Aurelia Butler

LONDON/NEW YORK (Reuters) – In May, San Diego-based Emily was feeling flush from a year of double-digit gains earned from trading stocks. Equity options, which some fellow stay-at-home investors were dabbling in, would juice up her returns, she decided. Emily was among the army of small-time investors who shook up stock markets in 2021. Some earned fortunes by squeezing out hedge funds from short positions on so-called “meme” stocks such as retailer GameStop (NYSE:GME) and cinema group AMC Entertainment (NYSE:AMC).But AMC proved to be Emily’s downfall. As its shares hovered around $15, she began selling “naked call options” that allowed holders to buy underlying stock from her at pre-agreed price. Instead of falling as expected, however, AMC stock rocketed.Naked options meant Emily did not actually own the shares. When AMC shares hit $72.62 on June 2, margin calls kicked in – essentially a demand for cash to top up her brokerage account.”I was on the phone with (brokerage) TD Ameritrade’s margin team, telling them to give me more time … but it was either I sell it or they sell it,” she said. Eventually, she said she liquidated her portfolio, losing $670,000. For a related graphic on AMC Surge, click: https://fingfx.thomsonreuters.com/gfx/mkt/akvezodylpr/amc.PNG Emily is not the trader’s real name but she provided documents confirming her identity. Reuters could not independently verify the size of her losses but reviewed brokerage statements showing she sold sizeable call options on AMC and other stocks in May.”It was very devastating. I couldn’t sleep,” Emily said. Having quit her human resources job at the end of 2019 to trade full time, she now works as a delivery driver.Her account is a cautionary tale of what can happen when booming markets tempt inexperienced investors to risk it all.But for every Emily, there is a small-time trader who surfed this year’s stock market boom, energised by economic recovery, central bank money-printing and government cash handouts. TD Ameritrade, the broker Emily used, says along with broker Schwab, it added six million new accounts this year. Conditions were ripe for retail trading even pre-pandemic, as new mobile platforms enabled individuals to buy stocks, or fractions of stocks, at tiny or even non-existent commissions. “Everyone can get their bit of the pie,” said Ben Phillips, a 30-year old London-based pilot who started trading in 2019. He calls himself a long-term investor, but also day trades “as a bit of fun, a bit of gambling”.The retail wave was the “main reason” global equity demand reached $1.1 trillion this year, JPMorgan (NYSE:JPM) strategist Nikolaos Panigirtzoglou said.”By acting as momentum traders, retail investors will most likely continue to propagate the equity markets, at least for the coming year. They will have no alternatives because interest rates will stay near 0%,” he added.BIG BUYERSRetail trading, unlike meme crazes, seems unlikely to fade. U.S. retail traders have bought a net $281 billion worth of U.S. stocks so far this year, against $240 billion in 2020 and $38 billion in 2019, according to Vanda (NASDAQ:VNDA).Many forayed into equity options, lifting U.S. volumes more than 40% from 2020, analytics firm Trade Alert estimates. They also account for up to half the trading in single-stock options – wagers on individual shares – according to JPMorgan. That in turn took such options’ share of total option volumes to a record high this year, Reuters analysis of Trade Alert data shows. For a related graphic on Equity options, click: https://fingfx.thomsonreuters.com/gfx/mkt/znpnexymnvl/equity%20options.PNG The retail frenzy is most pronounced in U.S. markets and even platforms popular in Europe say traffic is generally highest in U.S. companies such as Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and GameStop.But the trend is broadening.Russia’s Moscow Exchange says 26 million retail accounts are registered with it, up four-fold from early 2020, and both the bourse and brokerage Tinkoff plan to expand trading hours, including into the weekend.In India, 19% of trading in November was by mobile phone – one barometer of retail activity – according to Bombay Stock Exchange data, versus 7% in November 2019.SLOWDOWNTrading activity growth has slowed, possibly as central banks signal higher interest rates are coming. Brokerage eToro’s online platform, which has two-thirds of its customers in Europe, saw 106 million trades in the third quarter of 2021, half of the first quarter total, though well above early-2019 levels of 63 million.Meagre returns elsewhere persuaded Phillips, the pilot, to start trading in late 2019.While his Tesla holdings were hit hard by the March 2020 sell-off, he bought more after watching YouTube videos where traders advised watchers to “buy the dip.” The subsequent bounce quadrupled Phillips’ initial 15,000 pound ($20,100) outlay, he said, but he has no plans to sell, citing his “10-year conviction” on Tesla. Others such as Dan, a 24-year-old student from northern England, caught the trading bug through “boredom” and reading online chatrooms such as ‘WallStreetBets’ that pumped meme stocks. Requesting his full name not be used, Dan says he made four times his 1,000 pound investment in GameStop, though friends who got in late lost money. He has since quit day trading, calling it “luck,” but invests in stocks via a British savings account. The experience had “helped me be more financially literate,” he added.Emily, the Californian trader, also still trades but in smaller volumes. She hopes one day to rebuild her portfolio.($1 = 0.7454 pounds) More

