First Impressions

It’s Easier This Way: Justin Llewellyn-Jones of Fidessa Maps A Compliance Path for Firms
JohnLothianNews.com

Today, firms are dealing with three major issues: regulation, compliance and global economics. None of the three are friendly to firms and that’s where Justin Llewellyn-Jones, chief operating officer of Fidessa , believes there is opportunity.

Llewellyn-Jones spoke with JLN editor-in-chief Jim Kharouf last month at the IDX conference in London, about how Fidessa is developing new technology that will assist firms in making the trading, risk and account management, and compliance task easier.

Watch the video »

Quote of the Day

“We’re not saying we think there are violations, we just want them to explain the justifications and the reasons for how they route their order flow.”

Tom Gira, executive vice president of Finra’s market regulation department in the story, “Finra Opens Probe Into Broker Routing; Inquiry Comes Amid Mounting Concerns Practices Might Not Result in Best Price for Customers”.

Lead Stories

125 Years On, Mr. Market Is Older. But He May Not Be Wiser.
By E.S. Browning, WSJ
In some basic ways, financial markets have changed remarkably little since The Wall Street Journal’s founding 125 years ago. Companies still issue stocks and bonds to finance business. Investors trade them. Stocks still average 6.7% long-term annual gains with inflation removed. Popular metrics for measuring stock value, such as price/earnings ratios, have roots in the late 19th century.
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***DA: Markets are not sentient beings; they are amalgamations of the viewpoints of market participants. It is those participants who may be no wiser than they were 125 years ago.

At Senate Hearing, Wall Street Executives Share Concerns About the Market
By WILLIAM ALDEN, NY Times Dealbook
Wall Street has no shortage of ideas on how to improve the stock market. The question is whether regulators think those ideas are worth heeding.
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***DA: As long as it goes up every day, the concerns are placed on the back burner.

ICE prepares deeper reform of Libor
By Philip Stafford, FT
Intercontinental Exchange is preparing to ask banks that submit Libor rates for more of their internal transaction data as the derivatives exchange operator rehabilitates the scandal-hit benchmark.
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***DA: Due diligence and LIBOR will go hand in hand from now on.

Finra Opens Probe Into Broker Routing; Inquiry Comes Amid Mounting Concerns Practices Might Not Result in Best Price for Customers
By Scott Patterson
WASHINGTON—The Financial Industry Regulatory Authority has launched a probe into how retail brokers treat customer orders amid mounting concerns some brokers might be sending orders to venues that provide the highest payments but not the best price for investors.
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***DA: What didn’t you know and when didn’t you know it?

Economists React: China’s Inflation Remains Muted
Mark Magnier – WSJ
Inflation in China remained in check in June as China’s consumer price index posted a year on year 2.3% increase, compared with a 2.5% year-on-year rise in May, the National Bureau of Statistics said Wednesday. Pork, egg and vegetable prices eased, while non-food prices held steady.
China’s producer price index, a measure of costs at the factory gate, fell for the 28th straight month, declining 1.1% year on year in June compared with a 1.4% fall in May, amid ongoing concerns of deflation.
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Argentine Bonds Surge on Prospects for Settlement With Holdouts
Katia Porzecanski – Bloomberg
Argentine bonds surged the most in emerging markets on speculation the South American nation is moving toward settling with holders of defaulted debt.
International dollar bonds due 2017 surged 3.27 cents on the dollar to 95.49 cents at 10:16 a.m. in New York, the highest level since October 2012. The extra yield investors demand to own Argentine bonds instead of Treasuries plunged 0.47 percentage point to 6.21 points, the lowest on a closing basis in three years, according to JPMorgan Chase & Co.
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***DA: Noooo!! Don’t end this saga yet. I have so many more witty comments in my pocket.

Central Banks

This Just In: Asset Prices Are Up Because of Central Banks!
Randall W. Forsyth – Barron’s
They don’t ring a bell, goes the old saying on Wall Street. But sometimes, it does show up on the front page of major newspapers.
In a curiously timed lead story, Tuesday’s New York Times declared, “From Stocks to Farmland, All’s Booming, or Bubbling: Prices for Nearly All Assets Around World Are High, Bringing Economic Risks.”
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***DA: Hey Dick Tracy – what was your first clue?

