First Impressions

Birthday Bits
By John J. Lothian

Today is my birthday. Number 54. In honor of my birthday and the many gifts I have received over the years I renewed my membership in the 100 Club, the civilian organization that provides for the families of first responders who have lost their lives in the line of duty in Chicago. My friend and mentor Thomas J. Cashman is chairman of the organization.

I am ever in debt to Tom for helping me launch my career in this great industry. I am also greatly in debt to him, and to my parents, for setting a great example of giving back to the community. Tom was and still is always involved in the community, giving his time, talents and treasure. The list of his contributions is too long to list.

It was a powerful lesson to learn while working for Tom and knowing him these many years.

One of the reasons I started this newsletter was that I wanted Tom and other exchange members and industry personnel to see the powerful megatrend, electronic trading, that was going to change their lives and livelihoods.

With the impending closing of the futures pits, a chapter will be ending on that megatrend.

One of the lessons I learned from Tom was helping people — helping them come into the industry, stay in the industry and just helping them in general. It was a lesson Tom learned from his uncles, especially the quietly generous Gene Cashman.

Our MarketsWiki Education effort comes from the spirit that Tom gave me to help young people come into this industry and prosper.

I have been given many gifts over the years, tangible and intangible. I shall be ever grateful for the lessons and gifts of education, wisdom and integrity that I received from Tom Cashman.

Quote of the Day

A modest early negative impact…

Bank of Canada governor Stephen Poloz on the economic impact of the fall in energy prices, as quoted in the Toronto Star article “Bank of Canada holds interest rate at 0.75% “

Lead Stories

Bank of Canada holds interest rate at 0.75%
Toronto Star
The Bank of Canada, which surprised investors and borrowers with an unexpected move to reduce borrowing costs in January, held its trend-setting overnight interest rate steady at 0.75 per cent.

U.K. Wins Court Case With ECB on Euro Clearing; ECB policy requiring U.K. companies managing trades in euros to relocate to the eurozone will be annulled
By Viktoria Dendrinoum, WSJ
A European Central Bank policy requiring British companies managing trades in euros to relocate to the eurozone will be annulled, Europe’s second-highest court ruled Wednesday, marking a victory for the U.K. government which had argued such a move was against European law and would push business away from London’s financial center.

Euro zone rebuffs Spanish talk of new Greek bailout
Germany and the European Commission slapped down talk of a third financial rescue for Greece as premature, after Spain once again suggested on Wednesday that a new aid package for Athens was almost inevitable.

Live Tour: The Federal Reserve’s 2009 Transcripts – Real Time Economics
Join us as we dig into full transcripts released by the Federal Reserve today of its Federal Open Market Committee meetings in 2009, a busy year, indeed. As the economy turned a corner, who got it right and who got it really wrong? Who was worried about inflation and who was eager to raise rates? What was the debate about launching quantitative easing? And what made policy makers laugh?

5 Points to Watch During the ECB’s March Meeting
Mario Draghi started 2015 with a bang by unveiling a EUR1 trillion ($1.1 trillion)-plus asset purchase program, mostly government bonds, at the European Central Bank’s first meeting on Jan. 22. Act Two won’t be quite as dramatic, and no new stimulus measures are expected. But the ECB’s second policy meeting of the year, on Thursday in Cyprus, will be significant nonetheless as investors await operational details of the bond purchase program, known as quantitative easing.

PBOC Seen Cutting Again as China’s Economy Slows, Survey Shows
Bloomberg Business
The People’s Bank of China will cut benchmark deposit and lending rates again next quarter as the economy slows, according to economists surveyed by Bloomberg.

The median forecast is for a deposit rate of 2.25 percent and a lending rate of 5.10 percent in the April to June period, the survey of analysts from March 2 to March 3 showed. That’s 25 basis points lower on both from the previous survey.

***DA: Deflation leaves its mark.

Business activity lifted in February as central banks loosen up
Global business activity picked up last month just as many central banks around the world loosen monetary policy further to try and drive up stubbornly low inflation and revive moribund economies.

