Financial Markets Division
Monitoring financial markets
Outline
• Introduction: ourselves and Financial Markets
Division
• Importance of monitoring
• Monitoring sources
• Monitoring subjects
• Products
Financial Markets Division
Asset Management
Risk Management
Treasury and Monitoring
Asset Management: investment of fx reserves
Risk Management: creates framework for investment
Treasury and Monitoring: monetary policy implementation and monitoring
Importance of monitoring
• Monetary policy:
- Developments financial markets input
decision making
- Expectations in markets
- Assessment of policy
Importance of monitoring
• Financial Stability (FS):
- Increased focus on FS
- Monitoring risks to stability of financial system
- Financial markets channel
Importance of monitoring
• Asset Management (AM):
- Monitoring developments which impact the
value of the portfolio
- Monitoring trading opportunities
Monitoring sources
• Counterparties
− Asset Management (capital market), Dealing Room (money market,
foreign exchange)
− Research & direct contact
• International economic news and data providers
− Bloomberg, Reuters
− Datastream
− (Economic/financial magazines, Internet)
Subjects: expectations
• Get indications from market prices
− Dollars and EURO’s
− Futures (Fed Fund & 3M Euribor), Interest Rate Swaps (EONIA), Fed Fund
Options
Grafiek # Verwachte toekomstige overnightrente eurogebied
Afgeleid uit de EONIA Swapcurve, in procenten
4,00
3,75
3,50
3,25
3,00
2,75
10-4-2007
2,50
12-1-2007
7-12-2006
2,25
2,00
1w
2w
3w
1m
2m
3m
4m
5m
6m
7m
8m
9m 10m 11m 12m
Bron: Bloomberg en eigen berekeningen.
• Using research of market participants
− Investments Banks
− Research Agencies
Subjects: yield curve and exchange rates
• Yield curve dynamics
− Monitoring yield curve
− Development 10-year/2-year spread, comparing US and Euro area
− Try to understand the market dynamics (e.g. pension funds, China, flight to
quality)
• Exchange rate movements
− Euro vs dollar/yen, dollaryen
− Market factors influencing the impact of monetary policy (low volatility, low
interest rates yen  carry trades based on yen)
− Bank of England….
Subjects
• Which factors are moving the market
in the short term
− Follow news and report to the organisation
− Contact counterparties (money market report)
• Special topics
− Hedge funds (Parliament, ABN AMRO case)
− Private Equity
− Carry trades
Monitoring
• Financial Market Dashboard
− Dashboard for real time monitoring asset prices (major exchange rates,
stock indices, interest rates, bonds, oil and gold)
− Special design for the board of directors
Monitoring Products
• Daily report & Money Market report
− Focus on Europe, US and Japan
− Market types: Foreign Exchange, Stock Market, Bonds Market, Other (mainly
oil and gold)
Monitoring Products
• Monthly report
− Focus on monthly developments in major markets (both countries and
type)
− Views market participants on possible explanation, highlighting special
subjects (box)
− Input for monetary Governing Council
Monitoring Products
• Market participants view
− Mainly based on research of investment banks
− GDP, Inflation and interest rates (policy rates, 10 year)
− Individual views and average
Concluding remarks
Monitoring important:
• Input monetary policy decisionmaking
• Financial Stability issues
And of course:
• Portfolio investment decisions