First Impressions

Focused: What The Industry Knows About Transparency (Part 2)
JohnLothianNews.com

Back in November, the industry gathered for the annual FIA Expo event in Chicago. There, John Lothian News used an exhibitor booth (Thanks Cinnober!) as its studio to ask industry participants key questions about transparency issues in today’s markets.

Part 2: What solution would you suggest in order to improve transparency in the markets today?
Watch the video »

Quote of the Day

“We’re the last refuge in the global economy. I don’t know that’s there’s much of a fear about our economy.”

Mitchell Stapley, the chief investment officer at Cincinnati-based ClearArc Capital in the story, “Bond Investors Haven’t Been This Gloomy Since 2008 — But Are They Right to Be So Down?”

Lead Stories

Bond Investors Haven’t Been This Gloomy Since 2008 — But Are They Right to Be So Down?
By Daniel Kruger and Liz Capo McCormick, Bloomberg
Bond investors can be a gloomy bunch, glass-half-empty types who see bad news everywhere.
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China funds become new force in global commodity trade
By Henry Sanderson in London and Lucy Hornby in Beijing, FT
China’s Shanghai Chaos investment fund is named after the pioneer of chaos theory Edward Norton Lorenz, who coined the term “butterfly effect” to describe seemingly random yet connected events. That may be an apt description for the global metals markets, where moves made by hedge funds in China are increasingly felt across the globe.
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Deutsche Börse takes step nearer Singapore clearing house
Jeremy Grant, FT
Efforts by Deutsche Börse to establish a physical beachhead in Asia took a step forward on Tuesday when Singapore approved the European exchange operator’s plans for a clearing house in the city-state to be launched in 2016.
The “in principle” approval is another sign of moves by western exchanges to build market infrastructure in Singapore, which has become their focal point for expansion into Asia.
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Morgan Stanley Misses Estimates on Bond-Trading Revenue
Michael J. Moore and Dakin Campbell – Bloomberg
Morgan Stanley (MS), owner of the world’s largest brokerage, reported profit that missed analysts’ estimates as fixed-income trading revenue fell to the lowest since the financial crisis.
Fourth-quarter net income rose to $1.04 billion, or 47 cents a share, from $84 million, or 2 cents, a year earlier, the New York-based company said today in a statement. Profit was 39 cents a share including an accounting adjustment, a tax benefit, a change in compensation policy and other one-time items. That compared with the 50-cent average estimate of 14 analysts surveyed by Bloomberg.
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Bond-Price Disclosure Seen Raising Europe Borrowing Costs
By Jim Brunsden, Bloomberg
Companies in the European Union may face an “alarming” surge in funding costs if the bloc’s markets regulator pushes too many trades into the light, a bloc-wide business lobby said.
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Breaking Up the Big Banks: New Poll Suggest Voters Are in Favor
By Christina Rexrode, WSJ
There’s not a lot of love for the big banks these days. Case in point: A poll to be released Tuesday by a group called the Progressive Change Institute found that a majority of U.S. voters would be quite happy for Citigroup Inc.C +0.80% and other big banks to be broken into pieces. According to the poll, 58% of likely voters said they would support breaking up “big banks like Citigroup.”
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Big fund managers form new dark pool equity trading venue
Stephen Foley in New York, FT
Nine of the world’s largest fund managers are launching a new dark pool for equity trading, in an attempt to prevent high-frequency firms from disrupting their trades and raising costs.
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Regulators probe whether high-speed trading exacerbates swings in bond market
Greg Robb – MarketWatch
The impact of algorithmic and high frequency traders is mostly thought to be an issue surrounding the U.S. stock market.
But now federal regulators are concerned they may be behind the curve as these firms move into the bond market.
Specifically, the watchdog agencies are reviewing the sharp swing in Treasury yields last Oct. 15, Federal Reserve Governor Jerome Powell said Tuesday.
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Effort involves BlackRock, J.P. Morgan, BNY Mellon and others
By Kirsten Grind, MarketsWatch
Big money managers led by Fidelity Investments are close to launching a private trading venue designed to let them buy and sell large blocks of stock without the involvement of Wall Street firms and high-speed traders, according to people familiar with the matter.
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Convergex Adds Industry Veterans Phil Gough and John Holl to International Leadership Team
Convergex
Convergex, an agency-focused global brokerage and trading related services provider, announced today the addition of two industry veterans to its international leadership team. Philip Gough has joined the firm as chief executive officer of Convergex Limited, Convergex’s London-based brokerage. Gough will oversee all aspects of Convergex’s international business operations and will serve on the firm’s Executive Committee. In addition, John Holl has joined the company as managing director and head of Convergex Limited’s sales and trading. Both Gough and Holl will be based in London.
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Central Banks