Central Banks

Fed examiners free to flag problems at banks: Yellen
Federal Reserve Chairwoman Janet Yellen said Fed staff should “feel safe” to speak up about problems they uncover at the nation’s biggest banks and not fear upsetting any relationship between the U.S. central bank and the industry.

***DA: In theory, yes. In practice, not so much. Whistleblowers still must wear a scarlet letter.

El-Erian Warns of QE Market Distortion as Italy’s Bonds Advance
by Lucy Meakin, Bloomberg
Italy’s government bonds halted a two-day decline as Allianz SE chief economic adviser Mohamed El-Erian said the European Central Bank’s planned debt-buying program is causing market distortions.

The BoJ is stretching its inflation target to breaking point
Central bankers are normally keen adherents to the golden rule of forecasting: give them a target, or give them a date, but never give them both. The US Federal Reserve aims to hit its goal of 2 per cent inflation “over the longer run”; the Reserve Bank of Australia tries to hit its target “on average, over the cycle”.

Pension funds overpower Kuroda’s misfiring bazooka
Haruhiko Kuroda may soon be sending his bazooka for repairs. On the surface, at least, the Bank of Japan governor’s best efforts to revive the economy appear to be missing their target. Inflation is rapidly trending back down towards zero, while the economy barely squeaked out of recession in the fourth quarter. So why are Japanese stocks trading at a 15-year high?

***DA: A question I have been asking for the past year.

Update: India Central Bank Surprises Again, Slashes Rate
The Reserve Bank of India unexpectedly reduced its repo rate by 25 basis points to 7.50%. The move follows Saturday’s unveiling of India’s new budget designed to boost infrastructure growth. But the Central Bank said disinflation is evolving at a faster pace than previously envisaged

Grand Central: U.K. and U.S. Lawmakers Pressing for More Central Bank Accountability
The Federal Reserve isn’t the only central bank receiving lawmakers’ attention these days. Bank of England Gov. Mark Carney was back in front of the U.K. parliament’s treasury committee Tuesday to be quizzed on last year’s probe into whether central bank officials knew anything about attempts to manipulate foreign-exchange markets.

Poland’s Central Bank Slashes Rates to Combat Deflation Risk
Poland’s central bank slashed its main interest rate by 50 basis points to 1.50%, the lowest on record, in response to persistent declines in consumer prices. However, the bank said the cut, which was bigger than expected, was the last in its current easing cycle, as the Polish economy continues to grow briskly.


The strong dollar: Your enemy or friend?
Next to the collapse in the price of oil, the macroeconomic event of the year is clearly the return of King Dollar. The U.S. dollar, measured against the Euro, has reached 12-year highs of late, rising more than 19% over the past year.

Germany benefits from weak euro policies it deplores
USA Today
On the outskirts of Berlin, a small factory cranks out tiny medical probes that delve into the farthest reaches of the human body. At a time when global demand from hospitals is booming, the mood at medical technologies firm Fiagon is buoyant.

Denmark Intervenes in Currency Market in a Big Way; Central bank moves to protect the krone’s peg against the euro
By Brian Blackstone And Emese Bartha, WSJ
Denmark’s central bank bought a record amount of foreign currency last month in a bid to protect the krone’s peg to the euro, underscoring the fallout from the European Central Bank’s efforts to boost economic growth.

Cryptocurrency Technology Set to Shake Up Correspondent Banking
American Banker
If banks can’t beat cryptocurrencies, they might as well join them. That seemed to be the consensus at a Tuesday panel on correspondent banking sponsored by The Society for Worldwide Interbank Financial Telecommunication.

Chinese central bank rules out sharp fall of yuan
Business Standard News
The Chinese central bank has ruled out a sharp drop in the Chinese currency — the renminbi or yuan — despite pressure from the US dollar, according to media reports. Deputy Governor of the People’s Bank of China, Yi Gang, said the yuan would remain stable, though with the Chinese central bank cutting interest rates, the market had been betting on the Chinese currency to weaken further, the People’s Daily reported on Wednesday.

