First Impressions

The Case for the Defense: Steve Grob Says the World Needs the Financial Markets

Financial markets have taken a beating by legislators, regulators and in the press over the past several years. But Steve Grob of director of group strategy for Fidessa Group, says that much of the criticism is unfounded. Jim Kharouf, editor-in-chief of John Lothian News, spoke with him about his defense of the financial industry.

“The idea that there is a real economy on one side and a financial economy that is separate, isn’t really valid,” Grob argues. “The idea that the financial economy has been sent to the back of the classroom because its been beating up on the real economy is equally untrue.”

Watch the video »

Quote of the Day

“It meets regulatory objectives. It’s not an end run on regulations. The dealers still don’t lose money if the corporate bonds go down in value. That’s on the account of the hedge funds, not on the dealers themselves. It’s not a regulatory risk from that point of view.”

Darrell Duffie, a Canadian economist at Stanford University in the story, “Hedge Funds Morph Into Bond Dealers in Post-Crisis World”.

Lead Stories

Bond Swings Draw Scrutiny
Tom Lauricella and – WSJ
Katy Burne
The day’s trading was just hitting its stride in New York on the morning of Oct. 15 when bond investors, traders and strategists were stunned by an unusual move in the $12 trillion U.S. Treasury market playing out on their computer screens.

Hedge Funds Morph Into Bond Dealers in Post-Crisis World
Ari Altstedter and Cecile Gutscher – Bloomberg
Hedge funds are serving as the middle man in more bond trades as regulatory changes limit the amount of risky assets Canadian banks can hold on their books.
Picton Mahoney Asset Management and RP Investment Advisors are among the Toronto-based firms banks are turning to in the wake of regulatory changes put in place to prevent a repeat of the 2008 global financial crisis. The funds say they are doing what regulators want, transferring risks away from systemically important institutions. Critics say the risks have only migrated to loosely regulated shadow banks.

Bond Liquidity Isn’t Dead, It’s Just Moving Away From Big Banks
Lisa Abramowicz – Bloomberg
Amid all the craziness and volatility in U.S. bonds last month, a few telling data points emerged that reflect where the market is heading. As some measures of trading surged to records, those carried out by Wall Street’s biggest banks lagged behind.

Bond market sees rate cuts even as RBI talks tough on inflation
The rally in Indian bonds is providing central bank governor Raghuram Rajan an unexpected gift: Falling borrowing costs are starting to provide the benefits of lower interest rates without him actually having to ease monetary policy.

Who’s Afraid of Fed Raising Rates? Not These Bond Buyers
Liz Capo McCormick and Matthew Boesler – Bloomberg
For all the talk that U.S. Treasuries will tumble once the Federal Reserve starts to raise interest rates, investors in the longest-dated debt securities are finding little cause for concern.
Government bonds due in 30 years, the most vulnerable to losses when growth picks up and inflation accelerates, have returned more than 20 percent this year versus 2.9 percent for five-year Treasuries. That’s reduced the yield premium that investors demand to hold the 30-year securities to 1.46 percentage points, close to the lowest since 2009.

Investors U-turn on Japan after QE jumpstart
Laura Dew – Investment Week
Investors and fund buyers are increasingly backing Japanese equities as the country boosts its QE programme, and rotates its national pension fund towards domestic equities.

Currency wars fail to spark global growth
Komal Sri Kumar – Financial Times
Six years after the financial crisis ended, the global economic recovery remains anaemic. Fiscal stimulus could not be used to redress the situation due to fiscal gridlock in Washington, lack of agreement on policy across the eurozone, and the already high debt-to-GDP ratio in Japan. By default, competitive devaluations stemming from successive quantitative easing programmes have become the stimulus instrument of choice. Such currency wars have boosted equity markets without a simultaneous pick-up in global economic growth.

China’s $9 Trillion Untapped Market Spurs U.S. ETF Frenzy
The race is on to give U.S. exchange-traded fund investors access to $9 trillion of stocks and bonds in mainland China.
Money managers including BlackRock Inc. and CSOP Asset Management Ltd. have now registered almost 40 ETFs tracking the country’s domestic shares and debt with U.S. regulators, six times the number of existing funds. The products allow anyone with a U.S. brokerage account to gain exposure to Chinese securities that were previously off limits to all but a few qualified institutions.

Who’s Afraid of Fed Raising Rates? Not These Bond Buyers
Liz Capo McCormick and Matthew Boesler – Bloomberg
For all the talk that U.S. Treasuries will tumble once the Federal Reserve starts to raise interest rates, investors in the longest-dated debt securities are finding little cause for concern.

TradingScreen: The Buy Side And TradingScreen To Launch TradeCross
A select group of large Asset Managers and TradingScreen, the leading independent provider of liquidity, trading, and investment technology via SaaS, announced today their intention to launch the first Buy side designed crossing platform for Fixed Income corporate bonds.

