Market Commentary-December 28

With overnight markets, we saw DJI futures rally more than 1000 points on stalk America was to limit Chinese imports while offering domestic products. American cash market, nevertheless, saw yet another wild trading day by having an 800 point trading wide range.

Lots of people are searching for a good reason to explain these types of moves - Is this marketplace action being pushed by humans or perhaps algos? Do we have the evidence algos being behind the steering wheel? 

To follow up with the burning question we have been asking for a long time: Who is making money, and where does indeed all this lead to? Well, the answer might be simple - the holders of the winning algos, and a handful of market makers.

This what we see in the markets - dueling algos due to the fact volumes are so low, and big players happen to be side-lined; therefore markets move from order to order. This kind of volatility has a knock-on effect on market-makers, margins calls, as well as risk models.

Thankfully, buyers were found for the DJI, and we saw a 650 point drop lead to 250 points gain on the close. Yet another repercussion is definitely the steepening of the US Treasury curve, with 2-year/10-year’s now out to plus 19 basis points. In a final hour of trading, we saw selling in Japanese Yen as the Nikkei index futures rally.

Marketplaces were globally fallen from 2% to 4% on Monday session, however with volumes very thin. From Asia-Pacific to America, fears were growing as talks of regulator bodies being called to clarify this worldwide bias.

The weaknesses of American markets has been attributed partly between Exchange Trading Funds (ETF) derivatives, the absence of players as well as thinner seasonal trading types of conditions.

However, whatever we are seeing is the fact that both Asia-Pacific and Eurozone are suffering from heavy losses, yet, are not seeing the actual size of recovery witnessed in American markets.

The Japan Nikkei sees 5% plus daily swings (In case there are algos are at work, they aren't just merely participating in America), but then so are the American equity markets having the one big difference being the currency trading theme.

Eurozone continuously is suffering from some significant names still under sizeable declines possibly even raising questions of continuity! DB (Deutsche Bank) shares declined to 6.68 on Thursday a drop of 58% Year-To-Date. A lot of talk of Eurozone big names liquidating American paper much less trading strategies but for continued existence. 

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