COVID-19, machine trading & financial markets with Michael Knox

<p>Why are financial markets swinging so wildly in response to the novel coronavirus, COVID-19? Economics Explained host Gene Tunny speaks with Michael Knox, Chief Economist of <a href="https://www.morgans.com.au/" target="_blank">Morgans</a>, who thinks it's related to the machine trading programs which dominate financial markets.</p><p>Morgans is Australia's largest national full-service stockbroking and wealth management network with more than 240,000 client accounts, 500 authorised representatives and 950 employees operating from offices in all states and territories.</p><p><i>Timestamps</i></p><p>Use these (approximate) timestamps to jump right to the highlights:</p><ul><li>0:00 – discussion begins with Gene referring to Michael’s recent note <a href="https://www.morgans.com.au/Blog/2020/March/The-revenge-of-the-machines" target="_blank">The revenge of the machines</a> which begins “The market is being sold down by machine trading programs focused on momentum.” </li><li>4:00 – Michael says recent market gyrations have “nothing to do with fundamentals….we're in a situation because of the epidemic, because of the emergency that only happened once every hundred years or every 50 years - you can't build a model of something like that. So inherently, what those trading models are acting on is the momentum signal…”</li><li>7:00 – beginning of discussion on market liquidity</li><li>11:00 – Michael discusses the relationships between liquidity, price discovery, and market volatility </li><li>15:10 – Michael notes re. COVID-19, “On this occasion, you had a change, which was caused by a once in 50 years shock or once in 100 years shock. The market doesn't have that kind of memory of data to be able to price that in.”</li><li>16:15 – discussion of valuation of shares/stocks</li><li>18:15 – what is momentum?</li><li>24:20 – discussion of fair value of Australian sharemarket and Australian economic outlook</li></ul><p>Nothing in this podcast should be considered financial advice, and it contains general information only.