"I Initially Doubted What I Saw On My Screen" - Wall Street Responds To The Historic "Pounding"

Tyler Durden's picture

Today's biggest story was supposed to be the September payrolls; instead courtesy of a few wild algos, a fat finger, or a deliberate attack on sterling during the most illiquid time in the day,  it was the 6% "pounding", as sterling tumbled dramatically in chaotic trading that included a flash, 2 minute drop in early Asian hours and sustained falls in London. By morning it had managed to recoup much of its losses however the selling pressure has continued and the currency appears unable to regain all of its losses as would have been the case if this was a mere "fat finger." 

The sharp drop in illiquid Asian trading came amid worries about the U.K.’s "hard exit" from the EU, accelerated by computerized trades. The pound fell more than 6% just after 7 a.m. Hong Kong time on Friday to as low as $1.1819 from just above $1.26, before recovering above $1.24, according to Thomson Reuters data. But it took another dive in London hours and was down to just over $1.23.

But more interesting even than the drop itself, were Wall Street's reactions to the "pounding", and none was more indicative than that of Kenji Yoshii, a foreign exchange strategist at Mizuho Securities, who told WSJ that “I initially doubted what I saw on my screen."

Here are some other notable quotes from stunned market participants:

  • “This is not something you would expect in a half-efficient market,” said Ulrich Leuchtmann, head of FX at Commerzbank. “We have a liquidity situation which has eroded massively over the last few years and policy makers have largely ignored it. All the regulation that we have in place, for good reason, has the side-effect that liquidity in the FX market is much more shaky and fluctuating heavily, and we have times when it’s extremely low, especially in Asian trading.” 
  • “It’s becoming more a fact of life,said Kay Van-Petersen, global macro strategist at Saxo Capital Markets Pte in Singapore. “A lot of the risk takers that used to supply liquidity before are no longer there, the prop guys at the banks. That’s definitely one of the key issues affecting the markets.”
  • There was a complete lack of two-way interest in buying the pound on the way down,” said Jeffrey Halley, a senior market strategist at Oanda.
  • “A sudden move in a very quiet time not linked to any information is highly unlikely to be due to any algorithm,” said Lyle Pakula, chief investment officer of Melbourne-based hedge fund AE Capital, which uses automated computer programs to make trading decisions. “In my opinion, the source of the run is likely due to a discretionary trader trying to push the market.
  • It caught the market wrong-footed and triggered a lot of algorithmic selling,” said Hugh Killen, Westpac Banking Corp.’s head of trading for foreign exchange, fixed income and commodities in Sydney. “We didn’t see any significant demand for sterling off the low.”
  • We’ll probably never know why it has actually sold off, if it’s a fat finger, or just algos,” said Ryan Myerberg, a portfolio manager at Janus Capital in London. “There’s no doubt that there’s an electronic component to it.”

* * *

Below is a more comprehensive reaction from Mint's Bill Blain

It’s a little bit Funboy Three this morning.

 

What does last night’s algo-driven Sterling fat finger moment tell us? As the pound momentarily crashed 6 big figures – in fact Bloomberg reports a low trade at $1.1378! - it seems to confirm incipient fear and uncertainty on where the UK is headed. Brexit over? Don’t believe it for a moment. 

 

Of course, some folk will say last night’s spike is just another example of fat-fingers in a thin market and means nothing. I doubt it. Fat fingers tend to follow the narrative. 

 

Will the UK narrative continue to get worse? At a dinner with Europe’s hard-men enforcers last night (Juncker, Barnier, et al), Hollande was calling for aggressive Brexit negotiations to discourage other nations from “such foolishness” – I’d think he’ll get a shock if his own countrymen got the vote.. 

 

Oh they do? Next year! Swings and roundabouts indeed.

 

I don’t suppose it helps that the great and the good of the UK’s exit-driven right-wing loonies were punching each other out on the floor of the European parliament. Nice. Perhaps that’s the right message to send Europe.. “we’re so frecking crazy we’re beating ourselves up”. The Russians must be wetting themselves in anticipation of a divided Europe sans the Parachute Regiment as they ponder real estate on their (current) borders.  