Central bank prophet fears QE warfare pushing world financial system out of control
Ambrose Evans-Pritchard – The Telegraph
The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world’s financial system going into 2015.
Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West.
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Central banks ‘have lost credibility’
Bianca Hartge-Hazelman – The Sydney Morning Herald
Many share markets may be riding higher on hopes of European stimulus this week and overlooking plunging oil prices, and even lower global growth targets, but experts say its time that investors woke up to the fact that central bankers aren’t doing a great job.
The Australian share market is tipped to open stronger as European and Asian shares markets gained on expectations that the European Central Bank will announce a 1 trillion bond buying program to help revive economic growth.
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Quantitative easing in euro zone requires shared risk
Daniel Gros and Christian Kopf – Reuters
After much hesitation and amid intense controversy, the European Central Bank is stumbling towards a program of sovereign bond purchases. This monetization of government securities does not come without tail risks, since euro-area member states can default on their public debt, as the Greek experience has shown.
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European Central Bank Nears Crucial Test of Its Powers
Brian Blackstone – WSJ
The European Central Bank is poised to head into uncharted territory as it nears a decision Thursday on whether to launch a controversial stimulus program aimed at boosting Europe’s fading economy.
The bank’s challenge: engineer a plan that impresses investors, passes muster with conservative ECB members and—most of all—helps bring Europe out of its slump.
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Currencies

Denmark May Cut Rates Again to Defend Peg, Morgan Stanley Says
Andrea Wong – Bloomberg
Denmark’s central bank may act again following a surprise interest-rate cut to defend its peg against the euro, according to Morgan Stanley.
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Putin Enlists Veteran of ‘Much Tougher Times’ to Help Contain Ruble Crisis
Evgenia Pismennaya, Anna Andrianova and Torrey Clark – Bloomberg
The man Vladimir Putin is relying on to end the deepest currency crisis of his presidency has seen worse.
As deputy head of the central bank after the Soviet Union fell in 1991, Dmitry Tulin, then in his mid-30s, had to help organize the rollout of a dozen new currencies against the backdrop of runaway price growth across the former communist empire. Now 58, Tulin is back at Bank of Russia, this time to craft monetary policy as the ruble’s biggest retreat in 17 years shakes the foundations of a shrinking economy.
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Swiss franc fallout claims more casualties
Philip Stafford, Caroline Binham and Miles Johnson in London, FT
A leading European foreign exchange broker filed for administration on Monday and a Danish bank conceded it faced heavy losses as the UK’s market regulator stepped in to assess the damage wreaked on the industry by last week’s violent swing in the Swiss franc.
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Jefferies Reprises Role of Market White Knight; Firm Honed Its Skills in 2012 Rescue of Knight Capital
By Telis Demos
When foreign-exchange broker FXCM Inc. was forced to seek a rescue last week following a surprise surge in the Swiss franc, a number of potential white knights surfaced, including private-equity firms and Leucadia National Corp.
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FXCM Owners Are Almost Wiped in Swiss Franc Turmoil
Zeke Faux – Bloomberg
FXCM Inc. (FXCM), the currency-trading firm that almost collapsed last week when the Swiss franc surged, saw its shares plunge after disclosing the terms of its bailout by Leucadia National Corp. (LUK)
FXCM, which closed Thursday at $12.63, tumbled to $1.60 today in New York. Leucadia, the owner of investment bank Jefferies Group LLC, can force a sale of the currency broker and keep most of the proceeds for itself under terms of a $300 million loan, FXCM said late yesterday in a statement. Analysts at Citigroup Inc. said today in a report that the deal “essentially wiped out” the value of FXCM’s stock.
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Indexes & Index Products

