Recent Articles

1st September 2015
Volatility Begets Volatility

BP 0901



Large changes tend to be followed by large changes, of either sign, and small changes tend to be followed by small changes…


Benoit Mandelbrot
The Variation of Certain Speculative Prices
The Journal of Business, 1963


You could be forgiven for thinking that last week’s market volatility was much ado about nothing. In the currency markets, EURUSD, which briefly surged over the 1.17 handle, has now dropped back towards the 1.12 level. Equity markets have bounced back from last week’s lows, with the S&P 500 and the FTSE 100 recouping about half of their losses. Even oil, which has played the role of the market’s ugly step child for over a year now, put in a stellar performance, rising by over 25% by the end of the week, putting its price back above level at which it started the year.



Yes, you could be forgiven for thinking that last week’s chaos, scary though it may have...

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24th August 2015
Beware the Ides of August…

The month of August has been a dangerous month for financial markets since the onset of the Global Financial Crisis. August 2007 marked the start of the ‘Credit Crunch’, as BNP Paribas suspended three investment funds, citing a ‘complete evaporation of liquidity’, and central banks initiated a coordinated injection of over a quarter of a trillion dollars of additional liquidity.


Four years later, August 2011 marked the onset of the European financial crisis, sparked by growing concerns over the sustainability of Greek public debt levels.    Government bond yields in Spain and Italy soared above 6%, and European stock markets sold off aggressively. 


Fast forward another four years, and financial markets in August 2015 are once again looking decidedly vulnerable.  Stock markets around the world began selling off last week, spooked by a bout of currency volatility in emerging markets, fears over China’s ability to achieve their economic growth targets (and fears over...

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17th August 2015
A Note on China…and the Dollar



A new billboard in Bangkok advertises the growing importance of the Chinese currency for international financial markets…


By: Kevin Lester


China dominated the foreign exchange market last week, when the People’s Bank of China (PBOC) devalued the yuan by cutting the official fixing by 1.9%, leading to a fall of about 3% against the US dollar (and bringing the yuan pretty much into line with the offshore market – see chart):


Chart 1: USDCNY (dark blue, RHS) and spread between USDCNY and One-Year Offshore NDF (light blue, far right hand side):




Obviously, a 3% move in one day is a pretty big deal in the FX market for any currency pair.  However, when it comes to China, such movements are often assumed to have additional significance.    The yuan moves because the PBOC (and the Chinese government) wants the yuan to move, and that is important.  (Note: It is unfair to single out China as...

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