nickel market pushed to breaking point

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nickel market pushed to breaking point


The Russian stock market is closed. Gasoline prices are skyrocketing, but the US won’t buy cheap Russian oil. The nickel market stopped trading for a week, tried to restart, then stopped almost immediately.

Because matter: Sanctions, government actions and large price changes are shaking our unwavering confidence in rational markets as a pillar of the world economy.

The last one: The 145-year-old London Metal Exchange (LME) reopened nickel trading yesterday after a week-long freeze, only to close the market again in minutes due to a glitch.

The background: The initial close of the nickel market followed an extraordinary brief squeeze that sent prices up more than 250% in just over 24 hours, culminating on March 8, when they rose above $ 100,000 per ton.

  • The seismic move triggered a cascade of margin calls that would likely have bankrupted major market players – and possibly the exchange itself, even if officials there deny it – if the LME hadn’t basically said, “oh, well, it doesn’t matter “and the illegal trafficking is canceled.
  • Bloomberg has a big hit for chaos here.
  • Some folks who, presumably, would have made some decent scratches on those trades, are not happy.

What they say: “For the LME, canceling nickel exchanges between willing buyers and sellers is inexcusable. Unforgivable, “wrote Mark Thompson, a metal trader, on Twitter.

The big picture: For decades after the fall of communism, the global economy was organized around the idea that financial markets were reliable and accurate mechanisms for measuring and managing the universe of risks that companies, investors and the world face.

  • These ideas were rooted, in part, in the so-called efficient market hypothesis, the almost mystical but incredibly influential idea that market prices fully and correctly reflect “all known information.”
  • Many people have then taken the leap that the market in some sense always identifies the “correct” prices.

Others, however, argued that markets cannot incorporate all known information, because sometimes people with good information cannot participate. This idea is known as “limits on arbitration”.

  • The financial world is now facing some serious limits to arbitrage.

Matt’s comic: I’m not a hedge fund genius, but it seems like a good bet that Russian stocks are likely to fall, as the West has economically hammered the country with sanctions. Some people probably want to short-circuit the Russian market!

  • Well, they can’t. Such bets on falling stock prices were banned in Russia as tanks started rumbling towards Kiev.
  • And just in case that was enough, the entire market was closed right after the short selling ban. The Russian market has been closed since February. 25.

Okay, well, how about Russian oil? It is obviously undervalued, as it trades for an unprecedented $ 30 discount compared to other global oil benchmarks. Buying it seems like a good deal!

  • Except that the sanctions mean that there is no reputable US broker who would allow anyone to make such a trade. (And that, by the way, is why it’s cheap.)

Where is it: When the London Metal Exchange reopened nickel trading yesterday morning, there were clearly many people who thought the insanely high prices for nickel couldn’t last. And they wanted to sell.

  • As a result, prices plummeted so fast that some trades exceeded the exchange’s new 5% limit on daily price changes, forcing it to suspend trading again for some time. (You could, however, trade in that bastion of market freedom, Communist China, on the Shanghai Futures Exchange.)
  • The LME was finally able to reopen trading around 2pm yesterday, but had to stop again this morning.

The bottom line: Markets are human institutions. When events get as insane as they are now, the illusion of markets as a completely separate system from grand geopolitics or the most banal politics of any institution – such as a metal exchange – suddenly disappears.


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