ECB looks to banks to deliver QE on its behalf
Paul Carrel and Ingrid Melander – Reuters
The European Central Bank is hoping a new round of long-term loans will be used by banks to drive down borrowing costs – a substitute for an asset-purchase scheme of its own which would avert a potentially damaging internal split.
The ECB unveiled the loans plan last month as part of a package of measures to breathe life into a sluggish euro zone economy, where inflation is running far below the central bank’s target and there is a dearth of credit to smaller firms.
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Morgan Stanley Joins BofA Cutting ABS Outlook Amid Flood of Cash
Alastair Marsh – Bloomberg
Mario Draghi is undermining his own plan to support asset-backed debt as he floods banks with cheap money, according to Morgan Stanley and Bank of America Corp. (BAC), prompting them to cut forecasts for sales of the securities.
The European Central Bank President has made a revival of the notes a key part of plans to fuel growth in the region to help boost lending to businesses. The $2 trillion ABS market contracted 32 percent since 2009 as regulators cracked down on the debt they blamed for deepening the financial crisis.
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ECB Speakers, Fed Minutes To Continue Central Bank Grip On FX
Jeremy Cook – Investing.com
If FX markets moved in a similar way to games of football then we would have a much more interesting market than we currently inhabit. Unfortunately it looks like we will have to wait on tonight’s semi-final for more fireworks with traders happy to tread the status quo once again.
Despite some poor data in the past 24hrs we have not seen breaks of recent ranges. It has been clear for a while that the ongoing injections of liquidity and soothing words from central banks are the real movers of price action with little that data can do.
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Currencies

Eurex bullish over FX despite flat start; German exchange said it expected slow start for its nascent FX suite
by Luke Jeffs
Eurex said on Tuesday it is bullish about its new suite of currency futures that went live on Monday despite the German exchange’s first FX products failing to attract a single trade on debut. The exchange said on Tuesday there were no trades or open interest recorded for the new contracts when they started trading on Monday but it…
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***DA: Slow start, to put it mildly.

Pimco Sees Record Asia Dollar Bond Sales as Spreads Narrow
Lilian Karunungan – Bloomberg
The manager of the world’s biggest bond fund forecasts sales of dollar-denominated notes from Asia will climb to a record $150 billion in 2014 as yield premiums shrink to a six-year low.
Pacific Investment Management Co. predicts the size of the regional market may double to $1 trillion in three years, Raja Mukherji, head of Asian credit research in Hong Kong, and Ronie Ganguly, portfolio manager in Singapore, wrote in a report today. Pimco, which had $1.94 trillion under management in March, sees opportunities in state-owned enterprises in energy and utilities, as well as Basel III-compliant, Tier 2 issues from Japanese and South Korean banks, they said.
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Pound’s Rally Becoming Burden, Goldman Sachs Says
Lucy Meakin – Bloomberg
Having the past year’s best-performing major currency may become a burden for the U.K. economy, according to Goldman Sachs Group Inc.
After reaching the highest level since 2008 on July 7, a trade-weighted index of the pound fell for a third day today as a report showed shop prices tumbled by the most since at least 2006 in June. A gauge of inflation expectations dropped to a three-month low, adding to signs the strength of the currency may be impair future growth.
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***DA: The U.K. is not playing the competitive devaluation game well.

China to Keep Intervening on Yuan, Finance Minister Says
Bloomberg
China said it can’t stop intervention in the yuan because economic growth is too weak and capital flows aren’t steady enough to warrant changes.
“The U.S. side has repeatedly asked, in terms of exchange-rate policy, whether China needs to intervene any more,” Finance Minister Lou Jiwei said at a press briefing today in Beijing during economic talks between the countries. “But for us, under the current situation, when the economy hasn’t recovered fully and when cross-border capital flows are not completely normal, we’ll continue” existing practices, he said.
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Russia sees nearly $75 billion in capital flight in first six months
Reuters
Russia saw nearly $75 billion in capital flight in the first half of the year as investors and ordinary Russians ditched the rouble en masse following sanctions imposed by the West on Moscow over its involvement in Ukraine.
Data released by the central bank on Wednesday showed $12.3 billion in capital outflow in the second quarter, following $62 billion in the first three months of the year.
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Gold

World Gold Council Forum Discusses Reform Or Replacement Of The Gold Fix
MondoVisione
The World Gold Council, the market development organisation for the gold industry, yesterday convened a roundtable debate to discuss how to modernise the London Gold Fix.
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***DA: It is about time.

Gold Market To Watch Indian Budget For Growth-Oriented Policies, Lower Import Restrictions
Kitco News (via Forbes)
India’s new government is set to unveil its first budget and anticipation is high that the budget will include policies geared to more economic growth and perhaps lower restrictions on gold imports.
Prime Minister Narenda Modi’s Bharatiya Janata Party came to power in May, running on a pro-business platform. Members of the BJP hinted that they would consider lowering import restrictions placed on the gold by the previous administration.
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India may cut gold import duty at budget – industry official
Siddesh Mayenkar and Jan Harvey – Reuters
India is likely to cut its gold import duty to 6 percent from a record 10 percent in Thursday’s budget, leading to a rise in imports in the second half, a senior official at the country’s biggest gold trade group said on Wednesday.
Higher overseas purchases by the world’s No.2 buyer of the precious metal after China should underpin global gold prices that have risen almost 10 percent this year, recovering from a 28 percent plunge in 2013.
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