First Impressions

Bits & Pieces
Doug Ashburn, JLN

First, a MarketsWiki Education update: today we are releasing a video that got the highest marks from the interns, college students and young professionals who attended the New York event in mid-July. The old NYSE dining room turned into a quiz show for the 15 minutes, with former Goldman Sachs director Chris White as the emcee. He says many young people, afraid of asking a “stupid question,” miss out on some of the financial basics. Have a look below and test your financial literacy.

The plans for our London event are progressing nicely, and we expect to announce everything by the end of the week. We are 90-something percent sure we have a venue in the heart of the City’s financial district, and we have secured most of our speakers for the events, which will be held on the afternoons of October 14th and 15th. As soon as the ink dries on the plans and contracts, we will make the big announcement and then start pounding the pavement for attendees.

We had a staffing change a couple weeks ago, right in the middle of our education event in Chicago, and the announcement of said change sort of got lost in the shuffle. Nancy Ashburn has joined John J. Lothian & Co. as director of finance and administration. She began working for us part-time as an independent consultant back in 2013, when John was in the midst of back-to-back-to-back surgeries. She officially joined the firm at the beginning of August and, in addition to her accounting duties, she now coordinates all of our events and keeps things organized.

Paul-André Jacot update: We are awaiting the official tribute of Paul-André Jacot from the SFOA. Perhaps tomorrow we will have it.

Quote of the Day

“I would hope to get an indication of how many people would be close to expecting a rate hike. If you get a sentence like ‘Many members felt that the time to raise rates was near’ or something like that, that would be a very good indication.”

Roberto Perli, a partner at Cornerstone Macro LLC in the story, “FOMC Minutes Guide: From China to September Rate-Liftoff Outlook”

Lead Stories

Banks braced for billions in civil claims over forex rate rigging
Emma Dunkley and Lindsay Fortado, FT
Global banks are facing billions of pounds-worth of civil claims in London and Asia over the rigging of currency markets, following a landmark legal settlement in New York.
jlne.ws/1hlbSdf

China’s Richest Traders Flee Stocks as the Masses Pile In
Bloomberg
Two months into China’s stock rout, the dynamics of the declines are becoming clearer: The wealthiest investors have been the quickest to bail out of the market.
The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June.
jlne.ws/1PkMHSq

High-speed trading firm beats back allegations of manipulation
By LYNNE MAREK, Crain’s Chicago Business
Chicago high-speed trading firm Allston Trading has rid itself of two complaints against its trading practices: a federal case and a private arbitration case lodged against it. Allston, led by CEO Carlton Jones, is fending off complaints about its trading practices after a report earlier this year that the industry’s overseer, the Commodity Futures Trading Commission, was investigating Allston over alleged market manipulation.
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China’s Turbulent Markets Keep Investors Guessing
Dealbook – NY Times
As China’s once-staid currency suddenly dropped sharply last week, Wall Street began sniffing around for a way to profit.
A trader on Goldman Sachs’s Hong Kong trading desk sent out a memo to hedge fund clients highlighting one opportunity: Taking advantage of a price difference between China’s onshore renminbi and its offshore version. The currency is not freely tradable, and it was trading in Hong Kong as much as 1.5 percent lower than in China.
That is “assuming you can move money between Hong Kong and the mainland,” the trader wrote, referring to China’s capital controls.
“Good luck,” he signed off.
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China shadow banks appeal for government bailout
Gabriel Wildau in Shanghai, FT
The collapse of a state-owned credit guarantee company in China’s rust belt has again shone a spotlight on risk from bad debt and moral hazard in the country’s shadow banking system.
jlne.ws/1PjsKeL

Yuan’s Devaluation Brings Losses for Some
WSJ
When China’s government abruptly pressed the yuan lower last week, it upended Antonio Huang’s plan to quintuple a profit on a commodity deal.
Acting as the middleman on a US$3 million trade in the commodity coke, the former banker sought to sweeten his expected gain with a currency and interest-rate play. It didn’t work out. The weak link in his strategy: a bet China’s currency would remain strong.
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Bank of America Stiffs Shareholders
Joe Nocera, NY Times
The year 2009 was rough for the Bank of America and its chairman and chief executive, Ken Lewis. On Jan. 1, the bank closed its $50 billion purchase of Merrill Lynch, a deal Lewis had hastily negotiated the previous September, as the financial world appeared close to collapse.
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JPMorgan may settle with SEC on investment-steering case – WSJ
Reuters
Aug 18 JPMorgan Chase & Co is in advanced talks with U.S. regulators to pay more than $150 million to resolve allegations that it steered private-banking clients to its own products without proper disclosures, the Wall Street Journal reported, citing people familiar with the matter.
jlne.ws/1Ljxjrv

