* Fall in FX volumes estimated at 5-15 percent
* European stock activity down 19 pct, bonds down 15 pct
* Muted trading set to hit banks' revenues
By Anirban Nag and Toni Vorobyova
LONDON, Oct 14 (Reuters) - Trading volumes across financial
markets have fallen in the first two weeks of October as
uncertainty over the U.S. fiscal impasse saps investor appetite,
boding ill for banks' fourth-quarter revenues.
Many asset managers and speculators who were wrong-footed by
the Federal Reserve's surprise decision in late September to
stick to its bond-buying programme were banking on the final
three months of 2013 to make up for some of their earlier
But the latest cliff-hanger being played out in Washington
and a real threat that the United States could default on its
debt have made investors cautious, confining banks, hedge funds,
insurance and pension funds to the sidelines.
As a result, trading activity has fallen, with participants
estimating volumes have dropped 5-15 percent in the currency
market - the world's most liquid financial market with up to $5
trillion a day changing hands.
In Europe, stock market activity has fallen by nearly a
fifth while volumes in German government bond futures - a proxy
for trade in the benchmark 10-year cash Bund - dropped 15
percent last week compared with the previous one.
"It is as dead as a door nail," said Peter Kinsella,
strategist at Commerzbank referring to the volumes in the
currency market. "Traded volumes are lower by 10-15 percent in
the first few weeks of October than usual."
Vincent Craignou, global head of FX and Precious Metals
Derivatives at HSBC, one of the top banks in the currency
market, agreed volumes have been on the low side.
"Anecdotally, it is very quiet with the U.S. debt ceiling
problems keeping many institutional investors on the sidelines."
CLS Bank, which operates the largest foreign exchange
settlement system, declined to comment on October numbers. The
latest data from the bank shows that while the average daily
trading volume picked up to $5.05 trillion in September from
$4.5 trillion in August, it was well below a record high of $5.6
trillion in June and down 2.7 percent from a year ago.
HITTING TOP LINE
Foreign exchange trading volumes soared in the first half. A
massive monetary easing programme in Japan triggered widespread
yen selling and expectations the Federal Reserve would scale
back its monetary stimulus led to dollar buying. However,
activity has since tapered off and shows no sign of picking up.
"It is correct that the currency market is much quieter in
the first two weeks of October than before," said Kenneth
Dickson, Investment Director at Standard Life, which has $271
billion of assets under management. "Unless there is a solution
in the U.S., investors will hold fire."
Without a solution banks' earnings from trading activity in
fixed income, currencies and commodities (FICC) will be hurt.
Deutsche, Citi, HSBC and JPMorgan
are all major players in FICC and depend on increased
volumes and volatility to make gains from trading activity.
JPMorgan unveiled on Friday an 8 percent drop in revenues
from trading in fixed income markets in the third quarter from a
Deutsche is set to report revenues from FICC trading falling
by more than a third in the same period while Barclays, another
big bank, has warned of a sharp slowdown in trading bonds and
Some see the uncertainty dragging on volumes and hurting
banks' top line growth in the fourth quarter.
"There is no getting away from the fact that third quarter
was difficult and I think the outlook for the fourth quarter is
uncertain. September, October, November are certainly important
months for banks," said Michael Symonds, credit analyst at Daiwa
"The likely continuation of the political deadlock and
uncertainty through the end of November is a cause for top line
Trading volumes on the EuroSTOXX 50 index of euro zone blue
chip stocks dropped from an average of nearly 70 billion shares
a day in the week Oct. 2 to 56.8 billion in the following week,
or a drop of 19 percent.
Volumes in Bund futures slipped to 2.9 million lots last
week from 3.4 million the previous week, although this was well
within the range of the past five months.
"Investors are just not participating since there is no
clear view," said Howard Jones, partner at RMG Wealth
Management. "Until then the markets will go nowhere."