Ratings Shopping in CMBS Prompts Changes to Derivative Indexes
Jody Shenn – Bloomberg
The practice of shopping around for the best ratings became so prevalent last year among issuers of U.S. commercial-mortgage-backed securities that a key set of indexes has been amended to accept grades from a wider number of firms.
With the three biggest credit raters often eschewed in favor of rivals on some of the riskiest slices of CMBS deals, Markit Ltd. (MRKT) said in an e-mail that it changed its rules so that the latest series of its CMBX indexes may now include bonds with rankings from only DBRS Ltd. and other smaller competitors. The benchmarks are used to create derivatives representing side bets on whether CMBS will get repaid.
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S&P to Cleave Real Estate Firms From Financials Sector
WSJ
Public beer and tobacco companies will continue to be listed as consumer staples, but real estate companies are getting their own place on the charts. S&P Dow Jones Indices and MSCI are creating a new sector, moving property companies and real estate investment trusts out of the “financials” sector, and into a “real estate” category. Although the much-lobbied change doesn’t go into effect until August 2016, comments on the change to the Global Industry Classification Standard structure are due by Feb. 13.
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Invesco PowerShares Announces Launch of Russell 1000 Equal Weight Portfolio (EQAL)
Invesco PowerShares Capital Management, LLC, a leading global provider of exchange-traded funds (ETFs), announced the launch of the PowerShares Russell 1000 Equal Weight Portfolio (EQAL), which was listed on December 23, 2014 on the NYSE. EQAL seeks investment results that generally correspond to the price and yield of the Russell 1000 Equal Weight Index.
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FTSE Launches Global Sustainable Yield Index Series
Mondovisione
FTSE Group (“FTSE”), the global index provider, has launched the FTSE Global Sustainable Yield Index Series, designed to measure the performance of equity securities exhibiting relatively high and sustainable yields. The benchmarks reflect the next stage in the evolution of high yield indices, with an emphasis on dividend sustainability.
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Xetra/Börse Frankfurt: Two New Amundi Bond Index ETFs Launched In XTF Segment On Xetra
Mondovisione
Two new exchange-listed bond index funds issued by Amundi have been tradable in Deutsche Börse’s XTF segment since Tuesday.
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Alibaba to launch ‘Big Data’ stock market index
The Irish Times
Index to use Alipay weightings to calculate individual stock positions
The Alibaba Group will this week launch a stock market index based on its proprietary data.
The launch highlights the potential for technology firms to diversify into asset management as well as the drive towards the use of “big data” – analysis of large amounts of information from previously inaccessible sources – in investment decisions.
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India VIX Rises After Foreigners Buy Index Options for 22 Days
By Santanu Chakraborty, Bloomberg
India’s benchmark gauge of protection against stock market swings climbed for a second day amid the longest stretch of index option purchases by foreigners in seven years.
The India VIX Index rose 2.2 percent to a one-week high of 17.65 at the close in Mumbai. Foreigners bought a net $84.9 million of CNX Nifty Index options on Jan. 16, capping a 22nd day of purchases, the longest streak since the period ended Aug. 7, 2007, data compiled by Bloomberg show. The put-call ratio increased to 1.32 as of 4:09 p.m., the most since Oct. 30.
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Gold

The Gold/Oil Ratio Shows A Crisis Is Inevitable
Forbes
Market developments over the past six months have created an environment where a “crisis” seems all but inevitable. The world’s reserve currency, USD, is now 17% stronger than it was in June on a trade-weighted basis. Europe and Japan, the world’s largest and fourth largest economies, are in recession, while China, the third largest economy, is getting ready to lower growth forecasts. Indicative of weak demand, the CRB Commodity Index is down 41% since its 2011 peak.
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Millions of Dollars Worth of Gold And Silver Lurk in Sewage
A city with one million people could have $13 million worth of metals in sewage sludge
By Marissa Fessenden, Smithsonian
Most people would rather not think about their waste once the toilet flushes (or even before), but fortunately some do. We can thank those people for figuring out what to do with that waste, along with effluent from manufacturing and stormwater draining off city streets. We can also thank them for finding the value that would otherwise be left behind. There’s gold in them thar sewage. There’s millions in it.
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Gold rally due as central banks add risk
Incompetence and monetary dysfunction make gold look attractive
The Financial Times
Carry traders are squeezed, the odd foreign exchange broker goes to the wall, central Europeans who borrowed in Swiss francs to buy homes are hurt.
So what, you say.
After the initial shockwaves from last week’s removal of the cap on the Swiss franc against the euro have died down, is there any reason why things should not return to normal?
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