High Frequency Trading dominates as markets crash

by Paul Hodges

D'turn 15Aug11.pngThe Chemicals and the Economy blog was almost alone at the end of April, when it launched the IeC Downturn Alert. Today, its fear that we are close to a global downturn has become mainstream.

As the American Chemistry Council report, “fears of another global recession are rising with several noted forecasters raising the chances of another recession to one‐in‐two“.

The disfunctionality of financial markets is clearly a major factor in boosting chances of a downturn:

75% of US equity trading in August was High Frequency Trading
• This is traders playing computer games, in micro-seconds.
• It has no value whatsoever, and clearly destabilises markets
• But Wall Street-friendly regulators continue to excuse it

In terms of chemical markets, most players have sensibly retreated to the sidelines, as ICIS pricing comments note. The chart shows how prices have moved since April, when IeC Downturn Alert launched:

Naphtha Europe (brown dash), down 16%. “Factors dampening activity include the ongoing summer holiday season, and crude oil price volatility”.
Brent crude oil, down 15%.
S&P 500 Index (pink dot), down 14%.
HDPE USA export (purple), down 13%. “Prices were assessed notionally higher based on price ideas from traders”.
PTA China (red), down 7%. ” Most buyers were pessimistic about the market outlook.”
Benzene NWE (green), down 3%. “Benzene has been incredibly resilient to the volatility seen for crude.”

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