 

And, we had a surreal moment on the desk y’day as we wondered what it means for the UK as the slightly more elected right-wing lunatics threaten to take back the asylum known as monetary and fiscal policy.  As we digested speeches, news flow, moving gilts and stocks, and considered the Leaderene’s latest comments on beating up bankers, up flashed a story about a US school menaced by a pratfall (yes, that is the collective noun) of clowns*! 

 

How apt I thought…

 

Apparently, the school sent an automated message to parent’s phones: “Hi this is Fairhope middle school calling with an important message,” the cheerful voice began. “Please rest assured that your students are safe and the school is taking necessary precautions due to rumored clown activity. The school perimeter is secured and the police are on campus.”

 

If that doesn’t scare the bejesus out you, then you don’t suffer from coulrophobia. 

 

Should we be concerned that Phil “Spreadsheet” Hammond is earnestly talking about taking back the economy for the people? The hints the Treasury is going to start a serious bout of fiscal experimentation.. with taxes and some proper spending plans … are there. Yesterday they declared against further QE. 

 

I suspect someone has been booked a one-way family ticket back to Canada… 

 

It makes you think.

 

If the UK switches off QE because of an unforeseen outbreak of common sense among politicians.. what hope for elsewhere? What if Germans suddenly see the light? Or Italians decide.. “well, actually, it’s our country… and if we want to borrow and spend.. that’s our problem.. (till we can convince the ECB it’s theirs!)” Or the Spanish finally decide a government might be a good thing – especially one that promises jobs for the kids.. 

 

No wonder bunds are paying interest again…

 

And… if Theresa May has actually decided she’s going to run the UK – unlike her predecessor who thought it a much better idea to let his chums in the City and Bond Street “just get on with it” – then it’s absolutely essential everyone subscribes to the Daily Torygraph... As someone famous once said.. “I read the Torygraph so I know what the enemy is thinking..”

* * *

Finally, while nobody anticipated last night's flash crash which stopped out countless cable longs, here is what much of the sellside said about yesterday's "pounding" courtesy of BBG:

HSBC

  • Keeps forecast at 1.20 for GBP/USD by year-end and 1.10 by end-2017 with EUR/GBP at parity, David Bloom, global head of FX research, writes in client note
  • GBP used to be a relatively simple currency that traded on cyclical events and data, but now it has become a political and structural currency
  • Pound is now the de facto official opposition to the government’s policies

Deutsche Bank

  • Expects pound to revisit lows seen during the Asian trading session and keeps forecast for GBP/USD at 1.15 by next year
  • “Shocking moves overnight, even for GBP bears like us,” analyst George Saravelos writes
  • Pound plunge is likely to give U.K. PM Theresa May and her team second thoughts on the tone of future statements on Brexit: MORE

BofAML

  • Low in forecasts is 1.26 for early next year, with downside risks to projections, Athanasios Vamvakidis, head of G-10 FX strategy, writes in e-mailed comments
  • Still, today’s move has nothing to do with fundamentals given algos triggered stop losses; it could prove to be a tactical buying opportunity

Bank of Montreal

  • Cuts GBP/USD forecasts on Friday; now sees cable at 1.18 in 6 mos. from 1.25 previously, strategist Stephen Gallo writes in note
  • Sees GBP rebound by the end of 3Q 2017 as weak currency will result in an improvement in the U.K.’s income deficit within the current account
  • Doesn’t expect a “hard Brexit” and sticks to upward sloping profile for GBP; 12-mo. forecast at 1.35

UniCredit

  • Reiterates year-end forecasts for GBP/USD at 1.20 and EUR/GBP at 0.93, strategist Vasileios Gkionakis writes in client note
  • In addition to the U.K.’s free access to the single market and trade becoming costlier, investors are now perplexed by the country’s vision on immigration, openness and business friendliness
  • Still early days to determine the end result but one thing seems certain: sterling will remain under “severe pressure”

