Roswitha Hutter Market review - European Central Bank · Roswitha Hutter Market review DG Market...
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Market review Roswitha Hutter DG Market Operations Bond Markets and International Operations Division Johannes Gräb DG International & European Relations International Policy Analysis FXCG, 23 November 2016 Disclaimer: The views expressed in this presentation are those of the author and do not necessarily represent those of the ECB or the Eurosystem.
Transcript of Roswitha Hutter Market review - European Central Bank · Roswitha Hutter Market review DG Market...
Market reviewRoswitha HutterDG Market OperationsBond Markets and InternationalOperations Division
Johannes Gräb DG International & European RelationsInternational Policy Analysis
FXCG, 23 November 2016
Disclaimer: The views expressed in this presentation are those of the author and do notnecessarily represent those of the ECB or the Eurosystem.
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www.ecb.europa.eu2
1. Market Structure
- International role of the euro - 2016 interim report- BIS triennial survey – Headline results
2. Market developments following US election
FX market themes – for discussion
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Euro remained second most important currency
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Sources: BIS, IMF, SWIFT, CLS and ECB calculations.Notes: A comparison of selected international currencies. Data as at end-2015 or latest available.
Euro remains second most important currency in international monetary system (percent of total)
60.357.1
45.0 43.0
64.1
22.7 22.0 19.5
29.4
19.9
2.7 4.18.6
3.1 4.1
0
20
40
60
80
100
Internationaldebt
Internationalloans
Foreign exchangeturnover
Global paymentcurrency
Foreign exchangereserves
USD EUR JPY
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Share of euro declined slightly across number of indicators
4Sources: BIS, Dealogic, IMF, national sources and ECB calculations.
Indicator Latest Comparison period
Difference (percentage points)
Stock of global FX reserves 19.9 20.5 -0.6(known currency composition)
International debt (stock, narrow measure) 22.7 21.6 1.1
International loans (stock) 21.9 21.6 0.3
International deposits (stock) 24.8 23.5 1.3
FX debt issuance 21.9 32.4 -10.5
Cross-border loan issuance 21.3 28.0 -6.7
37.6 38.5 -0.9
86.1 81.9 4.2
82.3 83.9 -1.6
58.2 58.9 -0.7
48.1 48.2 -0.1
19.3 20.3 -1.0
Invoicing of goods exported from the EA
Invoicing of goods imported to the EA
Foreign holdings of euro area debt denominated in euro
Share of the euro(percentages, unless otherwise indicated)
Daily FX trading (settled by CLS)
FX loans in CESEE countries
FX deposits in CESEE countries
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Trend towards greater multipolarity in intern. monetary system
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Source: SWIFT.Notes: Inbound plus outbound payments. Based on value. Data for each year refer to the end of January.
Greater multipolarity in the currency composition of global payments(per cent, at current exchange rates)
29.7 %
33.5 %
38.8 %
43.1 %
43.0 %
44.0 %
40.2 %
33.5 %
28.8 %
29.4 %
9.0 %
8.6 %
9.4 %
8.2 %
8.7 %
0 20 40 60 80 100
2012
2013
2014
2015
2016
Years
USD EUR GBP JPY CNY Other
Euro’s share in foreign exchange reserves declined in parallel with US dollar(per cent, at constant end-2015 exchange rates)
0
10
20
30
40
50
60
70
80
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
USD EUR other currencies
Sources: IMF and ECB calculations.Notes: Currency composition of global foreign exchange reserves. The latest data are for the final quarter of 2015.
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Monetary policy expectations major driver of FX movements
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Sources: Bloomberg and ECB.Notes: Real USD/EUR exchange rate and its UIP benchmark; percentage deviation from sample average. The decomposition of the real bilateral exchange rate is based on the forward solution of the risk-adjusted UIP condition.
Movements in USD/EUR largely explained by fluctuations in long-term real interest rate differentials
Foreign demand for euro area debt securities declined in 2015(in EUR billion, quarterly flows)
Source: ECB.Notes: Euro area portfolio liabilities. Balance of payments of the euro area. The latest data are for January 2016.
-0.25
-0.15
-0.05
0.05
0.15
0.25
-0.25
-0.15
-0.05
0.05
0.15
0.25
2004 2006 2008 2010 2012 2014
long-term real interest rate differentiallog(real USD/EUR)
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Temporary spike in euro denominated debt issuance in 2015
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Sources: Dealogic and ECB calculations.Notes: Currency composition of foreign currency-denominated debt issuance. The latest data are for Q1 2016
Share of the euro in foreign currency-denominated debt issuance declined(per cent, at current exchange rates)
0%
10%
20%
30%
40%
50%
60%
70%
80%
EUR USD Other
The euro’s share in outstandinginternational debt markets rebounded slightly(per cent, at constant end-2015 exchange rates)
Sources: BIS and ECB calculations.Notes: Currency composition of outstanding international debt securities. The latest data are for 2015.