JAKARTA (Reuters) -Indonesia has lifted a ban on the Boeing (NYSE:BA) 737 MAX, its transport ministry said on Tuesday, three years after the crash of one of the aircraft operated by domestic carrier Lion Air with the loss of all 189 people on board.Aviation authorities around the world grounded the aircraft months later after a similarly deadly accident in March 2019 involving one of the aircraft operated by Ethiopian Airlines.The approval for the aircraft’s return in Indonesia comes months after it returned to service in the United States and Europe, and follows more recent lifting of grounding orders in countries including Australia, Japan, India, Malaysia, Singapore and Ethiopia.The lifting of the ban was effective immediately and it follows the evaluation of changes to the aircraft’s system by regulators, the ministry said in a statement.Airlines must follow airworthiness directives and inspect their planes before they can fly the 737 MAX again, it said, adding that the government would also inspect the planes.Privately owned Lion Air, which operated 10 of the 737 MAX planes before the ban, did not immediately respond to a request for comment.National flag carrier Garuda Indonesia said it had no plans to reintroduce the plane to its fleet as it focuses on debt restructuring, chief executive Irfan Setiaputra told Reuters.The state-controlled airline, which had operated one 737 MAX before the ban, has said it plans to cut its fleet from 142 to 66 planes under the plan.Anton Sahadi, a relative of one of the passengers on board the Lion Air plane that crashed, urged the government to ensure proper management of the risks before returning the aircraft to service “so that no planes of this model will ever fall and kill people again”.”The trauma is still there,” he said. More

NEW YORK (Reuters) – Libor, or the London Interbank Offered Rate, will no longer be used for new derivatives and loans as of Jan. 1. The benchmark and reference rate, which had $265 trillion linked to it globally at the start of 2021, is being scrapped in the biggest shake-up to markets since the introduction of the euro in 1999.WHAT IS LIBOR AND WHY IS IT BEING REPLACED?Libor, once dubbed the world’s most important number, is a rate based on quotes from banks on how much it would cost to borrow short-term funds from one another. Although it dates to 1969, it was formalized in 1986 and has been used as a reference rate for a vast array of financial products, including student loans, credit cards, corporate loans and mortgages.Libor was discredited after the 2008 financial crisis when authorities found traders had manipulated it, prompting calls to reform and eventually replace the tarnished rate. Several global banks were fined.WHAT IS REPLACING LIBOR?Regulators have said no new business can be done after Dec. 31 using Libor, which has 35 permutations across five currencies, the U.S. dollar, the British pound, the euro, Swiss franc and Japanese yen. Some Libor tenors – the length of time remaining before a contract expires – linked to the U.S. dollar, however, will continue until the end of June 2023 to allow most “legacy” or outstanding contracts to mature.Libor is being replaced by alternative rates, with a preference toward those recommended by central banks that are based on actual transactions, making them harder to rig. [L1N2TC0XL]WHAT ARE THE RISKS GOING FORWARD?The vast majority of Libor tenors will not be published after Jan. 1. But a few U.S.-dollar tenors will continue through June 2023, which could create legal problems for companies with debt still tied to the rate, analysts said.To help minimize disruptions, New York state passed a law allowing “tough legacy” contracts – those that expire after June 2023 and do not have fallback language specifying an alternative rate and thus cannot be amended – to use the Secured Overnight Financing Rate, or SOFR, recommended by the U.S. Federal Reserve. Congress is working on a similar bill.In the UK, regulators also said six sterling and yen Libor rates will continue in “synthetic” form – the Bank of England’s Sterling Overnight Index Average, or SONIA, combined with a fixed spread – for a year, giving market participants more time to shift to alternative rates for existing contracts.LIBOR LIQUIDITYMuch of the U.S. dollar derivatives market has already shifted to SOFR. Relatively large exposures based on Libor remain, however, in the Eurodollar space, for short-term contracts used to speculate or hedge against interest rate moves. (For a graphic on CME SOFR futures volumesLiquidity in these contracts is expected to dwindle, which will likely make it harder for investors to hedge existing Libor-based exposures. Investors will also need to adjust to using alternative instruments when making bets on future rate moves.LOAN PRICING CHALLENGESThe shift to SOFR from Libor also brings pricing challenges for borrowers and loan issuers, who prefer exposure to credit benchmarks that will adjust to shifts in credit market conditions.SOFR is based on the U.S. repurchase agreement market, which has no credit risk and may fall during times of stress. Libor, by contrast, measures bank borrowing costs and rises during periods of stress.Lenders are adapting by pricing loans with a spread to SOFR. However, there are risks that this spread could underprice risks if there are unexpected periods of credit stress. More

