First Impressions

Brand New: LME’s Jones Says Exchange Is Set For Growth, 2 Ways
JohnLothianNews.com

London Metal Exchange had quite a year in 2014.

From its integration into the Hong Kong Exchanges & Clearing, launching its own clearinghouse, and addressing the metals warehousing problems, LME has the pieces in place for expansion. Garry Jones, CEO of the LME spoke with John Lothian News about the exchange’s focus on China and the potential for new products in the coming months.

LME launched its own clearing house last September and has brought its technology in-house, under the HKFE. All of that has added staff to LME, tripling its payroll over the past three years, as well as a new building set to open later in the year.

“There’s two main themes for the LME,” he said. “Our business, given that 40 percent of the world’s metals production and consumption is in China, we’re focused on that as well.”
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Quote of the Day

“The lack of aggressive policy action by the ECB and other governing actors has resulted in stagnation and depression across much of the Eurozone.”

Bridgewater Associates report in the story, ” The World’s Largest Hedge Fund Had a Huge Quarter Betting Against the Euro”.

Lead Stories

Algorithmic traders invade $42 trillion bond futures market
Jonathan Shapiro, Sydney Morning Herald
Secretive “flash boy” operators are using high-frequency and algorithmic trading technology to “jump the queue” in Australia’s $42 trillion interest rate futures market, squeezing out local traders who can’t keep up with their computing speed and power.
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U.S. Dot-Com Bubble Was Nothing Compared to Today’s China Prices
Bloomberg
The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look almost tame by comparison.
The industry is leading gains in China’s $6.9 trillion stock market, sending valuations to an average 220 times reported profits, the most expensive level among global peers. When the Nasdaq Composite Index peaked in March 2000, technology companies in the U.S. had a mean price-to-earnings ratio of 156.
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Why You Should Worry About Your Fund Manager’s Love Life; Study finds that a hedge-fund manager’s returns suffer during marriage and divorce
By SIMON CONSTABLE, WSJ
When managers of hedge funds get divorced or married, it’s bad news for their investors. Their asset returns are likely to suffer. Worse still, the pain could last years.
jlne.ws/1a0Z8nC

Bubble could burst on boom in bank compliance units
Tom Braithwaite, FT
never supposed to be a high-stakes job in finance. For thrills and big pay, the natural choices were investment banking or trading. But that is changing. As the consequences of breaking the rules have increased dramatically, the internal staff policing activities at JPMorgan, Citigroup and elsewhere have become more numerous, better paid and far more in the line of fire.
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BlackRock to Shift Funds to Comply With New Rules; Decision latest sign of how new rules are affecting U.S. money fund universe
BlackRock Inc. said it will close or consolidate some money-market funds and add new features to others—the latest reflection of how new rules are roiling the $2.7 trillion U.S. money-fund universe.
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BlackRock chief Larry Fink warns on strong US dollar
Stephen Foley in New York, FT
The steep rise in the US dollar risks undermining business confidence in the US and sending the country’s economy into a slowdown, the head of the world’s largest asset management firm is warning.
jlne.ws/1afGitm

Wall Street Law Firms Challenge Hedge-Fund Deal Tactic; Lawyers take issue with ‘appraisal arbitrage’ strategy
By LIZ HOFFMAN
A group of large Wall Street law firms have banded together in an unusual bid to clamp down on a popular hedge-fund strategy aimed at squeezing more money from corporate takeovers.
jlne.ws/1IFBOrh

S.E.C. Gains Support From an Unexpected Quarter
Dealbook – NY Times
Judge Jed S. Rakoff of Federal District Court in Manhattan has been a bit of a thorn in the side of the Securities and Exchange Commission, once describing a settlement with Bank of America over faulty disclosure in the Merrill Lynch acquisition “half-baked justice.”
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Eurex eyes summer as LCH launches inflation swaps
Futures & Options World
German exchange group Eurex has underlined its pledge to start clearing inflation swaps in the coming months as its top European rival LCH.Clearnet became the first European firm to start clearing these products on Tuesday.
A spokesperson for the German exchange said Eurex Clearing was sticking by its earlier pledge to start clearing inflation swaps during “summer 2015,” pending regulatory approval. The firm originally planned to launch in Q4 2014.
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Emir clearing rules set for further delays
By Chris Hall and Tim Cave, Financial News
European regulators are unlikely to force central clearing on the swaps market for at least another 12 months, according to industry experts, increasing pressure on the units established by banks since the crisis to handle an expected surge in demand for clearing services.
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Central Banks

