The fed dedollarize the world economy
Started the last trading week of 2018. The market froze in anticipation of further news after the huge landslides and abrupt impulses of the end of last week. Many traders, funds and banks record their positions to wait out the holiday period out of the market, that is reasonable, given that it will be “thin”.
The concept of “thin market” due to lack of volumes and reducing liquidity in these circumstances, a relatively small amount can much more significantly affect the dynamics of the assets, in comparison with the standard period when the number of positions possible.
In terms of the folding positions at the end of the year in a very disadvantageous position were the American investors, whose portfolios are heavily dependent on the dynamics of the indices of the U.S. stock market. S&P500 fell to the level of 2400 points for the year showing a decline of -9%. The Dow Jones Industrial Average also fell for the year on -9,75% to the level of 22445. The situation is similar for the Nasdaq -8,72%.
The reason is found in the contraction of liquidity. On the global money market there was a record in 6 years, the shortage of dollars created as a result of the policy of the Federal reserve. The cost of borrowing the us currency by means of currency swap transactions is constantly growing and with the end of November in just three weeks her levels were on par with levels seen at the peak of the debt crisis in the Eurozone.
Swaps are used by banks and corporations to borrow dollars bail other currencies. And the cost of these operations is constantly growing, banks increase the premium for dollar liquidity on the interbank market.
According to zerohedge, the average value of cross-currency basis the dollar fell to a -25,9 basis points. The lower the score, the higher the premium banks are willing to pay for a transaction, cross – currency swap.
Most acute is the situation in the Eurozone to borrow dollars bail the Euro has become much more expensive – the figure reached a record in 2011 ( -97,1 b.p.), also expensive to hold dollars has become in the UK.
While in the world actively talks about “the de-dollarization of” American regulator already is pursuing a similar policy, beginning operations to reduce the balance, which at the rate of $10 billion per month withdraws from the financial system dollar liquidity injected over the last 8 years (low rate policy and QE).
Is it possible to be attributed to a seasonal factor? After all, the shortage of dollars in the market – a common phenomenon at the end of the year. But, first, this year it started much too early, and second, to close their eyes to the ongoing fed’s withdrawal of dollars from the market is not worth it.
In addition, the market is waiting for the repatriation of US dollars in the course of tax reform trump, and this amount is estimated at $ 2.5 trillion.
Next year this trend will only increase, because to expect that in conditions of limited availability of dollars, the market would restore rapid growth – not worth it.
“International financial center”