Bond Traders Aren’t Buying Into Good News on U.S. Economy
Bloomberg
Good economic news just isn’t that bad for Treasuries any more.
The reaction in the $12.8 trillion U.S. government bond market to surprisingly strong data has become more muted in recent months, according to Goldman Sachs Group Inc. At the same time, the influence of unexpectedly weak data has grown for longer maturities, while staying about the same for others, the New York-based bank wrote in a report published Tuesday.
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A green light doesn’t mean go for swaps clearing
Financial News
Just because 20 of the world’s most powerful people want something to happen does not mean it will happen.
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In Germany, 60 conservative MPs oppose Merkel course on Greece
Reuters
A total of 60 lawmakers in German Chancellor Angela Merkel’s 311-member conservative bloc voted against or abstained in a test ballot on Tuesday over a third bailout plan for Greece before the vote in parliament, participants told Reuters.
In what was nevertheless an important endorsement for Merkel, the test ballot showed there may be far fewer rebels in Wednesday’s vote from her bloc over the 86 billion-euro ($95 billion) package than feared. Bild newspaper had reported that up to 120 of her deputies would vote against it or abstain.
jlne.ws/1LjtjHJ

Bank-Wise Analysis of Blockchain Activity
Let’s Talk Payments
Interest in blockchain has been coming in from every corner of the world with major ones being banks and technology providers. Banks’ interest in bitcoin blockchain is seeing a huge uptick with the exploration of potential use cases for the distributed ledger system (blockchain technology).
jlne.ws/1PxcmIi

Central Banks

FOMC Minutes Guide: From China to September Rate-Liftoff Outlook
Bloomberg
Here’s what to look for when the Federal Reserve releases minutes from the Federal Open Market Committee’s July 28-29 meeting at 2 p.m. Wednesday in Washington.
— A signal from the discussion on whether or not there was a consensus among policy makers that September is the right time for the first interest-rate increase since 2006.
“I would hope to get an indication of how many people would be close to expecting a rate hike,” said Roberto Perli, a partner at Cornerstone Macro LLC in Washington and a former senior Fed economist. “If you get a sentence like ‘Many members felt that the time to raise rates was near’ or something like that, that would be a very good indication.”
jlne.ws/1LjB6oP

ECB Reduces Maximum Greek Bank Aid as Bailout Eases Cash Tension
Bloomberg
The European Central Bank reduced the maximum level of emergency aid available to Greek banks in a sign the country’s financial tensions are easing after a rescue package was agreed with creditors.
In a conference call on Tuesday, the ECB’s Governing Council decided to cut the ceiling on Emergency Liquidity Assistance provided by the Bank of Greece to 89.7 billion euros ($98.9 billion) from 90.4 billion euros, according a person familiar with the decision. The move is the first such reduction since lenders were forced to rely on the facility in February.
jlne.ws/1PkMP4v

Eight signs a global market crash is imminent as central banks lose control
Financial Post
When the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal.
Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.
jlne.ws/1LjBtQd

PBOC Injection Shows China Worries About Outflows
WSJ
China’s central bank poured the largest amount of cash into the financial system on a single day in almost 19 months, signaling Beijing’s growing concerns about capital flowing out of the country following the recent weakening of its currency.
Short-term interest rates and bond yields in the world’s second-largest economy have spiked in the past week, following an abrupt decision by the Chinese authorities to devalue the yuan last week. As money leaves the country, the amount of cash in the financial system declines, pushing rates higher.
jlne.ws/1LjBvaP

Market Unconvinced as Turkey Central Bank Pitches Its ‘Road Map’
Bloomberg
Investors sold Turkish assets, sending the lira to a record low, after the nation’s central bank published a “road map” of measures it said would prepare the country for the normalization of global monetary policy.
The list of nine technical adjustments fell short of investor expectations that Turkey’s central bank would be moving toward simplifying its monetary policy framework, one of the world’s most complex. The lira fell as much as 1.3 percent to a record 2.9066 per dollar, while yields on two-year government debt surged to the highest in more than a year at 10.68 percent.
jlne.ws/1LjBzHH

Currencies

CME forex futures open interest reach record high
LeapRate
CME Group Inc (NASDAQ:CME), the world’s leading and most diverse derivatives marketplace announced today that for the first time, the number of Large Open Interest Holders (LOIH) in FX futures is now over 1,000, up 16% since the end of 2014.
jlne.ws/1hKbSTU

Former forex traders challenge Citi over dismissal
Lindsay Fortado and Katie Martin, FT
Four former Citigroup traders look set to be the first of the dozens of people fired over the forex-rigging scandal to challenge their dismissals in court.
jlne.ws/1fmCRTO