Spain Joins Negative Yield Club
MoneyBeat – WSJ
Spain has joined the sub-zero debt club, just.
The Spanish Treasury on Tuesday issued short-term debt yielding a shade under 0%. The EUR725 million ($796 million) in six-month Spanish debt delivers an average yield to investors of -0.002%. Buyers were still keen, placing bids worth five times that amount, according to the Treasury.
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The Great American Invasion Into Europe’s Debt Market Has Begun
Bloomberg
Just when debt-addicted American companies were starting to worry that Federal Reserve Chair Janet Yellen was going to take their proverbial punch bowl away, along came Mario Draghi.
The European Central Bank president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger U.S. corporate-bond market. Borrowing in euros is all the rage these days because it’s about 2 percentage points less expensive to do so.
jlne.ws/1CS01cu

ECB Meets Purchase Target in First Month of Quantitative Easing
Bloomberg
The European Central Bank said it reached its purchase target of 60 billion euros ($65 billion) in the first month of its quantitative-easing program.
The Frankfurt-based institution settled 47.4 billion euros of public-sector purchases in March, and filled the rest of the monthly quota with covered bonds and asset-backed securities. The weighted average maturity of the government debt and supranational bonds bought under the plan was 8.56 years.
jlne.ws/1CRZzen

Fed should not raise rates until late 2016: Kocherlakota
Reuters
Minneapolis Fed President Narayana Kocherlakota on Tuesday laid out a case for waiting until the second half of 2016 to start raising interest rates, and to then raise them gradually to just 2 percent by the end of 2017.
It was the first time the dovish policymaker detailed his preferred path for “late and slow” rate hikes. His remarks afterwards to reporters suggest he is increasingly worried that market expectations for nearer-term rate rises, fueled by comments from many of Kocherlakota’s Fed colleagues, could knock the wind out of the economic recovery.
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Central Banks Moved Further Along Spain’s Yield Curve in QE Push
Bloomberg
Judging by the first month of quantitative-easing in the euro area, national central banks carrying out the bond purchases may be employing different strategies.
The average maturity of 11.7 years for Spanish bond purchases in March was more than two years longer than Italy’s and three years more than Germany’s. Slovenian bonds had the shortest average maturity, at 6.3 years, while securities from the Netherlands, the fifth-largest nation in terms of government-debt purchases, are due in an average 6.7 years.
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Currencies

The World’s Largest Hedge Fund Had a Huge Quarter Betting Against the Euro
Bloomberg
Ray Dalio’s dire view on Europe is paying off.
His Bridgewater Associates, the world’s largest hedge fund, climbed about 14 percent this year through March in one of its strategies, according to a person familiar with the matter. The year-to-date return was fueled by a bet against the euro, said the person, who asked not to be identified because the information is private.
jlne.ws/1CRZEhW

