Tags: Crisis | trading | volume | distorting

Credit Suisse: Euro Fears Hinder Trading Volume, Distort Market Moves

By    |   Monday, 18 Jun 2012 01:09 PM

Europe’s financial crisis has dampened trading volume in global markets, as uncertainty rules among investors.

And that diminished activity has sparked increased volatility, exaggerating market fluctuations.

In the second quarter, average daily volume fell 10 percent on the Nasdaq stock market and 6 percent for Treasurys, Credit Suisse reports.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

Despite the relief markets expressed for the victory of Greece’s conservative New Democracy party in Sunday’s elections, the worry may return in a hurry. That’s because the party won only a plurality of the vote.

In addition, market participants remain concerned about the prospects for Spain and Italy.

"Where do we go from here? I suspect we'll have a few days of pretty heightened uncertainty,” Paul Robinson, global head of currency research at Barclays, tells The New York Times.

“I don't think it's as good for risk assets . . . as New Democracy getting the most votes would suggest."

When trading volume decreases, each move in the markets goes further than it usually would, causing prices to overshoot. "The market reacts more violently to any kind of news," Fidelio Tata, of Société Générale, tells The Times.

U.S. stocks are dropping Monday, as Spanish bond yields rose to a 13-year peak.

“Spain is the issue to worry about, not Greece,” Michael Strauss, chief investment strategist at Commonfund, tells Bloomberg.

“Their debt issues are the real debt issues. Greece is the sideshow. We’re going to have some indigestion.”

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.




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2012-09-18
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