First Impressions

Clive Furness, managing director, Contango Markets – Commodities’ Oddities

“Commodities are now so much part of the infrastructure of the marketplace and the asset classes that buy side investors get involved with…that they are going to continue to look for those opportunities.”

Clive Furness, managing director of Contango Markets, discusses commodities and how the commodities markets function. Starting with a brief history of commodities, Furness illustrates why commodities sit uneasily with other mainstream products and the pros and cons of the situation. He then discusses the evolution of commodities, covering the shift in technology and people’s attitudes then and now. Finally, Furness gives his predictions and thoughts on the future of commodities and discusses a project he is currently working on with an African exchange in order to build the products the exchange will trade.

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Quote of the Day

“New names like us are moving into disruptive lending for a simple reason; the big guys have left a big hole. The four UK banks collectively have reduced their balance sheets in a huge way, and this means there is a large amount of lending that was done before that is being done now. I see this as having the potential to have the impact that Ryanair had on British Airways.”

Simon Champ, chief executive of Eaglewood Europe in the story, “Hedge funds pursue alternative lending”.

Lead Stories

Nobody Mourns Death of QE as Treasuries Prove Insatiable
Cordell Eddings, Liz Capo McCormick and Daniel Kruger – Bloomberg
Even with the end of unprecedented bond purchases from the Federal Reserve, demand for U.S. Treasuries looks as strong as ever.
Investors submitted bids for $5.54 trillion of government debt at auctions this year, or 3 times the amount sold, data compiled by Bloomberg show. The bid-to-cover ratio is higher than the 2.87 last year, when the Fed purchased more Treasuries than at any time since the central bank began quantitative easing in 2008, and has been exceeded only twice on record.

Bonds So Distressed Even Panic-Stricken Junk Outperforms Them
David Yong – Bloomberg
Issuers of emerging-market distressed debt missed out on a wider junk-bond recovery in October as woes afflicting the biggest losers proved more worrisome for investors than Ebola and global conflict.
The securities fell 1.57 percent last month, capping an 11.9 percent slump in four straight months of declines, a Bank of America Merrill Lynch index shows. Junk bonds from developing economies gained 0.3 percent after sliding 1.6 percent in September as investors fled riskier debt, sparking the biggest rout in 15 months.

Hedge funds pursue alternative lending
Miles Johnson, Hedge Fund Correspondent – Financial Times
Sharp-suited hedge fund managers used to look down with disdain at the humdrum world of commercial banking. Now, this low-octane finance is being viewed by some as the biggest opportunity in a generation.

Argentina failed to transfer Par bonds coupon payment – BNY
Davide Scigliuzzo – Reuters
Bank of New York Mellon, the trustee for some of Argentina’s restructured bonds, notified bondholders on Friday that the sovereign’s default has spread to its Par bonds.

Bank of Japan shows central banks can still wield firepower
John Authers – Financial Times
Central banks can create money. That gives them the power to move markets – and with them, the terms of trade between the world’s economic blocs – with only a few words.

ABS markets need more than warm words
New European liquidity rules reinforce the ‘halo effect’ for covered bonds, but the treasurer of the UK’s biggest building society, Nationwide, says more effort must be put into reviving securitisation

Central Banks

The BoJ Rally in Seven Charts
Maureen Farrell – MoneyBeat – WSJ
Quantitative Easing is off in the U.S., but it’s on in Japan. The Bank of Japan shocked investors by announcing a surprise stimulus program Friday.

“Three” May Be BOJ’s New Magic Number
Tatsuo Ito – MoneyBeat – WSJ
“Three” could be the new magic number for the Bank of Japan ‘s8301.TO -1.01% monetary policy after it shocked the financial markets by taking additional easing measures that boosted stock prices and weakened the yen.

Fed’s Kocherlakota: FOMC Dissent Driven by Persistent Inflation Weakness
Michael S. Derby – MoneyBeat – WSJ
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Friday he believes the U.S. central bank is failing to defend its inflation goal and that it should be providing more stimulus to the economy, in a statement defending his dissenting vote at this week’s monetary policy meeting.