Vexed questions on currency hedging
Financial Times
To hedge or not to hedge? That is not the only question regarding the currency risks that come with investing across borders.
If one gets past the “whether to hedge” question, there is also the “when” and the “how”. Investors in a popular exchange traded fund may not be so much hedged against a rising dollar as leveraged to it, something that could become apparent if the dollar rally runs out of steam.
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Currencies Might Not Need the ETF ‘Hedge’
WSJ
Investors have rushed into currency-hedged ETFs that invest in stocks in developed markets outside the U.S. But is the tactic worth it?
Primarily focused on Japan and the eurozone, investors this year have put $23.5 billion into exchange-traded funds that lock in a current exchange-rate range to protect against dollar depreciation (through the use of “currency forwards”).
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Fast forex moves raise liquidity worries
Roger Blitz and Philip Stafford, FT
For a market that trades a notional average of $5.3tn a day, foreign exchange is currently bedevilled by a perplexing problem: what has happened to market liquidity?
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Denmark Halts Krone Interventions as Speculators Defeated
Bloomberg
Denmark’s central bank halted currency interventions in March after record krone selling beat back speculation it would be forced to abandon its euro peg.
The bank’s foreign currency reserves rose 100 million kroner ($15 million) to 737.1 billion kroner in March, it said on Tuesday. The Copenhagen-based bank said it didn’t need to intervene in March, after selling 275 billion kroner of its own currency in the first two months of the year.
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Erdogan Says Turkey and Iran Should Trade in Local Currencies
Bloomberg
Turkish President Recep Tayyip Erdogan used a meeting in Tehran with his Iranian counterpart Hassan Rouhani to lobby for dropping euros and dollars in favor of bilateral trade in local currencies.
Trade between the two countries “lost momentum” in recent years due to sanctions imposed against the Islamic Republic, Erdogan said at a joint press conference with Rouhani on Tuesday. Total trade volume was $14 billion last year, compared with a targeted level of $30 billion, he said.
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Indexes & Index Products

‘Smart Beta’ Funds Prove Popular, but Investors Don’t Know All the Risks
WSJ
“Smart beta” funds are trying to outsmart your active manager. But individual investors who are drawn to them should also make sure they don’t get outsmarted themselves. These exchange-traded funds and mutual funds, which blur the lines between active and passive management, continue to attract assets. Their angle: By tracking indexes that are based on measures other than market capitalization—such as earnings, book value, dividends or volatility—these smart-beta funds hope to boost returns or cut portfolio risk compared with traditional market-cap-weighted indexes.
jlne.ws/1Ca5qZQ

Inside the Baskets: How ETFs Are Traded; The business gets complicated, which attracts some wizards from the derivatives world
By ARI I. WEINBERG
It’s not brain surgery, but the business of buying and selling exchange-traded funds can get complicated. And that has attracted the brains of some fancy traders to solve the problem.
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Active funds struggle to beat the US market
Financial Review
Nearly anyone with money in the sharemarket since 2009 has benefited from the great bull market run. But compared with the overall market, most actively managed stock mutual funds haven’t performed very well or very consistently.
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Great Index Funds for a Dirt-Cheap Portfolio
US News
Think of the last time you picked mutual funds for your portfolio, either in your 401(k) or a taxable brokerage account. The sheer number of choices probably made your head spin, and you may have simply ended your misery by selecting funds with the highest ratings from Morningstar or another service. But there’s one often-overlooked factor that can have a huge impact on your money: expenses. That’s where index mutual funds shine, offering exceptionally low costs and a convenient way to diversify across asset classes, market capitalizations and global regions.
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Introduction Of EEX Agricultural Index Futures
Mondovisione
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Gold

Why Gold Ownership Continues to Grow in China
OpenMarkets
The attention of the global gold market shifted decidedly eastwards in 2013 when China passed India as the world’s biggest buyer of physical gold after bargain prices sparked a buying spree. Although sales were hit last year by Beijing’s anti-corruption campaign, it does not appear to have dulled the precious metal’s historic appeal to the Chinese as a store of value.
Part of this enthusiasm is down to property and alternative investment products becoming less attractive, which has prompted Chinese households to increase holdings of gold in their portfolio allocation.
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Gold Bust Means Less Mine Spending
Eddie Van Der Walt, Bloomberg
The biggest gold bust in three decades is about to end a six-year expansion in mine output.
From Russia to South Africa to North America, the biggest producers saw profits turn to losses as prices plunged, forcing them to cut spending on mines in half over three years. While bullion output will probably reach a record in 2015, the increase will be the smallest in at least six years, before production drops 1 percent in 2016, according to Barclays Plc.
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Gold – The BOJ Presents An Important Test This Week
Markos Kaminis, Seeking Alpha
Summary
The most important factor for the price of gold over the past year has been the dollar’s appreciation.
Recently, the dollar’s value has been brought into question because of the poor U.S. monthly jobs data for March.
Gold has also benefited from unrest in the Middle East.
But on Wednesday, the BOJ issues monetary policy, and its extreme quantitative and qualitative easing measures are likely to serve as a reminding stabilizer for the dollar and test gold.
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