First Impressions

Addendum to the CME Gold Futures Story
Sarah Rudolph – JLN
The lead story in yesterday’s John Lothian Newsletter was a Reuters report that said CME Group is planning to launch a gold futures contract in Hong Kong by year end. We were a little uncertain about how this would work, since the CME does not have an exchange located in Hong Kong, so we spoke with the CME about it.

According to a CME spokesman, the news was announced by the CME’s managing director of metals products, Harriet Hunnable, during the China Gold Congress this week in Beijing.

The contract will be a kilo gold futures contract. It will be listed on COMEX and physically settled and delivered in Hong Kong at exchange-approved vaults, and it will be tied directly to the price of bullion of 99.99 percent purity in Hong Kong.

Read the rest of the story at John Lothian News =>

Quote of the Day

The market is pricing in more consistent hikes, but still at very low levels, which is why three-year notes are seeing more weakness than two-year notes

Thomas Simons, a government-debt economist in New York at Jefferies LLC, from the Bloomberg story “Sovereign Bonds Head for Two-Week Decline on Fed Policy”

Lead Stories

Sovereign Bonds Head for Two-Week Decline on Fed Policy
Government bonds worldwide headed for their biggest two-week loss in 14 months on speculation the Federal Reserve may delete reference to interest rates staying low for a “considerable time” after it ends bond buying.

Bond markets braced for Scotland impact
Elaine Moore – Financial Times
If the vote for Scottish independence is as close as polls suggest, then western debt markets could be about to see something they have not witnessed for years: new government bonds.

Stock exchange on the cards for independent Scotland
Giles Turner, Financial News
A ‘Yes’ vote at next week’s referendum on Scottish independence could turn speculation about the re-establishment of a stock exchange in the country into a reality.

Scotland can be ‘Singapore’ of Europe: WPP’s Sorrell
An independent Scotland could take marketing lessons from Singapore’s business-friendly, trade-dependent economy, the world’s largest advertising group told CNBC.

***DA: But unless it is golf season, I’ll take the weather in Singapore.

Lehman Brothers to sell $2.5bn in bankruptcy claims
Chelsey Dulaney, The Wall Street Journal
Lehman Brothers said Thursday that it has agreed to sell $2.5 billion in bankruptcy claims that the failed investment bank holds against its US brokerage arm.

Spectre of default looms over Venezuela despite oil reserves
Andres Schipani in Bogotá and John Paul Rathbone in London – Financial Times
Venezuela is struggling to meet its international bond payments, raising the spectre of an Argentine-style default despite the Opec country’s massive oil reserves.

Buy-side braces for glut of new fixed income platforms
John Bakie – The Trade
A new wave of fixed income trading platforms are set to launch in the coming months and, while they are each taking a different approach, all are targeting the buy-side as the key to unlocking liquidity.

Central Banks

The only two words that will matter at the Fed
When the Federal Reserve concludes a two-day meeting next week, traders will focus on two words in its policy statement. Since March, the Fed has promised that it intends to hold rates steady for a “considerable time” after it stops buying bonds, now on track to end in October.

Fed economists: America’s missing workers are not coming back
Washington Post
A paper by Federal Reserve staff that will be discussed at the Brookings Institution on Friday possibly hints at the central bank’s thinking on interest rates and employment in advance of a consequential Fed meeting next week. The findings support hawks on the Federal Open Market Committee, who feel that the Fed needs to prepare to raise rates sooner than expected, although the results are still being debated and might not persuade the committee’s more dovish members.

Bank Moves to Avoid Overseas Swap Rules Watched by U.S. Treasury
Treasury is watching steps banks have taken to remove parent-company guarantees from their overseas affiliates and whether those steps eliminate the U.S. banks’ exposure, the official said yesterday. Banks have been changing operations to trade derivatives with other dealers in the $700 trillion global market in a way that avoids curbs imposed by the Dodd-Frank Act.

ECB’s Liikanen: More stimulus possible if necessary
Despite reports of differing opinions at the heart of the European Central Bank, a senior decision-maker has told CNBC that it stands ready to take further measures and act “unanimously” to tackle a prolonged period of deflation.

Banks to return 5.98 billion euros in crisis loans to ECB next week
Banks will return 5.975 billion euros (4.75 billion pounds) in long-term loans to the European Central Bank next week after it launched another plan to boost the economy on top of a four-year loan programme due to start later this month.

***DA: The LTRO was more ST than we thought.

Ireland’s Early IMF Pay-Off Gets Initial Euro-Area Approval
Euro-area finance ministers reached a provisional deal that would allow Ireland to make an early repayment of International Monetary Fund bailout loans. The 18 national ministers, meeting in Milan today, said an early pay-off of most of the 22.5 billion euros ($29 billion) that the IMF lent Ireland as part of its 2010 rescue would help bolster the country’s recovery.