2021 was a year with rising inflation and an economic slowdown. If the recovery in inflation in the first half of the year was due to base effects compared to the drop at the start of the pandemic, disruptions in the supply chain and a rise in commodity and food prices in the second half led to continued rising consumer and producer prices. While the rise is anticipated to sustain in the first quarter of 2022, it is expected there may be divergences due to monetary and fiscal policy from the second quarter and beyond. In 2021, many central banks in developing nations increased interest rates due to high inflation. There were also some that avoided hiking rates, but the only central bank to cut interest rates during this period was the Turkish central bank (CBRT). This even though Turkey is one of the countries with the highest inflation, interest rates, and risk premia. The tension between the CBRT and the Turkish government first appeared in 2013. President Erdoğan has dismissed central bank governors on numerous occasions because he did not find higher interest rates permissible and saw them as an obstacle to investments. Financial markets welcomed the appointment of Governor Naci Ağbal in November 2020. Ağbal implemented tight monetary policy and there was a decline in the exchange rate. However, even though there was a rapid rise in the US bond yields in February and March which put pressure on assets of developing countries in those months, there was no negative divergence in the Turkish lira like there is today. Ağbal’s continued interest rate hikes resulted in his dismissal, and caused the markets to lose faith that the central bank was operating independently. It is also necessary to mention the period before the current governor, Şahap Kavcıoğlu. Lütfi Elvan, who was appointed finance minister after Berat Albayrak’s resignation was generally accepted by the markets. However, he was also dismissed because he did not support the government’s policy stance. The Turkish lira, which had recovered in the November 2020 to March 2021 period, began to weaken as Kavcıoğlu, who supported low interest rates, assumed the central bank governorship. Although the interest rate was kept constant until the September meeting, both Erdoğan’s statements and the markets expectation of interest rate cuts at each meeting weakened the lira. As we arrived in September, inflation in almost every country hit its highest levels in years, while the impact of the pandemic reared its head again amid new variants. Countries also faced problems due to global supply chain issues. During this period, the CBRT signaled an interest rate cut with its focus moving from headline to core inflation. The lira accelerated losses with Erdoğan stating that “interest rates should be even lower.”In November, the rise in USD/TRY accelerated as the interest rate cuts took effect and the situation was described as a “war”. While it was not known who was fighting what, a new economic model was discussed. Every speech caused further depreciation in the lira, because the main objective was not inflation. Until the end of the first quarter of 2022, the current policy will continue and the Turkish Central Bank will not hike interest rates. Investments are expected to create a surplus in exports, higher tourism revenues and low interest on debts.How should it be read that there is no strategy to reduce inflation in the new plan while the priority of the central bank is to ensure price stability? How can it be believed that the economic plan will proceed in a healthy way? If President Erdoğan persists with this approach, by the end of the first quarter inflation could be approaching 30%. Ultimately, it seems inevitable that an increase in interest rates will be required at some point in the future, but will this be with a new central bank governor or the incumbent?Since the CBRT has stepped away from the global risks and its own inflation target, it may be necessary to act with aggressive interest rate hikes, but until this period, the rise in USD/TRY may continue. 2021 is not over yet but USD/TRY exceeded 18.00 in December and had risen over 100% before Erdoğan’s recent measures. A similar deterioration was experienced in the 2001 crisis, the result of political intervention that had a negative impact on the economy. While the markets prefer monetary and fiscal policy in line with economic fundamentals, they also seek policymakers with the authority to make independent decisions. If Turkey applies the right policy, with the right people, at the right time then the economy can benefit. The biggest problem facing the economy right now is that those conditions are not in place.2022 is expected to be a year of high inflation in Turkey. Unfortunately, a year with runaway inflation will decrease the purchasing power of citizens and the exchange rate will remain volatile. The sooner the current policy is abandoned to focus on inflation, the better. Read also: Inflation, Omicron, Rate Hikes: What To Expect From 2022See our full outlook series here. More

