Some of the price swings came from unscheduled events last year, such as China’s August devaluation of the yuan, Switzerland’s decision to scrap its currency cap and plummeting commodity prices, which all prompted traders to react rather than anticipate.
“With volatility comes opportunity, because it’s easier to make money when the market’s moving,” JPMorgan Asset Management London-based chief investment officer Roger Hallam said.
“A disciplined investment process facilitates being able to identify profitable trends or lean into erratic price action,” said Hallam, who expects the US dollar to broadly strengthen during the first quarter.
A JPMorgan gauge of currency volatility rose to 10.03 percent on Monday, close to the index’s annual average of 10.08 percent last year, the most since 2011. It fell to a record-low 7.32 percent average in 2014.
Currency markets were buffeted last year by speculation the US Federal Reserve would raise rates in contrast with global peers, including the European Central Bank and the Bank of Japan. A Parker Global Strategies LLC index that tracks top funds in the industry lost 2.3 percent last year — the worst since 2011 — after the Fed failed to raise rates as soon as some traders expected.
The euro slumped to a one-month low of US$1.0711 on Tuesday after an inflation report highlighted the under-performance of economic growth in the single currency bloc versus the US. Policy divergence is poised to continue, with the US central bank signaling it might raise rates four times this year. The euro was little changed at US$1.0747 as of 6:01am in London yesterday.
This year “is likely to see high asset volatility with central bank-policy divergence, an expensive US dollar becoming even more expensive and political uncertainties acting as the catalyst,” Morgan Stanley London-based head of global foreign-exchange strategy Hans Redeker said. “Volatility will be the name of the game, and the very first trading day of this year provides us with a taste of what to expect.”
The yen should also benefit in this environment, while currencies of commodity producers and emerging nations would weaken, said Redeker, whose bank was the eighth most-accurate forecaster of major foreign-exchange rates last quarter.
The turmoil is reflected in “group-of-10 currencies,” where the average difference between one-month implied and historic volatility for options reached the most in one month on Monday.
“An active 2015 has primed the markets for wide ranges in 2016, but 2015 has also likely preempted and dissipated some key macro sources of future volatility,” Deutsche Bank New York-based global foreign-exchange research co-head Alan Ruskin said.
While the bank, which is the second-biggest foreign exchange trader according to Euromoney, sees a slight pullback in volatility this year, it expects markets to stay attuned to US economic performance, Chinese currency depreciation pressures and declining commodity prices.
The latest turbulence was sparked by China, where a worse-than-forecast manufacturing report spurred an equity selloff that snowballed from Shanghai to New York.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)