A propos du resserrement des conditions financières et monétaires dans le monde

A lire dans The Telegraph.

Nous avons insisté sur le renchérissement du Libor et les tensions sur le dollar funding tout au long de ces dernières semaines. Le monde manque de « dollars ». Nous avons été le premier sinon le seul, depuis des semaines à insister sur ce « dollar » shortage. 

Le Libor est en forte hausse, l’argent renchérit et ce taux est central dans le système mondial. Il est significatif car il est établi en fonction des lois du marché et il donne une idée de la confiance et du risque dans le système car il est non garanti.

Le TED spread, est une bonne mesure des tensions et du stress dans le système avons nous maintes fois expliqué. Le Ted est un spread entre le taux de l’eurodollar, qui comporte un risque et les Treasuries correspondantes  qui n’en comportent pas .

Nous ne sommes pas entièrement d’accord avec ce qui est dit dans cet article, mais il va dans la bonne direcction en expliquant que sous les apparences, en sous sol, dans la plomberie, il y a du stress financier et  beaucoup plus de risques qu’on ne le croit.

Là ou l’article est insuffisant est dans le fait qu’il ne met pas l’accent sur le fait que le problème du « dollar » funding est structurel, récurrent, que c’est une faiblesse fondamentale du système qui n’a pas été traitée depuis la chute de Lehman et que cela recouvre une sorte de tendance à l’asphyxie du système qui se développe au fur et à mesure que la capacité du bilan  des grandes banques à créer du dollar s’étiole. La capacité à créer du « dollar » dépend des capacités des bilans des banques à pouvoir être leveragés et à prendre/absorber  des risques. Ainsi pour prendre un exemple, le bilan de la Deustche Bank est « usé ».

Au niveau des liens  de causalité, l’article mélange beaucoup de choses, mais il attire très justement l’attention sur un aspect peu connu de la machinerie financière et surtout sur le fait que ce qui compte et que les banquiers centraux ignorent, ce sont les conditions financières mondiales, les conditions financières sur ce que nous appelons le « dollar » , le dollar de refinancement de gros, le dollar entre guillemets.

World to face stress test as dollar Libor spikes and bond rout deepens

Most of the world is still linked to the mighty dollar, and Fed tightening is felt everywhere

Surging rates on dollar Libor contracts are rapidly tightening conditions across large parts of the global economy, incubating stress in the credit markets and ultimately threatening overvalued bourses.

Three-month Libor rates – the benchmark cost of short-term borrowing for the international system – have tripled this year to 0.88pc as inflation worries mount.

Fear that the US Federal Reserve may have to raise rates uncomfortably fast is leading to an increasingly acute dollar shortage, draining global liquidity.

 « The Libor rate is one of the few instruments left that still moves freely and is priced by market forces. It is effectively telling us that that the Fed is already two hikes behind the curve, » said Steen Jakobsen from Saxo Bank. « This is highly significant and is our number one concern. Our allocation model is now 100pc in cash. This is a warning signal for the market and it happens extremely rarely, » he said.

Goldman Sachs estimates that up to 30pc of all business loans in the US are priced off libor contracts, as well as 20pc of mortgages and most student loans. It is the anchor for a host of exotic markets, used as a floor for 90pc of the $900bn pool of the leveraged loan market. It  underpins the derivatives nexus.

Libor is the global cost of money CREDIT: SAXO

The chain-reaction from the Libor spike is global. The Bank for International Settlements warns that the rising cost of borrowing in dollar markets is transmitted almost instantly through the global credit system. « Changes in the short-term policy rate are promptly reflected in the cost of $5 trillion in US dollar bank loans, » it said.

Roughly 60pc of the global economy is linked to the dollar through fixed currency pegs or ‘dirty floats’ but studies by the BIS suggest that borrowing costs in domestic currencies across Asia, Latin America, the Middle East, and Africa, move in sympathy with dollar costs, regardless of whether the exchange rate is fixed.

Short-term ‘Shibor’ rates in China have been ratcheting up. The cost of one-year swaps jumped to 2.71pc last week, and the spread over one-year sovereign debt is back to levels seen during the Shanghai stock market crash last year.

These strains are not a pure import from the US. The Chinese authorities themselves are taking action to rein in a credit bubble. It is happening in parallel with Fed tightening, each reinforcing the other, and that makes it more potent.

Three-month interbank rates in Saudi Arabia have soared to 2.4pc. This is the highest since the global financial crisis in early 2009 and implies a credit crunch in the Saudi banking system. The M1 money supply hasfallen 9pc over the last year.

