First Impressions

Sandra Ro, CME Group – Financial Services Disruption: the Rise of Bitcoin and Blockchain

“There is this big debate as to whether bitcoin is a currency or a commodity. I would argue that it is its own category.”

Sandra Ro is a veteran in the world of bitcoin and blockchain, which simply means that she has been following the cryptocurrency and its underlying technology for over two years. In this MarketsWiki Education talk, Ro takes us through the nascent world of digital currencies, from the volatility of bitcoin, to the rise of blockchain technology and massive investments being made by venture capitalists, banks and other strategic investors. According to Ro, the next few decades are going to be exciting.

Watch the video »

Quote of the Day

“It’s crime as a service. They take all the pain out of it.”

Tech criminologist Marc Goodman, in the story, “Hired-gun hacking played key role in JPMorgan, Fidelity breaches”

Lead Stories

Banking may seem down, but it’s not out
Brooke Masters – Financial Times
Things are not looking good for many of the big beasts of finance.
The best known Wall Street banks generally reported bleak earnings last month, and four big UK and European lenders — all with new chief executives — have embarked on strategic reorganisations accompanied by mass lay-offs.

Shadow banking risks shift from US towards China, FSB report says
Don Weinland – South China Morning Post
China, along with Ireland and the United States, drove growth in the world’s unregulated finance industry last year, an industry which topped US$80 trillion in assets, a new report from the Financial Stability Board said.
Global shadow banking, or lending not captured on banks’ balance sheets and therefore lightly regulated, grew by US$1.6 trillion in 2014. Much of that growth originated in trusts and money market funds in China, the report said

Britain sells $20 bln book of ex-Northern Rock loans to Cerberus
Britain has sold 13 billion pounds ($19.78 billion) worth of former Northern Rock loans to private equity firm Cerberus in what it called the largest ever financial asset sale by a European government.

IMF Survey: Emerging Europe Sees Stronger Growth Ahead, but Faces New Risks
International Monetary Fund
The regional outlook for Central, Eastern and Southeastern Europe (CESEE) shows a mixed picture this year, as countries in Central and Eastern Europe (CEE) continue to grow at a solid pace, while Russia and other Commonwealth of Independent States (CIS) are in recession, according to the latest IMF’s Regional Economic Issues report.

John Reed on the problem with big banks
Myles Udland – Business Insider
The good old days are never coming back for big banks.
Writing in The Financial Times on Wednesday, John Reed, former chairman and CEO of Citigroup, argues that the world’s big banks will never return to their precrisis glory days of enjoying the biggest influence and the biggest profits.

Hired-gun hacking played key role in JPMorgan, Fidelity breaches
Jim Finkle and Joseph Menn – Reuters
When U.S. prosecutors this week charged two Israelis and an American fugitive with raking in hundreds of millions of dollars in one of the largest and most complex cases of cyber fraud ever exposed, they also provided an unusual look into the burgeoning industry of criminal hackers for hire.

Ten Ex-Deutsche Bank, Barclays Traders Charged in Euribor Probe
Suzi Ring – Bloomberg
U.K. prosecutors charged 10 former Deutsche Bank AG and Barclays Plc employees with manipulating a benchmark interest rate, including high-profile trader Christian Bittar, with an 11th facing indictment as soon as next week.

****SD: For the official release from the SFO click here

Chinese economy: Capital flight gives policymakers a run for their money
Yoichi Takita – Nikkei Asian Review
For the moment, Chinese authorities’ efforts to calm the equity and currency markets appear to be having their intended effects. Outflows of funds, however, pose a pressing challenge despite the government’s capital controls.
Speculators are winding down positions in anticipation of yuan appreciation. The rich are also scurrying to shift money offshore, likely fearing they could become targets of President Xi Jinping’s anti-graft campaign.

Money Managers Are Stuffed With Corporate Bonds
Tracy Alloway – Bloomberg
Money managers’ allocation to corporate bonds is close to reaching a record, according to fresh survey data.
The latest Stone McCarthy survey of senior money managers showed allocations to corporate debt rose to 35.3 percent this week.

Banks expected to adopt new technologies rather than be overrun
New technology firms are battering all kinds of companies, but banks will remain as financial intermediaries, due to the regulations and duties governments have put on them, says a proponent of the technology behind the bitcoin cryptocurrency.

Chinese lenders eat into foreign banks’ Asian buyout loan business
Prakash Chakravarti and Denny Thomas – Reuters
Faced with slower economic growth and rising bad debts at home, Chinese banks are muscling in on the $9 billion private equity buyout loans business in Asia, using generous terms to grab market share from European and U.S. rivals.

