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Varad Markets Profile picture
@VaradMarkets
Jun 2, 2021 • 7 tweets • 4 min read • Read on X
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Role of #USD & #EUR in Global Monetary System:

[Charts from ECB Paper: 'International Role of Euro']

#Dollar continues to dominate FX Reserves, International Debt, Loans, Deposits, FX Turnover & Global payments

1/7
FX Transactions settled in CLS System (Continuous Linked Settlement)

▪️ USD led FX market => involved in ~90% of all settlements in Dec'20
▪️ EUR second most actively settled ccy

2/7
FX Share in Global FX RESERVES:

Sub-thread below

3/7
FX Share in International DEBT:
▪️ USD accounts for ~66% of all International Debt issuance
▪️ EUR share has declined to 23%

4/7
Borrowers of International Debt:
▪️ USD-denominated debt issuance by EM borrowers surged - favourable financing conditions in US

▪️ EUR-denominated debt issuance declined - less interest from US borrowers

▪️ Also rapid growth in USD-denominated green bond issuance in 2020

5/7
FX Share in International LOANS:
▪️ USD share declined but still dominant ccy => 54% of international loans
▪️ EUR 16%, Others 27%

6/7
FX Share in International DEPOSITS:
▪️ USD share of outstanding stock of international deposits ~54% => pandemic driven safe-haven Dollar demand + Fed's QE driven excess USD liquidity

▪️ EUR share 17%

@rodneyatwigram @chigrl

Reference:
ecb.europa.eu/pub/ire/html/e…

7/7

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More from @VaradMarkets

Varad Markets Profile picture
Mar 16, 2022
#USDCNH dropped ~250pip 6.4100 to 6.3850 yday on prospect of Saudi Arabia SA receiving oil payment from China in #CNY instead of #USD

▪️ Pricing Ccy is different from Invoice/Settlement Ccy - SA can receive CNY but oil may still be priced in $$

1/5
 wsj.com/articles/saudi…
▪️ China oil imports from SA ~$45bn pa, ~1.75 mbpd
▪️ What can SA do with CNY received
1. Pay in CNY for Chinese imports/services
2. Diversify FX Reserves into CNY away from USD
2a. Invest back into China onshore say CGBs

+ve for CNY internationalization
[SAMA FXReserves $420bn]
▪️ (Oil in CNY) = (Oil in USD) x (USDCNY FX)
- Oil in CNY=>Shanghai International Energy Exchange, "Shanghai Oil" #SCPA
- Oil in USD=>say DME Dubai Oman Crude Oil #OQD

If Shanghai Oil in CNY is just an FX conversion of Dubai Oil in USD then Oil is still really priced in USD

3/5
Read 6 tweets
Varad Markets Profile picture
Mar 13, 2022
#China: Back In Focus
▪️ Poor credit data: Agg Financing CNY 1190bn vs 2200bn exp=>MLF rate cut possible 15 Mar
▪️ Biggest Covid crisis since Wuhan as cases surge
▪️ China Tech & HK stocks beaten down
▪️ Geopol: U.S. warns China
▪️ #USDCNH jumps to break 1m consolidation

1/6 ImageImage
▪️ China reported 3,300 cases on Saturday - worst outbreak since early days
▪️ 17.5 million residents in Shenzhen placed in lockdown till 20 March

2/6
bloomberg.com/news/articles/…

scmp.com/coronavirus/gr…
China Tech & HK stocks beaten down
- SEC: delisting concerns
- Cyberspace Authority of China (CAC): regulatory clampdown

3/6
wsj.com/articles/chine…

scmp.com/tech/policy/ar…
Read 6 tweets
Varad Markets Profile picture
Mar 13, 2022
#USDJPY: Next big trade or just a puzzle?
▪️ In 21st century, USDJPY spiked up >2% when S&P dropped >2% in a wk only on 9 occasions - last wk was one of them - prob of such occurrence <1%
▪️ Last wk $JPY 114.82=>117.29, S&P -2.9%
▪️ Dethrone Long JPY as macro risk-off hedge?
1/9 ImageImage
▪️ Recent S&P drawdown -12.5% since 3 Jan'22 on hawkish Fed & Russian invasion but $JPY +1.0% with drawdown of only 1.4%
▪️ Regime change post Covid?
- Since Mar'20, $JPY vs S&P regression reveals significant -ve beta
- Previous Fed hikes (2004-06, 16-18) also showed low beta
2/9 Image
- Post Covid, reduced (3m) correlation b/w USDJPY & S&P (+ve correl => USDJPY ⬆️, S&P ⬆️)

3/9 Image
Read 9 tweets
Varad Markets Profile picture
Jan 23, 2022
#FX/#Rates thru 2016/18 episodes of 'Equity Tantrum' on hawkish Fed: Takeaways
▪️ Short USDJPY best FX trade in both periods
▪️ Short AUDJPY even better
▪️ Short EUR/Long DXY bad idea for risk-off
▪️ Gold/Silver good value here
▪️ Long USDEM not rewarding enuf
▪️ Bonds rally 40bp
Dec 2018 Recap:
S&P -11.3% (30 Nov'18 to 3 Jan'19)
2y UST -41bp, 2.78=>2.37
10y UST -43bp, 2.98=>2.55
DXY -1.0%
Oil/WTI +0.30%
BCOM -6.2%
VIX 18=>25 (36 high)
HY OAS +119bp

But Dec'18 episode was late in hiking cycle=>had enough room for a 40bp bond rally. Lets look at 2016

2/7
Jan 2016 Recap:
S&P -10.5% (31 Dec'15 to 11 Feb'16)
2y UST -40bp, 1.05=>0.65
10y UST -61bp, 2.26=>1.65
DXY -3.1%
Oil/WTI -13.5%
BCOM -5.85%
VIX 18=>28 (32 high)
HY OAS +179bp

DXY ⬇️ on higher EUR JPY & CHF
Strong bond rally at start of hiking cycle
2/10 flatter but 5/30 steeper
Read 7 tweets
Varad Markets Profile picture
Jan 22, 2022
Where is Fed Put?

In late 2018:
- S&P touched bear mkt in mid-Dec'18 (20% correction)
- Dropped 9% in Dec'18
- Dropped 2.5% on 3rd Jan'19
Then Powell did dovish pivot on 4th Jan'19: Fed "will be patient"

In 2022:
- S&P has dropped 7.73% in Jan'22
- Corrected 8.73% off peak

1/8
Fed's dovish pivot in early Jan'19

2/8
 cnbc.com/2019/01/04/pow…
But in 2018, Powell was extremely hawkish even as Inflation did not even touch 3%

Now CPI is 7% => implies Fed's hawkishness is justified on inflation + mkt understands it => Fed's Put is further away (v/s 2018)?

What!!! So let S&P correct another ~12% before Fed wakes up?
3/8
Read 8 tweets
Varad Markets Profile picture
Jan 6, 2022
#Nasdaq v/s #FedFundRate:

Few comparisons of Fed's recent hawkishness with Powell's extreme hawkishness in late 2018

Nasdaq dropped 22% in Q4'18; currently 5.0% off its peak

1. Fed not really as hawkish as 2018
2. Fed has learnt when to back off. Or has it?
@saxena_puru
Few news reports from that time:

"Federal Reserve raises rates despite signs of economic softening"
edition.cnn.com/2018/12/19/bus…

politico.com/story/2018/11/…
Read 4 tweets

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