Credit Agricole

  • Latest developments pose some downside risks to long- term GBP forecast, strategist Valentin Marinov writes in e-mailed comments
  • Even if selling pressure on GBP fades near term, prospects for a “hard Brexit” and lower potential U.K. growth could mean the pound will linger close to the lows for longer than previously expected

BBVA

  • Sticks to forecast for EUR/GBP to consolidate between 0.85-0.90 and cable dropping to 1.23 by year-end, strategist Roberto Cobo Garcia writes in e-mailed comments
  • Sterling unlikely to weaken further given stretched speculative short positioning; Brexit noise and fears of a “hard Brexit” will continue to weigh on GBP

Rabobank

  • Very likely to be pushing forecasts lower in coming days, analyst Jane Foley writes in e-mailed comments
  • Bank was of the view that it may have taken another 6 to 9 months to reach 1.24

Societe Generale

  • Keeps forecast for GBP/USD to hit 1.23 in March; bias is to automatically overreact to every move, strategist Kit Juckes writes in e-mailed comments
  • “Just because we are going there quickly doesn’t mean we should blindly extrapolate, unless there’s a genuine reason to do so,” Juckes writes

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roxyNL's picture

 

 

It was not an error, it was a warning to May from her EU/US globalists freinds :

you want a hard brexit ... we will give you a hard landing and you will have to bend !

She will get economic troubles and more real problems to deal with ... the UK has a huge chronic trade deficit !

 

 

ZH Snob's picture

they could always make the pound convertable with real sterling silver.

 

that is, if they even have any.

VinceFostersGhost's picture

 

I know nothing, I am not here - I did not even get up this morning!

https://www.youtube.com/watch?v=UgcxGFmYyPs

kliguy38's picture

Yup.....these are definitely messages....not accidental for sure

RAT005's picture

They see the order book and know when it's vulnerable to send their message.  It was a different time of day but interesting how Ag volume increases during the smash compared to paper which the guy says has a liquidity problem. 

Déjà view's picture
UK trade performance

With the exception of 1997, every year since 1987 has seen a deficit on the UK Current Account. This deficit reached a peak of £98 bn in 2014. The deficit tends to follow a cyclical pattern, as shown in the chart below

http://www.economicsonline.co.uk/Managing_the_economy/Balance_of_payment...

lance-a-lot's picture

“We have a liquidity situation"

The SAUDIS are dumping following Congress's stupid Sept 11 Bill.
https://goo.gl/oehIgG

Paul Kersey's picture

Just a reminder:

"How did George Soros "break the Bank of England"?

A: In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually break it, but they forced the British government to pull it from the European Exchange Rate Mechanism (ERM)"

TahoeBilly2012's picture

I was just going to say isn't this the Soros play? Lightning strikes twice?

TrajanOptimus's picture

Come on 1.15!

I will finally be able to afford that vacation to England I have been wanting to take and that new Jag I have been eyeing should be a lot cheaper next year.

I would think business owners there would like a weaker currency, their products will be a lot more affordable. Our dollar is so damned strong no one wants to buy American because it is too expensive....

A strong currency is good when you want to buy another country's crap but not good if you want to sell your crap to another country.

ebworthen's picture

Good 'ole Seargant Sgt. Schultz; thanks for that.

Ghordius's picture

I am a continental european and I vastly prefer a hard BreXit

but I am also a supporter of the EUR. specifically because I never trusted the current FX markets under the thumb of the megabanks, particularly in London (and I was right, some of the shenigans surfaced, see for example all the scandals around Libor)

and because I prefer a bigger currency (and currency zone) to a smaller, mid-sized thing like the British Pound

why? because I expected currency wars. and again, I was right, we are in the middle of one

but that "EU/US globalists freinds"? care to explain that in detail?

