Some important ballpark figures in finance/macroeconomics

(Quelques ordres de grandeur importants en macroéconomie / finance)

1.       Currencies hegemonies

US dollar is the current dominant reserve currency in central banks and represents 61% of the total currency reserves versus 26% for the Euro, 4% for the GBP and 3,8% for the Yen by end of 2010[1]. Note: Emerging markets currencies are still absent from the Central Bank Reserves despite their important share in world economy and international trade.

Currency composition of Central Bank Reserves

Source: Bloomberg, IMF

2.      China’s continuous rise

China is the second largest economy with a GDP that reached 5 879 billion dollars in 2010, overtaking hence Japan’s historical positioning (the Japanese GDP was 5 474 billion dollars in 2010). In addition, China has an important role in the world trade as its share reached around 8% of world trade and in addition, its Central Bank holds the largest currency reserve (around 2 900 billion dollars by the end of 2010).

3.      Volatility

The Chicago Board Options Exchange Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes. 1st & 2nd month expirations are used until 8 days from expiration, then the 2nd and 3rd are used.

On 31 October, 2008, the VIX reached its highest level, reaching almost 90%. Compared to the level of stress implied by the economic/financial crisis of 2008/2009, the uncertainty around the European debt crisis is leading the VIX to a level around 40%-50%. This level is similar to past distress situations similar to the Asian crisis (1997/1998) or the burst of the dot-com bubble (2001).

Historical levels of the VIX

Source: Bloomberg, 15 September 2011

4.      Swap trading volume

The Dodd-Frank rule aiming to regulate the derivatives market targets to direct the derivatives contracts to be realized through clearing houses or central counterparties. In terms of volume, the interest rate swaps are the major constituent of the derivatives market. This later represents a volume of 600 000 billion dollars.

Derivatives market volume (trillion dollars)

Source: BIS

5.      EU banking stress 2011

A subject more related to the current economic situation concerns the EU banking stress situation. The graph below underlines the higher cost of lending in the European banking sector, with a comparison with the banking stress situation in the USA after the bankruptcy of Lehman in September 2008. A measure of banks’ willingness to lend or lack thereof is the spread between the 3-month EURIBOR and the overnight index swap. The wider the spread, the greater the stress in financial markets. On 23 September, the spread has blown out by 86 basis points.

§         The green line in the chart relates to the US banking sector lending costs and corresponds to the “Ted spread” that is the difference between the BBA Libor USD 3months (the interbank lending cost for US banks) and the US 3 months yield (that is the risk-free benchmark lending rate). The Ted spread is expressed in basis points (1%= 100 bp).

§         The blue line in the chart corresponds to the EU banking lending current stress situation. It corresponds to the spread between the Euribor-OIS three month spread. It enables to judge the ability to borrow and willingness to lend of BBA contributor banks in the EU interbank money markets and see the widening spread between the 3 month Euribor and the Overnight Indexed Swap (OIS). This spread is expressed in percentage.

Banking sector stress (EU vs. USA)

Source: Bloomberg, 22 September 2011

[1] Source: IMF, link: http://www.imf.org/external/np/sta/cofer/eng/cofer.pdf

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