First Impressions

Speedy Delivery: Keith Ross

Today’s financial markets can be summed up in three words – global, fast, and complex. But as the market structure evolves, so must the regulatory structure that oversees it. John Lothian News has spoken with several industry experts to create this series on the evolution of financial market structure.

In Part 3, Keith Ross, CEO of PDQ ATS offers his thoughts on HFT, Regulation NMS, maker-taker arrangements, and dark pools, and voices his concerns that regulatory oversight may give way to legislative overreach.

Watch the video »

Quote of the Day

Inflation remains uncomfortably low while the recovery is still fragile.

Frederic Pretet, researcher at ScotiaBank, as quoted in the Bloomberg story “New Draghi Era Seen on Hold at ECB as Euro Area Recovers.”

Lead Stories

Algorithmic trading set to transform the bond market
Peter Lee – Euromoney magazine
Intermediating the bond markets is shifting from a principal risk-taking business for banks to a brokerage business. At a time when the IMF is warning of bond market illiquidity, innovative solutions are springing up. In the high-volume government bond markets, trade-execution algorithms will be new drivers of efficiency. In the corporate bond markets, new systems will drive efficient internalizing of orders and matching across networks of dealers.
***DA: Because the equity market structure is so fantastic we should duplicate it in the bond market?

World Economy Stabilizes in Great Moderation 2.0
Simon Kennedy and Ilan Kolet – Bloomberg
The global economy is rebooting for “Great Moderation 2.0.”
Barely five years after the worst financial turmoil and recession since the Great Depression, the U.S. and fellow advanced nations are showing a stability in output growth and hiring last witnessed in the two decades prior to the crisis, in an era dubbed the “Great Moderation.” The lull points to a worldwide economic expansion that will endure longer than most.

Corporate bond market goes back to broking
Peter Lee – Euromoney magazine
Salesmen hold the key to improving liquidity in corporate bonds. They just need to capture the network effect.

Some Investors Bet on Return to Reverse Mortgages
Some private investors are betting that reverse mortgages, an investment product aimed at older people in need of cash, will make a resurgence as more homeowners reach retirement age in the coming years.
***DA: Good news for aging b-list actors who may wish to join Henry Winkler, Robert Wagner and Sen. Fred Thompson as pitchmen.

Investor dash for trash feeds M&A surge
Ralph Atkins in London –
Long-term impact will depend how bond market finance is used

A Note of Caution in Greek Banks’ Seeming Recovery
Greek banks, once seen as the most dangerous investment in the euro zone, have been on a tear of late. But amid the euphoria, some analysts have expressed caution.
***DA: The country is still a mess, with unemployment hovering around 28 percent, and well over 50 percent for those under age 25. Hard to get a strong banking sector amid such economic turmoil.

Santander Markets $1.5 Billion of CoCos to Meet Capital Rule
John Glover – Bloomberg
Banco Santander SA (SAN) is selling $1.5 billion of contingent convertible notes to comply with new capital regulations, in its first sale of the riskiest bank debt in the U.S. currency.
Spain’s biggest bank will price the additional Tier 1 notes to yield 6.375 percent, according to a person with knowledge of the matter, who asked not to be identified because they’re not authorized to speak about it.

The China over-invoicing export distortion is back (sort of)
Izabella Kaminska | FT Alphaville
Let’s face it. Chinese national statistics are to some degree always treated with a pinch of salt by analysts and economists alike. That said, there’a s big difference between massaging subjective inputs in statistical methodologies and failing to adjust for misleading economic activity driven by actual economic behaviour.

Easing with Chinese characteristics
David Keohane | FT Alphaville
Even when a western government eases policy, the methods and transmission mechanisms involved aren’t that well understood. We’ll grant that things are even fiddlier in China.

Central Banks

Bank of England sticks with low rates even as recovery builds
The Bank of England kept interest rates at a record low on Thursday, despite signs that Britain’s economic recovery is picking up more speed and that house prices are rising strongly.
***DA: The world’s central banks have decided that low rates are to be upheld regardless. Housing and risk asset price inflation is collateral damage.

Draghi Ready to Cut Rates in June as Euro Hurts Outlook
Stefan Riecher – Bloomberg
European Central Bank President Mario Draghi signaled that officials are ready to cut interest rates next month if needed and stepped up his expressions of concern about the euro’s exchange rate.
***DA: In fact, in some places, they are not even done cutting.