The bond market presents a dire warning for stocks
Stephanie Yang and Alex Rosenberg – CNBC
One side of the market is about to drag down another, according to Oppenheimer’s head of portfolio strategy. And it’s still unclear which side will lose out.
High-yield bonds have taken a tumble this month, with popular tracking ETFs HYG and JNK down almost 3 percent in November, as yields have risen.

Bonds take hit as Fed bets trigger biggest outflow in 1-1/2 years
Marc Jones – Reuters
Bets the Federal Reserve will raise U.S. interest rates for the first time in almost a decade next month saw investors pull out of Treasuries at the fastest rate in 1-1/2 years over the last week, Bank of America Merrill Lynch said on Friday.

Why Social Impact Bonds Still Have Promise
Kenneth A. Dodge – NY Times
The most intriguing innovation of the century in public financing of social services is suddenly at risk of being flushed down the drain.
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“Pay for success” programs, otherwise known as social impact bonds, are a way for government to secure private investment in social programs and to minimize risk because payback with interest to the investor occurs only upon proof that the program achieves successful outcomes. The first Pay for Success contract, for juvenile delinquency diversion at Rikers Island, failed to show success, and the government did not pay investors for the program.

How disruptive technology destroys pensions
John Authers – Financial Times
Rather than argue over whether the world economy is recovering, maybe we should take a different view. It is in transition. Its new state may improve living standards, but it is more uncertain and many will find it harder to navigate.

Japanese government bonds: Smaller pond, bigger whale may tame yields
Misa Hama – Nikkei Asian Review
Japan’s government debt market looks to tighten next fiscal year, with the Bank of Japan stepping up bond buying even as Tokyo cuts back on total issues.
The yield on newly issued 10-year Japanese government bonds hit 0.34% at one point Monday, the highest level since Oct. 1. Improved U.S. employment data released Friday heightened expectations that the Federal Reserve will hike interest rates in December, boosting yields both in the U.S. and Japan.

Beyond Banking: Lenders face mortgages challenge from P2Ps
Martin Arnold – Financial Times
House-hunters will soon be arranging more mortgages through online peer-to-peer platforms as the new breed of marketplace lender branches out from unsecured consumer credit into areas such as car and home loans.

Beyond Banking: traditional talent pool dries up for hedge funds
Miles Johnson – Financial Times
Hedge funds are drastically rethinking the way they recruit new employees as a decade-long production line of trading talent from investment banks has ground to a halt.
Some of the world’s biggest hedge funds, including Man GLG, Brevan Howard and Tudor Investment Corporation, have been forced to design new training programmes because they can no longer count on attracting seasoned traders from Wall Street and the City of London.

China banks face instability on shake-up of funding base
Don Weinland – South China Morning Post
In the drive to bailout-proof the banking system for taxpayers, global regulators could usher in new instability to China’s banking sector by pushing them to diversify their funding bases, experts say.

Hedge funds boost campaign to keep Britain in the EU
Harriet Agnew and George Parker – Financial Times
Two high-profile London hedge fund managers are to pump millions of pounds into the campaign to keep Britain in the EU, in a move which will come as a relief to David Cameron.
Mr Cameron had feared that hedge fund managers, frustrated by attempts by Brussels to regulate the sector, would give the Brexit campaign a vital cash advantage in the forthcoming EU referendum.

Central Banks

O?ps, the Fed did it again
Sol Palha – Futures Magazine
Is the Fed playing mind games with the masses or is it simply another version of Britney Spears’ hit song “Oops I did it again”? Only this time they did not do it. They keep mouthing off that they are ready to raise rates and then suddenly just before the moment to pull the trigger draws near, then some unforeseeable event springs up, and they kick the can down the road again. When this happens, two questions come to mind.

Historical Echoes: The Fed’s Ties to the Barbie Doll
Amy Farber – Liberty Street Economics
Which of the following statements is true (you may choose more than one): (a) you are more likely to get a job at the Fed if you look like a Barbie doll, (b) you are less likely to get a job at the Fed if you look like a Barbie doll, (c) the inventor of the Barbie doll sat on the Board of Directors of a Federal Reserve Bank, (d) a key cleaner/restorer of the Federal Reserve Bank of New York building has strong ties to Architect Barbie, (e) a Federal Reserve Bank has used Barbie in its economic education program.

