Weekly Review: Bernanke takes to the skies; quant funds to benefit from surveillance technology
Federal Reserve chairman Ben Bernanke didn’t disappoint this week, taking to his helicopter to rain down a fresh round of quantitative easing.
With the Fed pledging to buy $40 billion a month in mortgage-backed securities until US employment conditions improved, QE3 proved a hit. It sent asset markets up to fresh highs for the year and triggered a sell-off in the dollar. Reassurance that Bernanke had further weapons in his arsenal also helped the mood, raising expectations for QE4, and prompting some to even pencil in QE10.
As we explained, only the Fed among leading central banks retains the power to move its currency using QE. And this week it was encouraging investors to sell the dollar.
If investors were selling the dollar, what were they buying? Many agree the RUB is about to become a market favourite.
The prospects for the euro are still a bit more clouded, even given its run up through $1.30. The European Central Bank’s bond-buying scheme was well received, but Spain has not signed up and there is still plenty of scope for another eruption of the eurozone sovereign debt crisis.
That is not lost on the Swiss National Bank, which quite rightly, in our view, refused to take advantage of easing eurozone tensions to raise the floor in EURCHF. As we noted, it is not necessary and could be unwise.
Meanwhile, we met an interesting company this week called RavenPack, which has launched a product that sends algorithms to sift through thousands of news stories in real time to produce data that can be incorporated into trading strategies.
Robots are now trading the news. Who would have thought it?
The firm, which originally intended to go into counter-terrorism business, was in London this week talking to FX quantitative hedge funds about the product. But, as they told us, it has applications outside that sector, with FX market makers and eventually retail investors likely to see the benefits.
The week also brought more news on the slowdown in FX trading in August, which was weak even by summer standards. That did not seem to affect the jobs market at leading banks, with more comings and goings in the sector. The move that seemed to spark the most interest was a new head of e-FX at Troika Dialog, the investment bank purchased by Russian heavyweight Sberbank earlier this year.
Elsewhere, the leading banks are continuing to roll out new trading technology.
Next week, we have news of a bigger technology development at another top player. Watch this space.