New Draghi Era Seen on Hold at ECB as Euro Area Recovers
Stefan Riecher – Bloomberg
Mario Draghi probably won’t embark on a new era for monetary policy just yet.
One year after the European Central Bank president said he could impose a negative deposit rate and a month after saying policy makers are willing to use measures such as quantitative easing, some officials have indicated they want more time to gauge the recovery. Banks from Scotiabank to Morgan Stanley say that while today’s interest-rate decision may be a close call, the 24-member Governing Council will opt not to act.

The four big economic messages from Yellen’s Congressional testimony
Washington Post
In her testimony before the congressional Joint Economic Committee on Wednesday, Federal Reserve Chair Janet Yellen reiterated that the recovery is on track but that it will still require substantial support from the Fed for some time.

Yellen Won’t Be Pinned Down on Plans
Janet L. Yellen, the Federal Reserve chairwoman, told Congress on Wednesday that the economy was growing at a decent rate and that the Fed intended to continue the stimulus campaign that it considered at least partly responsible.

ECB likely to keep rates on hold at 0.25%
Claire Jones in Brussels and Hugh Carnegy in Paris –
Increasing signs that the eurozone economic recovery is broadening have reduced the already slim chances of an interest-rate cut by the European Central Bank on Thursday.


Euro Drops From 2 1/2-Year High as Draghi Hints at June Action
David Goodman and Anchalee Worrachate – Bloomberg
The euro weakened from a 2 1/2-year high against the dollar as European Central Bank President Mario Draghi said policy makers were comfortable with taking additional policy action in June if needed.
The common currency dropped versus all except two of its 16 major counterparts as his comments raised the prospect of additional stimulus that tends to weaken foreign exchange rates. Australia’s dollar strengthened to a three-week high after employers boosted payrolls and Chinese trade data improved.

Rising Oil Prices Aren’t Lifting the Canadian Dollar
MoneyBeat – WSJ
A weak Canadian dollar is boosting profits for Canada’s oil companies, but a booming energy sector isn’t doing much to help the country’s currency.

Two more Chinese banks to close bitcoin trading accounts
China Guangfa Bank and Shanghai Pudong Development Bank Co Ltd said they had banned their customers from using bank accounts for trading bitcoins, the latest blow to the virtual currency trading business in China.

Banks ‘killing’ bitcoin communities, expert warns
Jessica Meek –
Bitcoin and crypto-currency communities are being “killed” by banks not allowing them to open accounts, one legal expert has warned.


MSCI May Semi-Annual Index Review Announcement Scheduled for May 14, 2014
Press Release (Businesswire)
MSCI Inc. (NYSE:MSCI), a leading provider of investment decision support tools worldwide, including indexes, portfolio risk and performance analytics and ESG data and research, will announce the results of the May 2014 Semi-Annual Index Review for the MSCI Equity Indexes – including the MSCI Global Standard, MSCI Global Small Cap and MSCI Micro Cap Indexes, the MSCI Global Value and Growth Indexes, the MSCI Frontier Markets and MSCI Frontier Markets Small Cap Indexes, the MSCI Global Islamic and MSCI Global Islamic Small Cap Indexes, the MSCI Pan-Euro and MSCI Euro Indexes, the MSCI US Equity Indexes, the MSCI US REIT Index, and the MSCI China A Indexes. All changes will be made as of the close of May 30, 2014.

Strategic European equities ETFs outperform, lure U.S. investors
Exchange-traded funds that choose stocks based on alternative growth, momentum and value factors are winning U.S. investors in the European equities market as they outperform the traditional market-capitalization weighted indexes.

BlackRock ETP Landscape: Record April With $33.5bn Inflows
ETP flows exceed $30bn in record April as economic outlook stabilizes after a volatile first quarter.


U.S. Economy Driving Gold Market, While Ukraine Takes a Back Seat
Ira Iosebashvili – MoneyBeat – WSJ
Market watchers have pointed to an escalation of violence in Ukraine as the reason behind gold’s recent swing higher, but a more likely cause may be closer to home.

Gold slides after Putin’s conciliatory Ukraine remarks
Thomas Hale –
Gold fell after Russian President Vladimir Putin said he was ready to discuss a solution to the crisis in Ukraine and urged separatists to postpone a planned referendum.

Fugitive in Florida’s biggest gold heist captured in Belize
Neda Farshbaf – CNN
When immigration agents in Belize spotted a man crawling through the bushes near its border with Guatemala, they not only stopped someone trying to illegally enter their country — they also captured an international fugitive suspected of pulling off the biggest gold heist in Florida history.

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