Are the Nikkei and the yen divorcing?
The long-standing inverse correlation between the yen and Japanese stock prices has broken down, suggesting the Nikkei could rise even if the Japanese currency doesn’t weaken further, analysts say.

Brazil real weakens to 3 per dollar for 1st time in over 10 years
The Brazilian real weakened sharply on Wednesday, hitting the level of 3 per dollar for the first time in over 10 years, after President Dilma Rousseff’s austerity plan suffered a major setback in Congress.

Indexes & Index Products

Vanguard’s march to Europe tracks ECB’s quantitative easing
Vanguard, one of the world’s largest providers of passive investment products such as index-tracking funds, has been a big and powerful presence in the US mutual fund market for years. Now the group plans to steal a march on Europe.

Pension Funds Trail Individuals in Embracing Index Funds
More individuals are pouring money into so-called passive investing or index funds, which aim to match the performance of the main stock and bond markets, but larger institutions like pension funds and endowments have been slower to follow suit, despite the potential for higher returns and lower fees.

Should 401(k) plans include index funds only?
Employee Benefit News
Commentary: Is it a good idea to remove all of the actively managed funds from your 401(k) plan? Why would a plan sponsor do that? A number of large plan sponsors have dumped all of their actively managed funds

Why The Corporate Bond ETF Market Is Growing So Quickly
by Tom Lydon, ETF Trends
As the corporate-debt market becomes increasingly illiquid, institutional investors have piled into fund options, contributing to a rapid growth spurt in bond-related exchange traded funds.

IPOs Struggling, but IPO ETF Endures
ETF Trends
On Monday, Bespoke Investment Group posted a glance of the Bloomberg IPO Index, which due to being a cap-weighted index has an excessive weight to Alibaba and as such has been drubbed this year. But as Bespoke notes, Alibaba is far from the only offender in the Bloomberg IPO Index.


American Eagle Gold Bullion Sales Plunge in February Following Weak 2014 Sales
Gold and Silver Blog
The US Mint’s February sales report for American Eagle gold bullion coins revealed slow sales in February continuing the weak sales trend set in 2014

Currency Turmoil Make Precious Metals Ownership a Necessity
The first two months of 2015 have seen turmoil in the currency markets extend from Russia and Ukraine to the heart of Europe. “Central Banks Now Open 24/7 Fighting Currency Wars and Deflation,” blared a February 12th Bloomberg headline. Against this backdrop, precious metals have been on the rise in terms of all currencies except the Swiss franc and the U.S dollar.

Gold price languishes after Indian surprise
The Week UK
The gold price has been languishing since India confounded expectations that it would reduce an import duty on gold, thereby helping to to boost demand, the Wall Street Journal says. India is the largest consumer of gold in the world.

Monetising gold looks easier said than done
The Times of India
Finance minister Arun Jaitley has listed grand plans to monetize idle gold lying in households across the country and bring it out for circulation to reduce imports of gold, but several hurdles need to be ironed out before the scheme takes off. The scheme will allow depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account, and this enable banks to monetize this gold. Jewellers and industry sources say that it is a good scheme and fairly easy to implement, provided the government devises a scheme free from ambiguities.

Gold market open to wide-ranging OTC trade reform: LBMA
The London Bullion Market Association (LBMA) believes the gold industry is ready for wholesale reform, including a tailor-made mechanism to report daily turnover and potential clearing following 2014’s shake-up of benchmarks. The transparency of financial markets has been a focus of global regulators after evidence of price manipulation in lending rates between banks with the LIBOR scandal in 2012.

Barclays gives information to U.S. precious metals probe
Shanghai Metals Market
Barclays has been providing information to an investigation into precious metals by the U.S. Department of Justice (DoJ), the bank said in its 2014 annual report on Tuesday, a week after a similar statement by HSBC. The DoJ and the Commodity Futures Trading Commission are investigating at least 10 banks for possible rigging of precious metals markets, the Wall Street Journal reported last week, citing people close to the inquiries.



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