Deutsche Bank: A Bloated Fed Balance Sheet Threatens to Speed Up Rate Hikes
The Federal Reserve has chosen to start the process of raising interest rates before shrinking its balance sheet.
According to economists at Deutsche Bank, that decision may force Fed Chair Janet Yellen to raise rates faster than the market expects in order to damp down the U.S. economy’s momentum.

ECB’s Weidmann says doesn’t see imminent risk of deflation
The euro zone does not face the imminent threat of falling into the dangerous downward spiral of prices known as deflation, ECB governing council member Jens Weidmann said on Thursday.

Slower-Than-Expected Euro Zone Growth Likely to Prompt More E.C.B. Stimulus
Reuters – NY Times
Euro zone economic growth was slower than expected in the third quarter, preliminary data showed on Friday, increasing market expectations that the European Central Bank will step up its monetary stimulus to the economy next month.

Will the Fed Miss Its Rate-Hike ‘Window’?
Adam Warner – Schaeffer’s Research
Newsflash: It’s been a somewhat ugly week for stocks so far. The most logical cause is that after six weeks of rallying, it’s not beyond the realm of possibility that we just naturally pause a bit. I mean, we’re not exactly talking a crash here — unless 3% is now a crash.

Fed’s Mester says time for rate hike is ‘quickly approaching’
Greg Robb – MarketWatch
The U.S. economy can handle a rate hike, said Cleveland Fed president Loretta Mester, on Friday.


Mind the Gap as Currency Markets Shrivel for All But Biggest Few
Candice Zachariahs, Anchalee Worrachate and Lananh Nguyen – Bloomberg
Even the world’s biggest financial market can’t escape the global liquidity drought.
Currency traders accustomed to shifting billions of dollars around the globe are starting to suffer as dealers retrench. Investors facing higher costs in this environment could rein them in with strategies that include splitting trades into several tranches, timing transactions to match peak turnover and avoiding a change of position too close to big events, according to money managers at Pioneer Investments and Macro Currency Group.

FRB: Speech with Slideshow–Fischer, The Transmission of Exchange Rate Changes to Output and Inflation–November 12, 2015
Federal Reserve
My discussion tonight will focus on a key transmission channel in an open economy–the exchange rate. The exchange rate is a primary focus of central bankers in small open economies as well as a prime concern of the broader public in those economies–and, to a lesser extent, in even the largest of economies. When I was governor of the Bank of Israel prior to joining the Federal Reserve, my markets screen was continuously open at a chart of the exchange rate of the shekel against the dollar. For small open economies, the exchange rate may well matter as much for output and inflation as do interest rates.

FX industry divided on randomization
Paul Golden – Euromoney Magazine
Randomization continues to divide opinion, with proponents’ claims of reduced latency arbitrage set against concerns over reduced certainty of execution and wider spreads.
In a market obsessed with technology, it seems incongruous to discuss the merits of introducing artificial pauses into the order process.
That continues to be the view of those who describe randomization as a gimmick that creates the illusion of a level playing field while masking a platform’s technological deficiencies.

Euro crunch time again for Swiss National Bank
Max McKegg –
For many FX traders, January 15, 2015 is “a date that will live in infamy” – the shock announcement by the Swiss National Bank that they were abandoning the EURCHF peg. With the benefit of hindsight, we now know that the Swiss were forced to back down because the macho policy of standing in the market to buy an unlimited amount of EUR in exchange for CHF finally caught up with them.

100 banks have approached us: Bitcoin firm CEO
Luke Graham – CNBC
At least 100 banks have approached a bitcoin wallet provider about integrating the nascent transaction technology into their systems, according to the company’s CEO.
Peter Smith, head of a company called Blockchain, thinks these banks could benefit from the technology used by the digital currency.
Bitcoin is a virtual currency that allows users to exchange online credits for goods and services. However, many see the real worth of the cryptocurrency being the technology behind the coin.

UBS Chairman: Bitcoin Currency Will Fail, Has No Lender of Last Resort
Leon Pick – Finance Magnates
The chairman of UBS, Axel Weber, believes that Bitcoin’s prospects as a currency are bleak, but its blockchain holds promise.

Indexes & Index Products

ETF Assets Seen Doubling by 2019
Ursula Marchioni, chief strategist, Europe, Middle East and Africa at BlackRock said assets under management in exchange-traded funds will double both globally and in Europe by 2019.
Speaking on an ETF panel at the Lipper Alpha Expert Forum in London today, Marchioni said BlackRock is very positive on growth prospects in the ETF market.

