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Q3 Outlook - Liquidity matters

Q3 Outlook - Liquidity matters

GLOBAL MARKETS – FLOW STRATEGY & SOLUTIONS

Executive Summary

Despite an abundance of monetary liquidity injected by global central banks, with the concerted objective of easing fears of a deflationary spiral, trading liquidity in areas of capital markets is being distorted. Parts of the credit and sovereign bonds complex no longer enjoy the breadth and depths of the pre-2008 periods. Reasons abound: fewer liquidity providers, less capital commitment by broker dealers faced with more stringent regulatory requirements causing their cost capital to rise, and last but not least, the scarcity of risk-free assets with non-negative yields.

Generating sustained returns whilst insulating large multi asset portfolios from the ‘known unknowns’ (eg. Greece) has become increasingly challenging, particularly in an environment where cross asset correlations are becoming more volatile and unpredictable themselves (equity vs. rates and FX for example). This leads to an environment where volatility itself becomes volatile. It is therefore not a surprise to see a rising flows and investors interest in areas such as equity index; VIX and currency options. Being able to rely on liquid hedging instruments has become one of the key challenges faced by investors in Q3 2015, in our view, as portfolios are faced with rising asset illiquidity. Grexit is now back (again) at the forefront of investors’ focus. However, taking into account the large range of existing policy tools against contagion, the deleveraging of the European Banks, one cannot help but wonder whether ‘there is nothing to fear but fear itself’ to quote F.D. Roosevelt.

The Flow Strategy & Solutions team, part of SG Financial Engineering group, looks to leverage the collective intelligence and expertise of SG economics and cross asset research platforms and find efficient, creative and optimal implementations of both trading themes and hedging solutions for clients across region and asset classes.

Contact us for more information

 
Kokou Agbo-Bloua (Global Head)
kokou.agbo-bloua@sgcib.com
+44 20 7762 5433
     


EU

     
Charles de Boissezon
charles.de-boissezon@sgcib.com
+33 1 42 13 58 41
Hervé Guyon
herve.guyon@sgcib.com
+44 20 7762 5768
Kevin Selmane
kevin.selmane@sgcib.com
+44 20 7762 5951
Gaël Kessler [EFI]
gael.kessler@sgcib.com
+44 20 7762 5596
Emmanuel Benchimol
emmanuel.benchimol@sgcib.com
+33 1 58 98 38 70
Laurence Fonlupt [FIC]
laurence.fonlupt@sgcib.com
+44 207 7676 7837
Adrien Lucisano [FIC]
adrien.lucisano@sgcib.com
+44 207 7676 7467
Max Warren
max.warren@sgcib.com
+44 20 7762 5577


US

     
Ramon Verastegui
ramon.verastegui@sgcib.com
+1 212 278 7548
James Hosker
james.hosker@sgcib.com
+1 212 278 6291
Shuwen Zhao, CFA
shuwen.zhao@sgcib.com
+1 212 278 7268
Aymen Boukhari
aymen.boukhari@sgcib.com
+1 212 278 7318
Robbert Van Batenburg
robbert.van-batenburg@sgcib.com
+1 212 278 7972
     


ASIA

     
Frank Benzimra
frank.benzimra@sgcib.com
+852 2166 4309
Shane Carroll
shane.carroll@sgcib.com
+852 2166 4282
Antonin Flament
antonin.flament@sgcib.com
+825 2166 4282
 

RISKS AND IMPORTANT DISCLAIMER

RISK

The products discussed herein include a risk of capital loss. In a worst case scenario, the counterparty could sustain potentially unlimited losses. Credit risk: Entering into the transactions discussed herein creates a credit risk on the counterparty i.e. the counterparty’s insolvency may notably result in the partial or total loss of the invested amount (if any). Market risk: The product may at any time be subject to significant price movement, which may in certain cases lead to the loss of the entire amount invested, if any (e.g. premium), and in a worst case scenario, to unlimited losses. The fluctuations in the marked-to-market value of the products discussed herein may require the counterparty to pay margin calls, make provisions or resell the products in whole or in part before maturity, in order to enable the counterparty to comply with its contractual or regulatory obligations. As a consequence, the counterparty may have to liquidate the products under unfavourable market conditions, which may notably result in the partial or total loss of the invested amount (if any). This risk will be even higher if the products include leverage. Certain exceptional market circumstances may have a negative effect on the liquidity of the products discussed herein, and even render the products entirely illiquid, which may make it impossible to withdraw from the products and result notably in the partial or total loss of the invested amount (if any).

IMPORTANT DISCLAIMER

THIS DOCUMENT IS FOR THE EXCLUSIVE USE OF INVESTORS ACTING FOR THEIR OWN ACCOUNT AND CATEGORIZED EITHER AS “ELIGIBLE COUNTERPARTIES” OR “PROFESSIONAL CLIENTS” WITHIN THE MEANING OF MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE 2004/39/CE.
This document is a marketing communication from the flow strategy & solutions team in the Global Markets Division of Société Générale and  is not a product of the Société Générale’s Research department. In accordance with the European Market in Financial Instruments Directive (“MiFID”) as implemented in the General Regulation of the French Autorité des Marchés Financiers, this document should be treated as a marketing communication providing investment recommendations and should not be treated as a research report issued by Société Générale’s Research department.
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