First Impressions

Jeromee Johnson, VP & Head of BATS Options, BATS Global Markets – Exchanges, Dark Pools and Other Market Places
JohnLothianNews.com

“You can absolutely gain as much and learn as much from those failures as you can from the things that work.”

Jeromee Johnson, vice president and head of BATS Options for BATS Global Markets, gives an overview on exchanges and marketplaces. He discusses how certain regulatory factors affect some but not all markets, as well as an exchange’s overall goal of bringing buyers and sellers together. Johnson also details the process of creating a new exchange gives an in-depth look at how the regulatory environment could potentially affect a fledgling exchange.

Watch the video »

Quote of the Day

“TIPS have had a good tail wind this year. We have inflation as opposed to last year when we had disinflation.”

Gemma Wright-Casparius, who oversees Vanguard’s $26.3 billion inflation-protected securities fund in the story, “U.S. inflation bonds back in vogue”.

Lead Stories

Bond Markets Tilt Toward Frankfurt as Draghi Negates Fed
Liz Capo McCormick and Susanne Walker – Bloomberg
The world’s most-influential bond market might just be in Frankfurt.
As speculation deepens the European Central Bank will start quantitative easing just as the Federal Reserve ends its own bond buying, Europe is gaining more leverage over investors globally as the specter of deflation in the region unleashes greater demand for fixed income. The gravitational pull exerted by German bunds may blunt any jump in yields as the Fed moves to raise U.S. interest rates for the first time since 2006.
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U.S. inflation bonds back in vogue
Richard Leong – Reuters
U.S. investors are back in the hunt for inflation protection for the first time in two years as rising housing costs – particularly for rent – suggest inflation may finally be waking from its post-recession slumber.
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China Authorizes Local Governments to Issue Bonds
KEITH BRADSHER
China’s Finance Ministry released on Monday a long list of amendments to the country’s budget law that included removing a 20-year ban on local and regional governments from issuing bonds.
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Draghi Cuts Mortgages 17,000 Kilometers Away: Australia Credit
Michael Heath – Bloomberg
European Central Bank President Mario Draghi’s shift toward quantitative easing is reverberating 17,000 kilometers (10,500 miles) away in lower Australian mortgage rates.
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If ECB Does QE, It’s Another Sign of Western Governments’ Failures
Michael J. Casey – MoneyBeat – WSJ
Hold your applause for the latest central bank rescue, please. The European Central Bank this week is expected to announce a bond-buying campaign.
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Argentina to appeal U.S. judge’s order calling bond payment illegal
Reuters
Argentina said on Friday it would appeal a U.S. judge’s decision declaring a $539 million payment the country deposited with Bank of New York Mellon Corp for its restructured bondholders illegal.
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QE best way to mend Europe financial fragmentation
Gene Frieda – Financial Times
Some commentators have argued that quantitative easing would be less effective in Europe than in the US, or indeed that it would be a mistake for the European Central Bank to embark on QE.
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Martin Wolf’s ‘The Shifts and the Shocks’
Review by Joseph Stiglitz – Financial Times
Martin Wolf has outdone himself. The FT’s chief economics commentator has written a book that not only explains the malaise in which we have been mired since 2008 but also – depressingly – provides a convincing analysis of why we are likely to remain so. Already, the crisis has spawned a plethora of titles examining what went wrong. The Shifts and the Shocks is among the first to address the absence of a robust recovery and it sets a high bar for those that will surely follow.
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Robot risk managers excite swap market-makers
Lukas Becker – Risk.net
Foreign exchange options and government bonds are hedged by robots, and dealers hope to apply the same technique to rates products as the market becomes more electronic. But it needs other pieces of the puzzle to fall into place first
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SGX proposes greater retail access to bonds
Singapore Exchange (SGX) is consulting the public on a proposal to give retail investors improved access to bonds currently offered only to institutional and accredited investors (“wholesale bonds”).
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Central Banks

Draghi approaches his Abenomics moment
Stephanie Flanders – Financial Times
Investors were not listening hard enough to Mario Draghi’s recent speech at Jackson Hole. If they were, they would have heard the sound of gears shifting.
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Draghi ABS Revival Depends on Regulators Defining Simple
Jim Brunsden – Bloomberg
The European Central Bank is gearing up to buy “simple, transparent and real” asset-backed debt. The success of its bid to breathe life into the market will depend on how regulators from Basel to Brussels define those terms.
President Mario Draghi said last month that ECB purchases of asset-backed securities “would lead to a reconstruction of a market that has disappeared with the crisis,” and that’s why they will focus on products that are easy to price. The ECB, whose Governing Council meets this week, may start buying ABS as part of a quantitative-easing program aimed at shoring up a euro-area economy that’s edging closer to deflation.
jlne.ws/1oAmRLt

Polish central bank in two minds over rate cuts
Solomon Teague – Euromoney Magazine
CPI inflation fell into negative territory in July, and the market expects the Polish monetary authority to cut rates, but currency concerns, relatively buoyant growth and supply-side drivers of disinflation argue for caution.
jlne.ws/1tWbyDM

Central banks ready to break swap market’s Libor habit
Joe Rennison – Risk.net
Policy-makers are not content to leave the interest rate derivatives market anchored to Libor and its family of benchmarks, preferring the idea of a multi-rate world. But getting from here to there will require the market to be pushed, and could also fragment liquidity.
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Currencies

CureCoin: A cryptocurrency aiming to beat cancer
Farah Khalique – Euromoney Magazine
The CureCoin Forum has teamed up with Stanford University to launch a new ethical cryptocurrency that aims to find cures for common, life-threatening illnesses, such as cancer and Alzheimer’s, by bringing together science and the craze for cryptocurrencies.
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Taiwan fixing could fragment offshore renminbi liquidity
Viren Vaghela, Xiao Wang – Risk.net
Latest CNH fixing will be a boon for Taiwan’s derivatives market, but concerns have emerged over the potential silo-isation of the renminbi market
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Top Bitcoin Proponent to Plead Guilty to Federal Charge
SYDNEY EMBER – Dealbook – NY Times
A prominent supporter of Bitcoin, Charles Shrem, says he will plead guilty on Thursday to resolve federal charges that he helped federal court in smooth the way for drug transactions on the online marketplace Silk Road. He is to plead in New York to one count of aiding and abetting the operation of an unlicensed money transmitting business.
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Gold

China Banks Boost Precious Metals Hoard Amid Lease Demand
Bloomberg
The value of precious metals held by China’s biggest lenders surged 66 percent from a year ago as banks lease more gold to customers because tighter borrowing rules make it harder to lend funds.
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Hedge Funds Cut Gold Bull Bets to Lowest Since June
Debarati Roy – Bloomberg
After gold’s rally in the first half of the year beat gains for commodities, equities and Treasuries, bullion is back to being out of favor with investors.
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