SAN SALVADOR (Reuters) – A former senior Salvadoran anti-corruption prosecutor said President Nayib Bukele’s government shut down his unit’s investigation into its alleged negotiations with violent street gangs to help expand its power, as the United States steps up pressure on the Central American country over those talks.     German Arriaza, who headed an anti-corruption unit within the attorney general’s office, said his team compiled documentary and photographic evidence that Bukele’s government struck a deal with the Mara Salvatrucha (MS-13) and Barrio 18 gangs in 2019 to reduce murder rates and help the ruling New Ideas party win legislative elections in February.    Arriaza’s comments mark the first time a former Salvadoran official has publicly accused the Bukele government of making a deal with the gangs, which have plagued the country with often brutal murders and extortions for at least two decades. The ending of Arriaza’s investigation and his flight abroad have not been reported before.      On Dec. 8, the U.S. Treasury Department also claimed the talks took place and imposed sanctions on two Salvadoran government officials it says led them, as part of a series of similar actions to mark a democracy summit hosted by President Joe Biden.    The United States is stepping up pressure on Bukele’s administration for what Washington says are anti-democratic practices such as a gutting of the judiciary. A U.S. Justice Department task force that combats M-13 crime in the United States is preparing charges against the two Salvadoran officials for their alleged role in the negotiations, two sources told Reuters this month.    The government removed Arriaza from his role in May 2021, according to his transfer notice which was seen by Reuters, after a purge by Bukele’s legislative allies that got rid of five constitutional judges and the country’s top prosecutor who were replaced by government loyalists.    Arriaza, a source in the Salvadoran Attorney General’s office and two U.S. justice officials say the probe was then ended. Fearing retaliation from the Salvadoran government for launching the investigation, Arriaza said he immediately went into exile and the members of his team, known as the Special Anti-mafia Group (GEA), either went into exile or were transferred.         “Our investigations were what led to the government dissolving the anti-corruption body,” Arriaza said from a location outside El Salvador that he asked Reuters not to disclose.     Bukele’s press office and the Attorney General’s office did not answer requests for comment about Arriaza’s work and the fate of his probe. The president has frequently denied media reports and opposition allegations that it negotiated a truce with the gangs.         Arriaza’s unit produced a report of an investigation that began in 2020 based on wiretaps, security camera footage, photographs, seized documents and hard drives, which he says showed how Deputy Justice Minister Osiris Luna and another official, Carlos Marroquin, went into prisons to negotiate a covert truce with the gangs.     The Treasury Department has made similar allegations. Arriaza says his unit found that Luna and Marroquin, the head of a government social welfare agency, offered gangs better prison conditions, money and other benefits in exchange for them reducing homicide rates and giving electoral support to Bukele’s party at legislative elections this February.  Reuters obtained a 129-page portion of the report independent of Arriaza. U.S. officials confirmed that the document, first reported by Salvadoran news outlet El Faro in August, is authentic.    Luna and Marroquin did not respond to repeated requests for comment and Reuters was not able to find any legal representatives for them.    The U.S. sanctions against the pair heightened existing tensions between El Salvador and Washington, which views Bukele as increasingly authoritarian.    Many MS-13 members have been convicted of murder and drug trafficking in U.S. cities and several of the gang’s leaders have been indicted on terrorism charges in the Eastern District of New York. U.S. officials say the gangs have ordered murders in the United States from inside prisons in El Salvador.    PUSHED OUT     Arriaza said he came under pressure in May after Bukele’s party won the elections, replaced the attorney general and ousted top judges.    He said he was summoned to a meeting on May 5 with new Attorney General Rodolfo Delgado who asked him what cases against the government his unit was pursuing.     Hours after detailing his investigations to Delgado, including the probe into negotiations with gangs, Arriaza received written notice, seen by Reuters, that he would be transferred to El Salvador’s public prosecutor school to serve as an advisor.     Delgado could not be reached for comment.     Arriaza said he was barred from accessing his office, computer and files straight after the May 5 meeting and fled the country the same day to live abroad. He said he feared retribution from the Salvadoran government over his team’s investigations.     “I was a government prosecutor for over 18 years, have prosecuted corruption cases across the political spectrum – politicians, judges, police, gangs members, narcos – but this is the first time I felt I had to leave.”         Bukele – one of Latin America’s most popular leaders – has prosecuted members of previous governments for negotiating with gangs for their political backing.    Rumors of a truce between Bukele’s own government and the gangs started when the murder rate tumbled about 50% in the year after he took office in June 2019. Bukele credited the drop in homicides to his policies.    The report obtained by Reuters lays out transcripts from prosecutors of alleged audio messages from gang members’ phones, handwritten demands allegedly from the gangs, log book entries detailing which prisoners government officials allegedly met. It also describes alleged attempts by Luna to destroy evidence of the meetings in prison.    It includes security camera footage apparently showing Luna on various occasions entering two prisons accompanied by people whose faces were hidden by ski mask. Investigators identified one of those masked people as Marroquin, the presentation said.    The team’s report also details probes into embezzlement of prison funds and illicit pandemic spending within various government ministries.  More