Wednesday, December 25, 2013

The World this year

Syria’s use of chemical weapons in an attack that killed hundreds of people thrust the country’s civil war to the top of the agenda in Western capitals. But the resolve by some governments to punish the Assad regime with an American-led missile strike crumbled after the British Parliament surprisingly rejected such action. Russia brokered a deal, backed by the UN and America, under which Syria is destroying its chemical stockpile. The war rumbles on. The UN estimates that three-quarters of Syria’s population will need aid in 2014.

Civil strife enveloped Egypt whenMuhammad Morsi, its Islamist president, was ousted by the army after days of street protests against his government that were bigger than the anti-Mubarak demonstrations in 2011. A crackdown on the Muslim Brotherhood led to more bloodshed; most of its leaders were imprisoned.

Pakistan’s election marked the country’s first civilian transition of power at the end of a full five-year term. Nawaz Sharif returned as prime minister; he had last held the job in 1999. Bombings and mayhem continued unabated. At least 50 people were killed on the day that Mr Sharif held a press conference with David Cameron, Britain’s prime minister, that discussed security issues.

Although less frequent than in previous years, American drone strikes against militants in Pakistan were bitterly condemned by its government. Drone technology was also more widely talked about elsewhere for other purposes, such as distributing aid to rural areas and delivering packages. Iraq had its worst year for sectarian violence since 2008, with over 8,000 people killed.

The nutcracker

 A new governing coalition was formed in Italy, headed by Enrico Letta of the centre-left Democrats, after an election in which a quarter of Italians registered their discontent by opting for a new party led by a comedian. Mr Letta got on with the serious business of trying to reduce public debt. The fun ended for Silvio Berlusconi when he was booted out of the Senate, after having been definitively convicted of a crime for the first time.


 Cyprus became the fourth country in the euro zone to get a full bail-out, though only after an anxious week in which it had to resubmit a plan to restructure its banks. Ireland became the first country to exit its bail-out programme.

Pope Benedict shook the Catholic church by stepping down, the first pope to retire in 600 years. His successor, Pope F rancis, an Argentine Jesuit, shook the church further by saying it should worry less about sexuality and by moving to reform the Vatican.

Dell rebooted its business by agreeing to a $25 billion offer from its founder, Michael Dell, to take it private, but not before rebellious investors submitted a counterbid for the computer-maker. Dell’s was the largest buy-out since the start of the financial crisis in 2007.


China’s new leadership under Xi Jinping announced the boldest set of reforms for decades. These included more market pricing and a promise to abolish labour camps. China also further relaxed its one-child policy, in place since the 1970s, by allowing parents to have two children if one of the parents is an only child. In 2012 $2 billion-worth of fines were imposed on families that broke the one-child rule. China tried to stamp its authority on its region by imposing an air defence zone over a swathe of the East China Sea that covers islands contested by Japan. Japan and America ignored China’s demand that it should be notified about flight plans by sending aircraft into the zone without warning. In December China accused Japan of “malicious slander” for suggesting its zone was threatening stability.


Edward Snowden provoked a debate about government mass-surveillance programmes when he leaked classified documents about the activities of America’s National Security Agency. The extent of the snooping angered many, though Mr Snowden was accused of putting the security of America and its allies at risk. Some of those allies, including Angela Merkel of Germany and Dilma Rousseff of Brazil, were furious that their personal communications had been monitored.

Typhoon Haiyan unleashed some of the strongest winds ever recorded at up to 315kph (195mph), leaving at least 6,000 people dead in the Philippines.

Israel’s general election returned Binyamin Netanyahu to power. After two months of tortuous negotiations he formed a broad coalition government and appointed Tzipi Livni, who leads the Hatunah party, as chief negotiator with the Palestinians.


Joyful and triumphant

Among other big elections, Angela Merkel’s Christian Democrats won a third term in Germany and formed a grand coalition with the centre-left Social Democrats. She is the only leader in the euro zone to have been re-elected since the start of its debt crisis. Australia went through three prime ministers over the course of the year; the centre-right Liberals, led by Tony Abbott, won an election. Michelle Bachelet became Chile’s president again; her first term ended in 2010. Malaysia’s ruling Barisan Nasional coalition had its worst election showing since 1969; it still formed a government. And Uhuru Kenyatta was declared the victor in a presidential election in Kenya. His trial at the International Criminal Court on charges of orchestrating the ethnic violence that followed Kenya’s 2007 election begins in February.


In Bangladesh the collapse of a building that housed clothing factories killed 1,100 workers. They had been ordered to return to work despite warnings about cracks in the structure. It was South Asia’s worst industrial disaster in 30 years.



Friday, December 20, 2013

G3

The economies of the G3 – the US, Euro Area, and China – are collectively growing at 3.7% in
the current quarter relative to the same quarter last year, according to the Now Casting 
growth monitor. And G3 growth in Q1 2014 will be 4.15% higher than in the same quarter 
last year.
Over the past month the picture for the US has improved, and this improvement has been only
partially offset by a slight weakening in the data for the Euro Area and China.
 

E Trading

There was a time not so long ago when equities traded on electronic exchanges and everything else traded on OTC markets. We used to hear people argue vehemently that electronic trading would not work outside of the equities world. The belief was that the central order book could not handle large trade sizes. Algorithmic and high frequency trading changed all that. We learned that large trades could be sliced and diced into smaller orders that the central order book could handle easily. With exchanges offering lower and lower latency trading, a big order could be broken into pieces and fully executed faster than a block trade could be worked out upstairs in the old style.

Slowly the new paradigm is expanding into new asset classes. The 2013 triennial survey shows that electronic trading has virtually taken over spot foreign exchange trading and is dominant in other parts of the foreign exchange market as well (Dagfinn Rime and Andreas Schrimpf, “The anatomy of the global FX market through the lens of the 2013 Triennial Survey”, BIS Quarterly Review, December 2013). The foreign exchange market has ceased to be an inter bank market with hedge funds and other non bank financial entities becoming the biggest players in the market.

The next battle ground is corporate bonds. Post Dodd Frank, the traditional market makers are less willing to provide liquidity and people are looking for alternatives including the previously maligned electronic trading idea. McKinsey and Greenwich Associates have produced a report on Corporate Bond E-Trading which discusses the emerging trends but is pessimistic about equities style electronic trading. I am not so pessimistic because in my view if you can get hedge funds and HFTs to trade something, then it will do fine on a central order boo