Chinese Yuan Hit And Leverage Lessons

By Adam Button

Not many people know what it feels like to lose a $20B fortune but Bill Hwang found out on Friday. His Archegos Capital blew up on Friday, wiping out the vast majority of a fund he built from $200m over 7 years and roiling the broader market. More on this below.

Meanwhile, CNH took a fresh hit today, with posting its 3rd biggest daily % gain in 6 months. The move spilled over to rapid selling in and .

is now attempting to hold above the trendline support from Mar. 8 low. This will be a short rading week in light of the Easter and Passover holidays. Good Friday Apr. 2 is a market holiday in the US but NOT a public holiday, which means markets will be shut, but the US will be released as normal.¬†Below is Ashraf’s message made last Tuesday to the Whatsapp Broadcast Group, calling XAU/USD $1709.

XAU/USD Daily Chart

It’s rare for a fund that large to use leverage and the events of late last week demonstrated why. A handful of concentrated bets in Chinese and US companies were swamped by forced selling. Shares of ViacomCBS (NASDAQ:) fell 50% over two days, while Discovery (NASDAQ:) dropped 27% on Friday alone. Hwang was also behind heavy selling in Baidu (NASDAQ:) and Tencent.

There are some obvious risk management lessons here as one of the great traders of this era was ruined.

For the broader market, news of forced liquidation from a single fund is comforting. It means that nothing has changed in the bigger picture and given that the selling completed on Friday, there will be dip buying in those names. The broader market will also benefit as people pick up the scraps.

The market hates uncertainty and unknown sellers but once it gets a grip on what’s driving the selling, the mood quickly flips. There’s likely what happened as rumours about the selling began to percolate late on Friday, leading to a record close in the .

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by – long by +.

+93K vs +90K prior

+22K vs +29K prior

-53K vs -39K prior

+3K vs +5K prior

+5K vs +10K prior

+6K vs +8K prior

+5K vs +6K prior

The big story in the past two weeks is the dramatic positioning shift in the yen as it shifted rapidly to a large net short position. The yen and Swiss franc are rapidly regaining their positions as funding currencies

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

This site uses cookies to offer you a better browsing experience. By browsing this website, you agree to our use of cookies.