June 4, 2020

Quantifying Available Liquidity in the Time of COVID-19

It is not news to say that the global health crisis has rocked financial markets. But when we go beyond the daily swings in price movements, what information can help traders better adapt to current market conditions? LiquidMetrix offers a series of insights derived from our data and analytics.

How much do changes in liquidity affect the type of trading that occurs? This week we return to looking shifts in Block liquidity across different industry sectors and geographic regions. We focus on the percentage change in block value traded since the beginning of the health crisis. The LiquidMetrix Venue Statistics database stores quotes, and trades on all trading venues globally and is the source of our data on block trading. We use the MiFID II designation of Large in Scale (“LIS”) trades as our global definition of what constitutes a block trade. LIS defines a Block in terms of the order’s size relative to the average daily volume traded in that stock.

To examine how liquidity shifts might impact the amount of block trading, we put a spotlight on the Consumer Cyclicals sector. As this sector represents goods and services that are not necessities but discretionary purchases, their performance is highly impacted by the economic contractions in employment and production resulting from the health crisis. The sector includes industries such as automotive, housing, entertainment, and retail. As the sector has been highly volatile over the period, we want to examine potential shifts in how these stocks have been traded.  A key focal point is whether performance swings and price volatility are correlated with a greater percentage of block trading.

We contrast Consumer Cyclicals with the Consumer Defensive sector. The Consumer Defensive sector includes products such as foods & beverage, household goods, hygiene products and “sin” stocks such as alcohol and tobacco. Regardless of economic conditions people are unable—or unwilling—to cut these products out of their budgets. As they are always in demand, year-round, no matter how well the economy is—or is not—performing, demand for liquidity should be more stable.

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By Henry Yegerman, ISS LiquidMetrix

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