Central Banks

Kuroda sprang easing surprise to head off damaging inflation forecast
Leika Kihara – Reuters
The Bank of Japan Governor not only surprised the markets with his latest splurge of monetary easing. He sprang it on his own board members just two days earlier, jolted into action to stop them making a low-ball forecast that might have sunk his flagship inflation target.

BoE to provide liquidity to UK clearing houses and broker-dealers
The Trade
The Bank of England has approved measures that will see it provide central bank funds to UK clearing houses and broker-dealers in order to safeguard its financial system in a crisis.

Fed’s Mester says central bank not behind curve in setting policy: CNBC
Policy at the Federal Reserve is keeping pace with developments in the economy and the Fed is not falling behind the curve in planning its first interest rate increase, Cleveland Fed president Loretta Mester said on Friday.

Draghi Summons Banking Know-How for ECB Posts as Role Shifts
Jeff Black and Alessandro Speciale – Bloomberg
Mario Draghi is seeking economists who understand banks, and he’s not afraid to look outside Frankfurt to find them.
As the European Central Bank assumes the mantle of euro-area financial supervisor, its president has just staffed two key monetary-policy posts with non-ECB experts on how lenders function in the economy. The appointments mark a trend of turning to outsiders as the 16-year-old institution struggles to meet its changing responsibilities with existing staff.


Japanese portfolio flows support weaker yen but raise default risk
Solomon Teague – Euromoney Magazine
Long-awaited changes announced last week to the composition of Japan’s state pension fund portfolios, combined with increasing flows into foreign – predominantly US dollar – assets from retail investors and the insurance sector, should weaken the yen, but could be storing up problems in the long term.

Good News for the U.S. Economy Is Bad News for Emerging-Market Currencies
Ian Talley – MoneyBeat – WSJ
The firmer U.S. economy, as seen in Friday’s jobs report, appears to be deepening the tumult for some key emerging-market currencies.

Traders go surfing on the forex wave
Joel Clark – Financial News
Activity in the foreign exchange market has picked up substantially, a welcome relief for bank trading desks, which have suffered during years when the world’s major currencies made few big moves.

Russian Ruble Recovers on Central Bank Move
Andrey Ostroukh and Gregory L. White – WSJ
Russia’s battered ruble recovered Monday after President Vladimir Putin dismissed its recent drop as “speculative” and the central bank said it would allow the rate to float freely in the market, reducing its regular interventions but cutting supplies of rubles to stem speculative pressure.

Hungary agrees official foreign exchange mortgage conversion rate
Andrew Byrne in Budapest – Financial Times
Borrowers in Hungary will be able to convert foreign exchange mortgages into Hungarian forints at the November 7 market exchange rate, the economy ministry announced on Sunday night, in a decision that will ease concerns of another government-imposed penalty on the country’s troubled banking sector.

Indexes & Index Products

JPX has ‘no plans’ to list Nikkei 400 futures overseas
Onshore derivative market is the focus for Hiromi Yamaji, president of JPX’s Osaka Securities Exchange, which is preparing for November 25 launch of Nikkei 400 index futures

Five Secret Stock Indexes You Never Knew Existed
Robert Williams – Wall Street Daily
While the benchmark indexes flirt with new highs, let’s strategically shift our attention to a few of my favorite hidden indexes… that is, ones that tell more of a story.
The Dow, S&P 500, and Nasdaq are only three of over 7,000 indexes and indicators we track at Wall Street Daily, most of which you’ve never heard of.
The beauty of these “secret” indexes is that they tell fantastic stories about very specific niches of the global market.
With that in mind, here are my top five.

BlackRock ETP Landscape: Record Fixed Income Flows


Gold Bulls Accelerate Retreat to This Year’s Fastest Pace
Luzi Ann Javier and Joe Deaux – Bloomberg
Hedge funds made their biggest cut of the year in bullish gold wagers as prices tumbled to the lowest since 2010.
The net-long position in New York futures and options contracted 36 percent as long holdings fell the most in almost two years, U.S. government data show. Investors sold 22.4 metric tons of bullion held through exchange-traded products last week, trimming assets to the least since August 2009.

Gold Drops After Biggest Climb Since June on U.S. Outlook
Nicholas Larkin and Glenys Sim – Bloomberg
Gold fell in New York, after rising the most in more than four months, on expectations that U.S. borrowing costs will increase as the economy strengthens.

Gold Bulls Accelerate Retreat to This Year’s Fastest Pace
Luzi Ann Javier and Joe Deaux – Bloomberg
Hedge funds made their biggest cut of the year in bullish gold wagers as prices tumbled to the lowest since 2010.

Swiss Franc Cap Tested as Gold Bugs Push Referendum
Lucy Meakin – Bloomberg
Switzerland’s referendum on boosting gold reserves is already increasing pressure on the franc’s cap against the euro, even as polls show voters remain undecided.
A rally in the franc pushed it to within 0.2 percent of the 1.20-per-euro ceiling set by policy makers in an effort to support the economy. That’s the closest it’s come to breaking through the cap since September 2012, when the central bank last intervened to defend it. Options traders boosted bullish bets on the franc to a two-year high.

Pin It on Pinterest

Share This Story