BreXit is first and above all a British Affair. it's the UK that decided to have a referendum, it's the UK leadership that decided that 52 vs 48 is a clear voice, it's the UK gov that is steering versus a hard BreXit, it's the UK that seems to have an issue with the four freedoms, and so on

what exactly do you accuse us in the EU of wanting or doing? of pushing the UK versus a soft BreXit? that's the very last thing I want, and I am not alone in that, here

meanwhile, who says that the UK leadership has a problem with this Pound devaluation? do you think the Bank of England has one with it?

in currency war terms, the Pound just "won" a great battle, and is getting ahead of all others. see ZH's articles on the effects on stocks, in the UK

BreXit means BreXit, doesn't it? Nigel Farage never promised a strong national currency, he just fought for the UK to leave the EU and the Pound never to join the EUR (even in times where nobody here did really want that, but who cares about factual details like that)

but go on, try to find some explanation why we are the baddies that "want the UK on it's knees"

we are used to that

VinceFostersGhost's picture

 

 

I vastly prefer a hard BreXit

 

Gordo is in charge......make it so!

JRobby's picture

"I am a continental european and I vastly prefer that my face gets bombarded by flying hammers"

Amun's picture

For once even I have to agree with your line and even go beyond it

 

"Do you think the Bank of England has a problem with Pound devaluation?"

 

The fact that this has happened in "Asian" markets raises the probability of the "fat finger" being that of BOE

 

.... and YES, indeed, "the Pound just "won" a great battle"

medium giraffe's picture

Because every childish spiteful threat I hear against people exercising what little rights are left to them is made by someone with a funny accent.

 

Yeah, well done for spotting currency wars btw, no one saw that one coming except for you.  Enjoy the Disaster Bank bail in.  We all know you're just talking your book.

PavlovPup's picture

Seems to me we can't keep anything bigger than a large village on an even keel. 

 

dark fiber's picture

Doesn't trust FX markets(fair enough).  Prefers the ECB/Brussels cluisterfuck.  

***Triple facepalm.***

Folkvar's picture

You're a mindless cowardly tyrannical imbecile that chooses to live under the unaccountable, unelected, and cannot be removed vermin that infest the EU. You've exchanged democracy for dictatorship and even without a shot being fired. Centralization of power DOES NOT WORK. Socialism DOES NOT WORK. Communism DOES NOT WORK.

The UK made the right decision to leave whatever the consequences as freedom and democracy will always be preferable to oppression and dictatorship. I feel dreadfully sorry for all those that fought and died during WW2 just for dumb worthless Europeans like you to GIVE your freedoms away to the Germans. You're a disgrace and should be ashamed of yourself, but you're too stupid even for that.

dark fiber's picture

Ghordo by his admission is a continental European.  He belongs either to those who actively collaborated with the Germans in WWII, or to those who didn't bother to put up a fight and just bent over and took it.  So don't feel sorry for those who fought. It was the British the Russians and the Americans who fought the war in Europe.  They didn't fight for Ghordo or his kind.  They fought against him.

general ambivalent's picture

You guys are retarded with your either/or bullshit. The Allies were not the good guys in WWII, just look at the history of isolation and sanctions against the Germans - they did exactly the same thing to Germany that NATO is doing to Russia now.

The current German mess is due to American occupation, so you're just as bad as you claim he is because you support the ultra-capitalist expansion of decentralized empire and warfare.

Haha, opposing centralization in one hand while cheering on modern warfare in the other. You guys are too much.

gezley's picture

Is this the same freedom and democracy Britain is trying to impose by military force on Syria? If so, I'm glad the fuckers are out. The more pain for the UK the better. I give them ten years before they're begging to get back in.

PavlovPup's picture

How are the socialist nations in worse shape than the non-ones? Its like pointing at somone swimming in piss from an island of shit. I wonder how much it sticks in the European craw that the US war profiteered until the time was right to plunder, and now you have to hear their "we saved your asses" shit for time immomorial. Jingoist piece of shit.