Russians Feel Ruble’s Fall, but Putin Remains Mostly Unscathed
NY Times
A basic barometer of economic activity in this tidy town south of Moscow is the pirozhok, a small pie filled with cabbage and meat that is a staple of the Russian diet.
In good times they sell briskly, snapped up by hungry commuters at Arina’s Hangout, a tiny shop near the train station. But sales are down by almost half, a gloomy reflection of Russia’s economic slump.
jlne.ws/1LjrWbY

Surge in emerging market capital outflows hits growth and currencies
Financial Times
A surge of capital gushing out of emerging markets has risen toward $1tn over the past 13 months, roughly double the amount that fled during the financial crisis amid slumping confidence in the world’s developing economies.
The sustained exodus of capital reinforces concerns that emerging market economies, suffering slowing growth and weakening currencies, are relinquishing their longstanding role as locomotives for global growth to become a drag on demand instead.
jlne.ws/1LjBKmr

How The Blockchain Can Aid The Effectiveness And Use Of Complementary Currencies
TechCrunch
The blockchain provides the foundation to design complementary currencies that embellish community relationships, drive regional economic growth and encourage self-sustainability. The local multiplier effect is the underlying benefit of using complementary currencies. The local multiplier effect occurs when one form of economic activity affects another.
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Indexes & Index Products

New Deka equity index ETF launched on Xetra; ETF tracks euro-zone companies recognised for sustainability
Deutsche Boerse
Xetra/Börse Frankfurt: A new equity index ETF issued by Deka Investment GmbH has been tradable on Xetra and Börse Frankfurt since Tuesday.
jlne.ws/1JeWklF

How much China is in your fund?
Investment News
While the Chinese economy grew 7.0% in the second quarter, signs of slower growth in July and actions by the Chinese government to devalue the yuan have caused investor concerns. Many investors obtain direct exposure to China through diversified emerging market mutual funds and ETFs.
jlne.ws/1PxcIyJ

Rapid Growth in the Smart-Beta Index ETF Space
ETF Trends
In the exchange traded fund industry, a growing number of money managers and new fund sponsors are turning to alternative or smart-beta indexing methodologies to gain an edge in an increasingly competitive market. According to Mark Makepeace, who runs the FTSE Russell index group, smart beta strategies make up about 60% to 70% of requests for new products from clients
jlne.ws/1PxcMyl

FTSE 100 Semi Annual Equally Weighted Index Licensed For First ETF
Press Release
FTSE Russell, the global index provider, today announces that it has licensed the FTSE 100 Semi Annual Equally Weighted Index to Deutsche Asset & Wealth Management, who have created the first ETF linked to the benchmark. The db x-trackers FTSE 100 Equal Weight UCITS ETF listed on London Stock Exchange on 14 August.
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Trade-weighted broad dollar index
Business Insider
The US dollar has been on a tear. This is a fairly uncontroversial statement that asserts the US dollar has been rising in value against other currencies. But there are a few ways to measure this increase, and in a note to clients on Monday, Ellen Zentner at Morgan Stanley wrote that the only index of the dollar’s value that matters for the US economy and Federal Reserve policy is the Fed’s own broad trade-weighted dollar index.
jlne.ws/1PxcQOI

Gold

Gold Prices Fall on Upbeat U.S. Data
Firm U.S. home-building data spurs speculation that Fed will soon raise interest rates
By Tatyana Shumsky, The Wall Street Journal
Gold prices fell on Tuesday after upbeat U.S. economic data strengthened the dollar and fanned investor concerns about higher interest rates from the Federal Reserve.
The most actively traded contract, gold for December delivery, fell $1.50, or 0.1%, to settle at $1,116.90 a troy ounce on the Comex division of the New York Mercantile Exchange.
Gold traders have been bailing out of the market in recent months amid expectations that the U.S. central bank will soon raise interest rates for the first time in nearly a decade.
jlne.ws/1fnPMow

Hedge funds remain ultra-bearish on gold price
Frik Els, Mining.com
On Monday, gold had another quiet day in New York with December deliveries priced at $1,115.90 an ounce in afternoon trade, up $3.30 from Friday’s close.
Gold is up 3% from a more than five-year closing low of $1,084 struck a fortnight ago with China’s shock currency devaluation last week boosting its allure as a storer of wealth.
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Timing Gold is a fool’s errand; it is not correlated to the stock market
By Jodie Gunzberg, The Economic Times
Let’s pretend today is sometime in the middle of 1981. President Reagan just established the Gold Commission that rejected returning the US to a Gold standard. The Fed raised rates to 20 per cent and inflation fell. But that created a recession. Gold investors lost about half their asset values. They wondered, “Had gold reached its bottom?”
To understand the answer to this question, investors might consider the underpinnings of the prior bull run of over 400 per cent that started when Nixon took the dollar off the gold standard in 1973.
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