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🔥 Hot and 🚫 Not

🔥 'Supplementary Leverage Ratios are so hot right now': You heard it. The catwalks of Wall Street, the City of London and other financial centres around the world have all been talking about it...

But to be honest, it's only hot because so many have been talking about it.

What is it?: The Fed have just announced that the SLR exemption will end on March 31st as planned.

Read their press release here.

The SLR is the amount of common equity capital that banks must hold relative to their total leverage exposure.

In short, it's there to ensure that banks don't go too crazy with their risk.

Tim did a good write up for Premium members earlier this week.

☀ FOMC Day - Connecting the dots
Markets in a holding pattern ahead of the main event tonight... Zoltan tells us the SLR expiry doesn’t actually matter after all[]... Today is the first proper test of the new framework... And this survey from Roberto Parli […

Because of the COVID period, the Fed wanted to ensure the financial system remained stable, and so allowed banks to exclude Treasuries from being counted in the SLR framework, which essentially provides greater liquidity, and means tighter spreads on assets like mortgage backed securities.

Not like Europe: today's announcement is in a different direction to what Europe has had for many years now - they have had the SLR exemption (OK slightly different framework, but pretty much the same thing), for years now.

Here's a great note on the risks of weighing sovereign debt at zero.

The Heated Debate on the Risk Weighting of Sovereign Debts - Risk Magazine

🚫 Sad trombone for the euro: after my bold critique of the euro the other day (read below for a recap), EURUSD is under further pressure.

🔔 Your questions answered!
Europe is having a nightmare: more lockdowns stemming from a poor vaccine response are wreaking havoc in Europe.German doctors have asked for a partial lockdown in Europe’s most important country after the risks of more cases have been rising.

What's going on?: US yields made a comeback this afternoon after the SLR exemption was lifted.

This has dragged the dollar higher and with the euro under pressure from domestic problems affecting growth expectations, this simply led to a path of least resistance to the downside - Paris went into lockdown again last night for example.

We're selling EUR vs USD and GBP for different reasons currently, but tending to come back to the fact that the Eurozone is underperforming whilst the UK and US are outperforming on a relative basis.

Check out our Euro outlook for 2021, written in December...

What’s in store for EURUSD in 2021?
‘The last 3/4 months have been pretty average for me, Tim,’ I said this morningon our morning chat. We tend to talk for about an hour or so practically every day at 8am (9am forTim over in Spain). ’You know, it’s difficult to be inspired when there’s nothing to really inspireyou - getting an op…

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