FX Investors Descend on Miami to Talk Virus, Tech and Politics

NEW YORK (Capital Markets in Africa) – As currency-trading heads from investment firms and banks convene in Miami this week, a few themes may dominate: The potential for new technology to lower costs, the impact of the coronavirus and U.S. elections.

In a sign of the changing landscape as the TradeTech FX conference kicks off, a pre-summit survey showed investors view trading with liquidity providers other than banks as a key goal. Meanwhile, companies that give users including money managers access to aggregated currency rates from multiple market makers are gaining traction, research firm Greenwich Associates says.

It all adds up to the increased competition in the $6.6-trillion-a-day market. Not only are investment banks grappling with new rivals, but asset managers like Vanguard Group Inc. are exploring ways to trade directly with each other.

“The biggest winner is the buy-side,” said Ken Monahan, senior analyst at Greenwich Associates and a conference panelist. “The market structure is becoming marginally more efficient at forcing competition among liquidity providers.”

Here’s a breakdown of some of the themes likely to be discussed in Miami, with comments from panelists scheduled to speak:

Evolving Field
Big banks still own the top few spots among the world’s biggest currency traders, according to Euromoney Institutional Investor Plc’s last annual foreign-exchange survey. But electronic market makers have made inroads, with XTX Markets, HC Technologies, Jump Trading and Citadel Securities accounting for over 20% of the market between them.

Vanguard is entering the fray as well. The $6.2 trillion asset manager is building a platform that will let funds trade currencies directly with their peers, bypassing banks altogether, Bloomberg reported in October.

Non-bank firms are “putting pressure on the investment banks to remain competitive,” according to the pre-conference survey.

Banks, meanwhile, are stepping up technological offerings too. In one example, BNP Paribas SA last year said it was rolling out a text-activated bot to help clients trade currencies.

Some are also teaming up with electronic market makers. Citadel Securities has plugged into the FX platforms of certain banks, supplying liquidity to clients who want orders filled by algos, or computer programs that automate investors’ transactions.

Then there are the aggregators that give clients access to prices from multiple sources. These are becoming a “critical part” of FX electronic trading, according to Greenwich. And because the firms route the trades instead of executing them, their compliance costs are lower compared with banks, in Greenwich’s analysis.

Virus Risk
Conference-goers may also keep an eye on congressional testimony this week from Federal Reserve Chairman Jerome Powell. In remarks Tuesday, he singled out the coronavirus among economic risks.

The spread of the illness has darkened the global outlook and detailed forecasts for a dollar slump. The Bloomberg dollar index is up 1.8% this year, after its biggest weekly advance since 2018.

Kristina Hooper, the chief global strategist at Invesco, says she still expects emerging economies to outperform their developed counterparts, but that outcome is likely to be delayed until about May when she expects the virus to stabilize.

The dollar, yen and Swiss franc will remain strong as long as the contagion is spreading, she said. Once it comes under control, she expects investors to focus on riskier currencies and risk assets in general, in markets such as China, Thailand, and Vietnam.

Election Marathon
Miami attendees will also have elections to debate, as the U.S. presidential race looms over the outlook for the dollar.

Vermont Senator Bernie Sanders, a self-described democratic socialist, leads in national polls for the Democratic nomination, according to RealClear Politics averages. Meanwhile, President Donald Trump’s approval rating in a Gallup poll released last week reached the highest since he took office.

Michael Bloomberg is also competing to be the Democratic nominee. He’s the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.

Ben Emons, a Medley Global Advisors macro strategist, said the consensus for a weak dollar could be derailed in the event of a landslide win for Trump.

“If Trump wins, there’s a possibility for tax cuts, infrastructure and tariff cuts, which could boost the economy and strengthen the dollar,” Emons said.

Lee Ferridge, head of macro strategy for North America at State Street Corp., says the way to play the election is to bet on yen gains versus the euro or dollar. For him, that would provide protection against mounting uncertainty, and if enthusiasm builds for a progressive Democratic candidate.

Source: Bloomberg Business News