NYSE Aims to Flag ‘Aberrant’ ETF Prices
Leslie Josephs – WSJ
The New York Stock Exchange has proposed to regulators guidelines for it to flag “aberrant” trades in exchange-traded products, the Securities and Exchange Commission said Thursday.
“The Exchange believes that the derivatively priced nature of ETPs necessitates the use of a different, and generally broader, set of circumstances to determine that trades are ‘aberrant,'” it said in its proposal to the SEC, which the SEC said in its Thursday posting was filed on Oct. 28.
Exchange-traded funds have been drawing scrutiny at the SEC, which has intensified following a wild trading session on Aug. 24 when several products traded at steep discounts to their underlying holdings.

Sirens Are Sounding for the Best ETF Trade Ever
Eric Balchunas – Bloomberg
Here we go again. Interest in the most popular exchange-traded fund that’s used to bet on increasing U.S. interest rates is rising again as investors speculate that the Federal Reserve may embark, as early as next month, on its first hiking cycle in almost a decade.

First India bond ETF, bond index to launch in London
Two investment management firms on Thursday announced plans for an exchange-traded fund (ETF) dedicated to the debt of Indian state-run companies, that they said would be the first such vehicle in the world. The ETF, to be listed on the London Stock Exchange and launched to coincide with Indian Prime Minister Narendra Modi’s visit to Britain, is being launched by British firm Sun Global Investments and Indian firm Zyfin Funds.


Low gold prices spur Q3 bargain hunting demand in US, China, India
Huileng Tan – CNBC
Low gold prices in the third quarter attracted bargain hunters the world over, with U.S. buyers grabbing far more coins and bars than they did in any other quarter over the past five years.

Russia boxed into a corner on gold gambit
Nadia Kazakova –
Over the last three weeks (to November 6), Russia’s FX reserves were down $11.2 billion to $366 billion. From April to around mid-October, the size of the reserves did not change too much, bobbing up and down in a $350-377 billion range.
There seems to be little correlation between weekly reserves and the USD:RUB rate through 2015 (unlike last year, when the weekly reserves led the FX rate by around six weeks). Yet, the weekly reserves stats can give an early signal for the direction and, possibly, turning points for the Russian currency.

Duty relief pushes unrefined gold imports
Dilip Kumar Jha – Business Standard News
In a significant shift in the nature of bullion import into India, dore (unrefined gold) was nearly a fourth of overall inward shipments in the June – September quarter. Data compiled by the World Gold Council (WGC), market development body for the sector’s mining industry, showed India’s overall gold import at 300.6 tonnes in the quarter, of which dore was 66.1 tonnes, the highest ever. In the same period a year before, import of dore was 11.8 tonnes of the total bullion import of 242.6 tonnes. Dore import this July – September was nearly a fourth higher than its total (50 tonnes) for all of calendar year 2014.

Discovery wants to show opening of buried Nazi gold train (IF it exists)
Entertainment Weekly
Discovery Channel has jumped into one of the most intriguing potential historical findings in years: an armored booby-trapped Nazi gold train buried in Poland — that may or may not actually exist.


Is Wall Street Beneath Business Students’ Standards?
Peter Coy – Bloomberg
Business school deans say some students who consider themselves “highly ethical” are avoiding careers in finance because they consider the field beneath their standards.

Half of Russia’s Richest People Are Planning to Cash Out
Alexander Sazonov – Bloomberg
It’s been a quarter century since the fall of the Soviet empire triggered one of history’s greatest wealth transfers. Now bankers are preparing for another as Russia’s first generation of capitalists makes way for the next.

The fatal flaw in the case for Brexit
Philip Stephens – Financial Times
What do you mean by “out”? It seems reasonable to ask those who want Britain to leave the EU just how impenetrable the subsequent fog would be in the English Channel. Would Britain stay in the single market or cut loose entirely? The question goes unanswered. The Vote Leave campaign has turned this silence into an article of faith. A sceptic, in the true sense of the word, might think they had something to hide.

Chicago Skyway operator sold for $2.8 billion
Crain’s Chicago Business
Three of Canada’s largest pension plans have agreed to buy Chicago toll-road operator Skyway Concession Co. for $2.8 billion from a group led by Spain’s Ferrovial SA.
The Skyway is a 7.8-mile toll road connecting the Dan Ryan Expressway to the Indiana Tollway. The Chicago Skyway Concession was awarded to Ferrovial and its partners for $1.83 billion in 2005, the first privatization of a highway in the U.S.

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