Ted spread measures funding stress CREDIT: SAXO

The Bank of Japan has doubled its offering of dollar credit for Japanese banks to head off an incipient dollar squeeze, drawing on the country’s ample for foreign reserves. It may not be so easy for others unless they have pre-arranged currency swap lines with the Fed.

Credit analysts are becoming nervous about the spread between Libor and the overnight index swap,  the so-called Libor-OIS spread that is used to gauge problems in the plumbing of  the credit system. It has widened to 38 basis points, nearing levels seen in the eurozone debt crisis and past bouts of stress.

The message from the ‘TED spread’ is similar, though so far less severe. This time-honoured indicator measures the spread between Eurodollar rates in London and three-month futures contracts for US treasuries.

The picture is complex. These signals have been distorted by new rules for US prime money market funds, which have shrunk by $560bn and caused a contraction of commercial paper. The deadline for this reform has come and gone, yet the spreads have refused to settle back down.

« Something more fundamental is at work. The cost of global capital is going up, full stop, » said Mr Jacobsen.

Long-term bond yields are also soaring as the markets abruptly question the logic of a $70 trillion debt edifice priced on assumptions of a deflationary liquidity trap lasting deep into the 21st Century. The ‘reflation trade’ is suddenly on everybody’s lips.

Yields on 10-year US Treasuries have jumped to 1.85pc, up 58 basis points from their nadir in July. They are up 47 points in France, 66 points in Italy, and 74 points in the UK. This regime change will take a while to feed through into the real economy, but the impact on stock markets may be faster.

The ‘reflation trade’ is on CREDIT: IIF

« Bonds and equities do not move together on a day by day basis but the link is extremely strong. Yields cannot move too far without a knock-on effect and we’re getting into that vicinity, » said the credit chief at one large City bank.

« People are terrified that QE is going to end early in Europe, and in the US we’ve already been in an earnings recession for a year and a half. Global growth is not getting any stronger despite what people seem to think. This is becoming quite dangerous, » he said.

Marc Ostwald from ADM said the global dollar shortage is now palpable. « There is no depth to the market. The transmission mechanism is still broken and there is a poor level of liquidity as a result of regulations. Eventually things are going to explode, » he said.

The credit markets tend to smell fear long before equities wake up to the risk. This has been the pattern in each spasm of financial stress over recent years, but these early-warning indicators can be hard to read and right now they are sending mixed signals. The iTraxx Crossover index for European bonds – the red-hot gauge before the Lehman shock – has crept up to 330 basis points but is not suggesting trouble.

Market has suddenly changed its view on the likelihood of Fed tightening CREDIT: SAXO

What is clear is that conditions are tightening in the US. The Fed is already draining money through ‘reverse repos’. Even blue chip firms in the US are quietly stretching payments to contractors in order to disguise weakness and beat cash flow ‘expectations’.

« Some companies are delaying paying suppliers and increasing accounts payable, which flatters operating cash flow. It is a low quality ‘beat’, » said Jonathan Tepper from Variant Perception.

This creates headaches for suppliers at the bottom of the food chain. The minnows are too small to issue bonds and often rely on short-term funding tied to Libor rates, and many are battening down the hatches. The small business optimism index (NIFB) in the US dropped to 94.1 in September, a very weak outlook.

Although the growth of nominal GDP rebounded from 1.2pc to 2.8pc in the third quarter, this was by distorted inventory effects and by a one-off jump in soybean exports. The underlying trend in ‘NGDP’ is near stall speed, and suggests ‘stagflation’. The US trucking association said freight tonnage fell 5.8pc in September. That is hard to square with talk of recovering growth.

US truck freight does not point to a strong expansion CREDIT: ATA

The moves in Libor and the bond markets are not dramatic compared to past episodes in 1987, 1994, 1999, and 2006, but the great unknown is whether today’s globalised world – with record debt ratios and chronically low growth – can cope with any tightening at all. Three sets of ‘taper tantrums’ since 2013 suggest that even the slightest tap on the brakes can set off abrupt moves.

Bond bulls remain defiant. They insist that the spike in yields will inevitably do so much damage that the process must short-circuit by slowing the global economy. This would halt the rally in commodity prices, and kill off talk of an inflation cycle.

« We are in an era where we still have too much global capacity versus aggregate demand. The default cycle is lurking in the background, » says Nomura’s global strategist Bob Janjuah.

« More QE by the Fed is at least as likely as the Fed hiking by 100 basis points between now and Christmas 2018. Buy the bond bubble. »

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