0
10
20
30
40
50
60
70
EUR USD JPY Other
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EME debt issuance and lower funding costs drive USD issuance
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Cost of international debt issuance in US dollar remained favourable(five-year cross-currency basis swap against US dollar, in basis points)
Source: Bloomberg.Notes: Benchmark cross-currency basis swap agreements between two parties to exchange interest payments and principals denominated in US dollars against euro, yen and sterling. Latest data are for 31 March 2016.
-120-100
-80-60-40-20
0204060
EUR Yen GBP
Sources: Dealogic and ECB calculations.Notes: The data for 2016 are based on data up to Q1 2016. Volumes for 2016 are annualised.
Foreign-currency debt issuance in emerging market economies declined(USD billions, at current exchange rates)
0
100
200
300
400
500
600
700
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
EUR Other USD
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Euro’s share broadly stable in international loan markets
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Share of the euro in outstanding cross-border loans broadly stable (per cent, at constant end-2015 exchange rates)
Sources: BIS and ECB calculations.Note: Currency composition of outstanding amounts of cross-border loans. The latest data are for Q3 2015.
0
10
20
30
40
50
60
EUR USD JPY Other
Source: BIS and ECB calculations.Notes: Currency composition of foreign currency-denominated cross-border loans by region as at Q3 2015.
Large proportion of euro-denominated foreign currency cross-border loans issued in Europe (per cent, at current exchange rates)
0%
10%
20%
30%
40%
50%
60%
70%
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90%
100%
Europe Americas Asia-Pacific Africa &Middle East
Off-shore
USD EUR JPY GBP CHF Other
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1. Market Structure
- International role of the euro - 2016 interim report- BIS triennial survey – Headline results
2. Market developments following US election
FX market themes – for discussion
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BIS triennial survey – Headline results
Average daily FX volume in April 2016 declined to USD 5.1 trillion
Source: BIS Triennial Central Bank Survey
0
1000
2000
3000
4000
5000
6000
0
1000
2000
3000
4000
5000
6000
2001 2004 2007 2010 2013 2016
USD billion /day
Total FX volume falls: Total FX volume falls: Total FX volume falls: Total FX volume falls: Total FX volume falls: Total FX volume falls: Total FX volume falls: Total FX volume falls: Total FX volume falls: Total FX volume falls:
Total FX TURNOVER
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BIS Triennial Central Bank Survey – geographical location and counterparty type
The geographical location of the FX market is becoming increasingly concentrated
Source: BIS Triennial Central Bank SurveyNote: * breakdown of ‘other financial institutions’
051015202530354045
05
1015202530354045
2001 2004 2007 2010 2013 2016
% total turnover
Hong Kong SAR Japan SingaporeUnited Kingdom United States
0
500
1000
1500
2000
2500
3000
with reportingdealers
with otherfinancial
institutions
non-reportingbanks
InstitutionalInvestors
Hedge fundsand PTFs
with non-financial
customers
billions of USDApril 2013 April 2016
Hedge funds now account for a significantly decreased share of the FX market in stark contrast to institutional investors
* * *
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RMB has increased its market share
0%
5%
10%
15%
20%
25%
30%
35%
0%
5%
10%
15%
20%
25%
30%
35%
EUR JPY GBP AUD CAD CHF RMB SEK MXN
April 2013 Volume Share April 2016 Volume Share
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BIS Triennial Central Bank Survey - market share by currency
The US dollar remains the most dominant currency
Source: BIS Triennial Central Bank Survey
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
US
DE
UR
JPY
GB
PA
UD
CA
DC
HF
CN
YS
EK
MX
NN
ZDS
GD
HK
DN
OK
KR
WTR
YIN
RR
UB
BR
LZA
RD
KK
PLN
TWD
THB
MY
RH
UF
CZK IL
SS
AR
CLP IDR
CO
PP
HP
RO
NP
EN
OTH
April 2013 Volume share April 2016 Volume Share
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1. Market Structure
- International role of the euro - 2016 interim report- BIS triennial survey – Headline results
2. Market developments following US election
FX market themes – for discussion
Rubric
www.ecb.europa.eu
Investor reaction to Trump, week one
Flows following the US election
Source: State Street Global Markets, Flows between 9th -15th November
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EM sell off is correlated with foreign bond ownership
Flows following the US election
Source: Bloomberg, State Street Global Markets, Flows between 9th -15th November
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FX options skew ahead of key votes
Political events
Source: State Street Global Markets, Bloomberg
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Euro fixed income flows and hedging
Source: State Street Global Markets, Bloomberg
Huge outflows from euro area fixed income
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Foreign demand for UK government bonds, equities and sterling
Tracking the behaviour of international investors around Brexit
Source: State Street Global Markets