EddieLomax's picture

You are ignoring Junkers, Hollande and others who are pushing for a hard brexit, which means in practice a reversion to WTO rules.

The irony is that this will barely hurt Britain as much of the loss of exports will be compensated by switching to local sources which appear cheaper due to tariffs.

Yet France relies on selling low margin cars and food, the former will attract a tariff of up to 12% making them completely uncompetative and food (Frances 2nd largest export) attracts a tariff of 40%, which means it will be almost impossible to sell compared to world sources.

So you are wrong, many leading voices in the EU and Europe are pushing for trade barriers (tariffs), with the state Europe is in such barriers will be ruinous to the EU and will only hasten the UK switch to higher worldwide trading.

JRobby's picture

"I am a continental european (live in Western Europe) and I vastly prefer a hard BreXit (that my FX shorts pay off)"

Oldwood's picture

Attention!!

This is ONLY a warning!

Repeat,

This is ONLY a warning!

In the event of a real disaster, there will be NO warning, you will simply be instructed to grab your ankles and kiss your ass goodbye.

LadiesLoveCoolJames's picture

I'm sure it's not the first time a voracious cock gobbler like Theresa May has gotten a good pounding.

cheech_wizard's picture

The invisible hand of George Soros...

Standard Disclaimer: Why is that lizard-looking fuck still drawing breath?

 

halcyon's picture

You simpleton. Brits want pound to crash. More tourists, more incoming real estate speculation, more money for London banks, etc.

UK hates strong pound.

 

Slow Burning Rage's picture

No currency manipulation to see here.  Move along.

-Darth Soros 

bullet's picture

these are not the algos you are looking for ...

roxyNL's picture

Algos are like those small birds living on the rhino.

This move comes from the rhino not the birds !

Amun's picture

This rhino has a nickname - BOE

BennyBoy's picture

 

 What are the forensics on this spike?

Who made money on the way up and down?

The old running the stops in stock trading is now in GDP?

overmedicatedundersexed's picture

soros. second run at the pound..a dog eats it's own vomit.

BorisTheBlade's picture

Long promised punishment for Brexit, old reptilian has a way of delivering on his threats. Hope Brits will fare ok, being attacked by Soros you must be doing something right.

gatorengineer's picture

Punishment?  I would say the UK welcomes it....

BorisTheBlade's picture

And I truly wish them well, but FX swings may happen as Soros is known for attacking covertly sovereign currencies. I suspest if unknown speculators are mentioned by officials you can bet it's his 'invisible hand'.

Big Whoop's picture

Looks like the chop shops are at it again.

kw2012's picture

Just obama and yellen dumping Pounds as a warning to Trump voters

gojam's picture

"or a deliberate attack on sterling during the most illiquid time in the day"

Luckily, the UK has good allies like the Obama led US and the Merkel/Hollande led EU... Errrr...

 


Took Red Pill's picture

What about the deliberate attack on the REAL sterling?

EddieLomax's picture

The irony was that at the same time I was eying up that geat buying opportunity in precious metals, worked out nicely :)

Salzburg1756's picture

"Efficient market!"
Haven't seen one of them in a long time,

Seasmoke's picture

This was no fat finger. It was a boney skinny finger of a shyster.

Thebighouse's picture

No buying interest on way down..........

It was crushed......or planned.

You should NOT have been long the pound anyway.

It is the bullshit of forex.....Central banks do this all the time.  

You think they are on the wrong side of that move????  Of course not.

There should be circuit breakers and every stop on the way down should be honored.

Again, the bullshit of forex.

 

new game's picture

the casino just became moar chaotic. run hide under the black jack tables. nice legs...

medium giraffe's picture

Brexit smear campaign.  There, mystery all cleared up.

buzzsaw99's picture

“We have a liquidity situation which has eroded massively over the last few years and policy makers have largely ignored it...

I guess he hasn't considered the possibility that this move is exactly what many of them want, including the BOE.