HedgeTalk: Risk Versus Speculation

Minneapolis, MN | September 14, 2023 | HedgeTalk Newsletter | By: John Trefethen, Director & Co-Founder

Table of Contents:

Market Moving Headlines
Interest Rates
Currencies
Commodities
Concept of the Week: Risk versus Speculation
Quote of the Week

Market Moving Headlines

Oil prices rise to a 10-month high on supply tightness.
Nickel falls after lithium discovery in the US
10-year Treasury yield approaches a 15-year high.
The annual inflation rate increases above forecasts to 3.7% in August.
Mortgage applications in the US continue to fall.
Eurozone industrial output falls more than forecast.
Hong Kong manufacturing output growth slows in Q2.
UK GDP shrinks more than expected in July.
Sterling at over 3-month low on weak GDP data.
UK imports hit 17-month low.

Interest Rates

US Treasury Market Chart grey, white and green chart

Green, black, and grey 2Y - 10Y - Past 12 Months Spread graph

Currencies

Commodities

Concept of the Week: Risk Versus Speculation

There are many types of derivatives that are used for taking on risk – that speculate on the movement of interest rates, currency exchange rates, and commodity prices. When hedging, one is not guessing the direction that interest rates, currency exchange rates, and commodity prices will move. Instead, they are mitigating the risk of loss should any of those items move in a direction that negatively impacts the organization. Not hedging a risk is speculation. If an entity decides to not hedge an exposure, that entity is in effect speculating that rates, currencies, or commodities will not move in a direction that will adversely impact their institution.