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nflation will be one of the biggest challenges for traders this year while daily liquidity remains a major concern for the sixth year in row, according to J.P. Morgan’s annual trading and trends insights FICC study.
Out of the 718 institutional trading clients polled, 48% expected rising prices to have the biggest impact on markets.
This is not surprising given inflation is increasing faster than expected in the UK, US and Europe, triggering a much more hawkish tone from central banks.
For example, analysts expect the US Federal Reserve to hike interest rates seven times this year after the surprise 7.5% jump in January- a 40 year high – while some believe that the UK Bank of England could raise interest rates by 50 basis points in March, an unprecedented move since it gained independence in 1997.
Meanwhile, market participants believe the European Central Bank to increase rates in the second half of this year, and not wait until 2023 as anticipated in the wake of the record high 5.1% inflation spike in the eurozone in January.
“The expectation is that this focus and concern will likely lead to more market activity and volatility given that inflation has not been a theme for over a decade,” said Scott Wacker, head of FICC e-Commerce sales at J.P. Morgan,
He added, “This will continue to reinforce the importance of liquidity and consistency of pricing which continues to play into the hands of electronic trading.”
As for liquidity, 35% said that access was a major issue. This was below the 2019 rating of 40%, but it represents a significant rise from 29% in last year’s survey.
In terms of important criteria when selecting a liquidity source,62% pointed to price consistency, up from 48% in 2021’s survey.
The research also found that electronic trading was making greater inroads with volumes across all asset classes set to increase dramatically over the next two years
Rates and credit traders predicted their electronic volumes will go up by 17% by 2022 while 78% of traders will accelerate electronic and algorithmic trading, with 63% increasing algo trading
Categories that saw a decline in importance included the global pandemic which dropped from 13% from 42% in 2020, and workflow efficiency which dipped to 21% from 24%. The availability and cost of data went from 12% to 9%.
In addition, dealer performance metrics and axes history slipped slightly, from 38% to 32% while post-trade transactional data’s significance was largely unchanged at 31%.
Looking ahead, mobile trading applications are predicted to be the most influential in shaping the future of trading over the next 12 months, with artificial intelligence and machine learning taking the lead over the next three years.
©Markets Media Europe 2022
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