10 May IS MOODY’S WARNING BONAFIDE?
The recent selloff pales in comparison of selloffs of years’ past. Even though the VIX is rising, in many regards there is still a sense of complacency. With this written, however, several organizations are opining about rising risk.
Yesterday Moody’s confirmed a long held view that ETFs “threaten to amplify systemic risk when liquidity dries up.” Moody’s stated because of inherent miss matches between liquidity demands of ETF holders and the underlying investments a systemic risk is present that could threaten the economic viability of firms charged to maintain order.
Moody’s writes that banks used to run this business but have stepped away because of greater regulation and instead have been replaced by “technology-savvy specialists” that may not comprehend the “exogenous risks” of a liquidity induced selloff.
Many times I have commented about the regulatory environment that endorses speed and cost of execution over liquidity and capitalization. As stated above, the issue at hand is the $3.9 trillion ETF industry has not been stress tested and in recent times of nominal volatility the system has shown some weakness.
Changing topics to the here and now, equity markets traded upon the trade headlines. The S & P 500 did decline below the 50 day moving average, a level that some believe is significant but then rebounded.
Last night the foreign markets were up. London was up 0.45%, Paris up 0.77% and Frankfurt up 1.08%. China was up 3.10%, Japan down 0.27% and Hang Sang up 0.84%.
The Dow should open moderately lower on trade. Meetings are scheduled to resume later today. There is a general consensus that an agreement will be reached at some juncture. The 10-year is off 2/32 to yield 2.46%.