Alarm bells ringing on Trump trades

The US benchmark S&P 500 is nearing its average price for the year, when measured using mean prices paid by investors


The Chicago Board Options Exchange Volatility Index jumped 15% last week, the biggest such gain this year, as it became apparent that the healthcare bill was not going to survive a vote in the House. Photo: Bloomberg
The Chicago Board Options Exchange Volatility Index jumped 15% last week, the biggest such gain this year, as it became apparent that the healthcare bill was not going to survive a vote in the House. Photo: Bloomberg

Investors on Monday further unwound trades initiated in November resting on the idea that the election of Donald Trump and a Republican Congress meant smooth passage of an agenda that featured business-friendly tax cuts and regulatory changes.

The idea now looks flawed after the president and Republican legislators failed to proceed with healthcare reform on Friday.

Chart 1 shows that the US benchmark S&P 500 is nearing its average price for the year, when measured using mean prices paid by investors. Falling below that level suggests a drop into losing territory.

After an extended leave of absence, the so-called fear gauge is back.

Chart 2 shows that the Chicago Board Options Exchange Volatility Index jumped 15% last week, the biggest such gain this year, as it became apparent that the healthcare bill was not going to survive a vote in the House.

Even so, overall levels for the VIX remain relatively low compared with the spikes seen last year.

RBI needs to fix liquidity deluge, says DBS Bank

The copious liquidity floating in the banking system is impinging on the Reserve Bank of India’s (RBI’s) foreign exchange interventions as well as raising risks of inflationary pressures, DBS Bank said in a note.

The liquidity surplus currently is around Rs3-4 trillion.

The lack of forex intervention by the central bank has helped the currency rise to multi-month highs. “More action is likely to rein in excess liquidity. There are indicators that a new standing facility is under consideration to mop-up some of this surplus, but without any implications on monetary policy,” added the note.

Such a standing facility will help lower cost of cash absorption and keep longer-end rates anchored. While introducing such a tool will necessitate an amendment to the RBI Act, the odds for a cash reserve ratio hike have risen, said the DBS Bank note.

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