***DA: A win for austerity. Take that, Dr. Krugman!


Ready or not – currency volatility is back
By Delphine Strauss, FT
Only a few weeks ago, the foreign exchange market was becalmed. With central bank stimulus keeping volatility at record lows for much of the year, volumes in the spot market had slumped, traders were twiddling their thumbs and currency managers struggling to justify their existence.

U.S. Dollar Marks Longest Rally in 17 Years
Wall Street Journal
The U.S. dollar has been climbing for nine weeks, marking its longest rally in 17 years, spurred by expectations that the Federal Reserve could raise interest rates next year, in a divergence from other major central banks that are still in easing mode. The ICE U.S. Dollar Index, which measures the dollar’s strength against six major currencies, hit 84.519 on Friday. The previous nine-week period of gains occurred between December 1996 and February 1997.

ECB’s Coene Welcomes Falling Euro in Stagnation Fight
The European Central Bank welcomes the euro’s decline as it helps spur inflation and boosts the economic recovery, Governing Council member Luc Coene said.

***DA: You betcha!

FxPro To Acquire Spot FX Aggregator Quotix
Marina Daras – WatersTechnology
The agency-model foreign exchange (FX) broker FxPro Group has announced its acquisition of Quotix, the provider of liquidity aggregation and distribution solutions to FX buy-side and sell-side firms, in order to open up to institutional clients and enhances its FX services.

Here’s What the Bank of England Thinks of Bitcoin
Alen Mattich – MoneyBeat – WSJ
Is bitcoin irrelevant to the U.K. economy? Well perhaps the biggest authority on that, the Bank of England, has weighed in on the cryptocurrency today, and its conclusion is basically thus: While bitcoins in circulation in the U.K. pose no threat to the financial system, and perhaps never will, the technology raises interesting possibilities that could one day have ramifications for stocks, other financial products and even physical assets like gold.

Indexes & Index Products

7 Reasons the Tick Pilot Will Hurt Small-Cap Investors
By Dave Cummings, Tabb Forum
The SEC should be applauded for its data-driven approach to very complex market structure issues. But as it currently is proposed, the tick pilot is likely to do more harm than good.

***DA: The founder of BATS weighs in.

S&P Dow Jones Indices says Alibaba could be added to global benchmarks
S&P Dow Jones Indices, which compiles several of the world’s most widely tracked stock benchmarks, said on Friday it had assigned Alibaba Group Holding Ltd (IPO-BABA.N) a China domicile, opening the way for the company to be added to global benchmarks that include Chinese stocks.

U.S.-based stock funds attract $982 mln over week -Lipper
Luciana Lopez – Reuters
Investors in U.S.-based funds added a net $982 million into stock funds in the week ended Sept. 10, data from Thomson Reuters’ Lipper service showed on Thursday.

Xetra/Börse Frankfurt: Two New PowerShares ETFs Launched On Xetra
ETFs Based On Agricultural Companies And FTSE RAFI All-World 3000 Index


Gold stuck near 7-1/2 mth low; set for worst week since May
SINGAPORE, Sept 12- Gold extended losses to trade near a 7-1/ 2 month low on Friday, poised to post its worst week in more than three months as a stronger dollar and easing tensions in Ukraine curbed appetite for safe-haven bullion.

Gold Trading to Begin in FTZ as CME Plans Futures in Hong Kong
Gold trading in the Shanghai free-trade zone will begin at the end of the month, while CME Group Inc. is planning a gold futures contract in Hong Kong, underscoring a push for new price benchmarks in the biggest consuming region as demand moves east.

ICE to offer smaller gold futures delivery in bid to boost volume
By Frank Tang, Reuters
ICE Futures U.S. said on Thursday it will reduce contract size and increase purity in its Mini Gold futures and options, its latest attempt to boost trading volume by appealing to retail investors.

***DA: As colleague John Lothian said in this morning’s newsletter, “Delivery is important to small retail investors. The easier you can make it, the more successful the contract will be.”

London Metal Exchange to Launch Premium Contracts for Metals in 2015; Exchange’s Move Would Allow Market Participants to Protect Themselves From Spikes in Costs
By Ese Erheriene, WSJ
The London Metal Exchange on Thursday said it would launch premium contracts in the second quarter of 2015, which could allow market participants to protect themselves from spikes in costs that arise on top of the cost of the metal.

Tin Smelters in Indonesia Holding Out for Premiums to LME
on the London Metal Exchange … The Jakarta-based exchange … The ICDX is the only exchange in Southeast Asia’s largest economy that’s permitted to trade the refined metal … Tin in London … above…

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