Peru cenbank lowers bank reserve requirements to spur lending
Peru’s central bank said on Sunday it lowered local currency bank reserve requirements to 10 percent from 10.5 percent, a move aimed at increasing liquidity in the country’s financial system as the economy slows.


Japan Fires Another Shot in Global Currency War
Michael J. Casey – MoneyBeat – WSJ
A currency war looms – not a 1930s-style scorched-earth conflict, but a damaging stealth war that will exacerbate the global economy’s woes and distort domestic political agendas.

Yen’s Worst to Come in Options After Kuroda Shocks
Kevin Buckland, Hiroko Komiya and Andrea Wong – Bloomberg
The worst is yet to come for the yen after Japan’s two-pronged attack on deflation sent the currency tumbling to its weakest level in almost seven years.
Option prices show traders see an 82 percent chance the yen, which has already slumped 6.8 percent this year, will drop an additional 1.1 percent to 115 per dollar in the next three months, according to data compiled by Bloomberg. That’s up from 17 percent on Oct. 30, the day before authorities surprised investors by saying the government pension fund will invest more of its money overseas and Bank of Japan Governor Haruhiko Kuroda will expand currency depreciating stimulus.

Low interest rates, low profits for FX traders
Delphine Strauss – Financial Times
The challenge for currency traders for much of this year has been how to extract returns out of a lifeless market. With central banks keeping interest rates close to record lows, leading currencies traded in narrow ranges, volatility in foreign exchange markets sank to record lows – and trading volumes slumped.

Analytical transparency in FX becoming more feasible
Simon Osborne – The Trade
ITG says that it believes transparency of trade analysis in the FX market is now possible – beyond the information provided by a single dealer.

The renminbi’s place in the FX world
Elaine Moore – Financial Times
This year, the UK became the first western country in the world to issue government debt in renminbi.

Transparency critical for pricing
Adam Palin – Financial Times
In the infancy of online foreign exchange trading, investors were asked to indicate before a transaction if they wanted to buy or sell. The currency rates offered by platforms would vary accordingly.

Indexes & Index Products

Commodity leveraged ETFs: Tracking errors, volatility decay and trading strategies
Commodity exchange-traded funds (ETFs) and their leveraged counterparts are a significant part of the growing ETF market.

iShares Japan ETF options draw bullish call activity
Saqib Iqbal Ahmed – Reuters
Options on the iShares MSCI Japan Index fund attracted a rush of bullish trading activity on Friday after the Bank of Japan significantly ramped up its stimulus program.

ETPs struggle in low volatility
Chris Flood – Financial Times
Volatility in foreign exchange markets has been muted for much of this year and exchange traded funds and products that provide exposure to currency fluctuations have struggled to win investors’ attention.


Not All Easy Money is Good for Gold
Tatyana Shumsky – MoneyBeat – WSJ
Loose monetary policy from central banks tends to bolster demand for gold, as investors seek to protect their wealth against inflation and currency weakness. But the surprise monetary easing efforts announced by the Bank of Japan 8301.TO -1.01% Friday have torpedoed gold prices. How come?

Why is Switzerland Voting on Its Gold Holdings? – The Short Answer
On November 30, the Swiss population will be called to the polls to vote on the “Save our Swiss Gold initiative,” a proposal which, if passed, would require the Swiss National Bank to hold a fifth of its nearly $550 billion assets in the shiny metal.

Gold option volatility soars as investors race to protect against rout
Gold option volatility soared to its highest level since early this year on Friday, as investors scrambled to protect their positions against a prolonged rout after bullion tumbled to its lowest in four years.

Chinese unmoved by gold price drop, see it cheaper still
A. Ananthalakshmi – Reuters
Even with gold prices dropping to near four-year lows, buyers in China – the world’s leading market – are not tempted, suggesting prices have further to fall.
When gold prices are in a slump, Chinese buyers, eyeing a bargain, traditionally move in and stop the rot. But that doesn’t seem to be happening this time around. The current market decline has seen the price of gold lose more than a third of its value in two years, to around $1,170 an ounce.

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