First Impressions

Execution Equalizer: Christian Hauff Talks Trade Execution Quality and TCA

While electronic platforms and trade algorithms have made for more efficient markets, some buyside participants believe it comes at a cost, and the cost is execution quality. Christian Hauff, co-founder and CEO of Quantitative Brokers says these same modern tools can help the buyside obtain better execution, as well as better transaction cost analysis (TCA).

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Quote of the Day

The odds are high that the Fed’s monetary experiment will be more disruptive down the road than the Fed anticipates.

Hedge fund legend Stan Druckenmiller, as quoted in the Bloomberg story “Druckenmiller Says Fed Policy Underappreciates Risk”

Lead Stories

China Faces Second Bond Default Amid World’s Biggest Debt
China faces what would be the second default in the nation’s onshore bond market after a builder said it may fail to make a payment next week, the latest sign of stress in the world’s biggest corporate debtload.

***DA: The key takeaway for me is that, a few years ago, this kind of default would have been swept under the rug. The migration toward Western-style capitalism means more transparency.

Central European corporates turn to Eurobonds
Lucy Fitzgeorge-Parker – Euromoney Magazine
A clutch of central European companies launched debut Eurobonds in June, raising hopes that the long-awaited shift from bank to bond-market funding in the region has begun.

Cautious banking drives growth in bonds
Michael Mackenzie and Vivianne Rodrigues in New York – Financial Times
Customers are renowned for being loyal to their bank. For investors the divergence in equity and bond performance for the US banking sector this year shows how sticking with one asset class can cost them.

Canadian Bond Group Says RBC Basel Sale Lacks Disclosure
Ari Altstedter – Bloomberg
Some of Canada’s largest bond investors are asking regulators to examine a Royal Bank of Canada (RY) debt sale, saying not enough time was given to analyze the first deal in a market that may increase to C$25 billion.
Royal Bank provided investors with insufficient information on short notice before its July 11 sale of C$1 billion ($930 million) in subordinated notes that can convert to equity, the first in Canada to comply with new international banking rules, The Canadian Bond Investors Association said in a letter yesterday to provincial securities regulators. Toronto-based Royal Bank said it met all requirements.

So, Who Expects QE in the Euro Zone?
Emese Bartha – MoneyBeat – WSJ
You might think European fixed income focused investors, as a group, have a pretty good idea of whether the European Central Bank will embark on large scale assets purchases. But a survey of investors by French bank Natixis shows they are evenly split on the matter.

***DA: In for a penny, in for a pound, euro, dollar, yen, franc, etc.

Japan’s Herbivores Seek Sovereign Not Romantic Bonds
Eleanor Warnock – MoneyBeat – WSJ
Much has been written about Japan’s “herbivores”–passive young men with little interest in romantic relationships. But could investors also be turning into “grass-eaters”?

Are markets poised for Taper Tantrum 2.0?
Investors may be ignoring subtle warnings from the Federal Reserve that a rate rise may come sooner than they think, setting the stage for another painful market contraction much like last year’s “taper tantrum.”

***DA: When a market has priced in perfection, beware the imperfect.

Colombian credit hits international radar
Rob Dwyer – Euromoney Magazine
Colombia, which has become Latin America’s fastest growing economy, also has a fast growing pipeline of transactions and is attracting international interest, according to domestic bankers.

Puerto Rico bonds crash high-yield municipal debt party
It looked like there was no stopping the runaway returns for high-yield U.S. municipal bonds earlier this year. But that has all come to a screeching halt in the past few weeks thanks to a bombshell coming out of the Caribbean.

Floating rate notes: The bond that floats investors’ boats on both sides of the pond
Edward Russell-Walling – Financial News
That floating rate note issues are proliferating and their maturities lengthening as investors appear to seek more protection from rising interest rates is not surprising. It is a surprise, however, this is happening as much in the euro-denominated market, where there is no rates increase on the horizon, as in the US, where there is.

Stopping a repeat of Argentine debt war
Elaine Moore – Financial Times
As Argentina’s multi-billion dollar showdown with its hedge fund creditors nears its finale, global organisations are trying to hammer out a plan that will prevent such a stand-off from being repeated.

U.S. judge to hear latest motions in Argentina debt case July 22
Daniel Bases – Reuters
A U.S. judge said in New York on Wednesday that he would hear arguments next Tuesday related to the banks and payment agents caught up in Argentina’s sovereign debt case as a potential default looms at the end of the month.

JPMorgan, HSBC, BAML Said to Be Hired for Buenos Aires Bond Sale
Camila Russo – Bloomberg
JPMorgan Chase & Co., HSBC Holdings Plc and Bank of America Merrill Lynch were hired by the city of Buenos Aires to sell as much as $890 million of global bonds, according to a person with direct knowledge of the plans.
Argentina’s capital city received approval from local lawmakers to sell the debt with a minimum maturity of five years, according to a newspaper advertisement published today in Cronista. The funds will be used to pay down $475 million of debt coming due in 2015 and extend debt maturities, according to the person, who asked not to be identified because he isn’t authorized to speak publicly about the matter.

Central Banks

ECB will reveal unprecedented amount of data after bank stress tests
The European Central Bank (ECB) on Thursday laid out plans to publish a trove of data on individual banks – ranging from measures of their leverage to a standard level of non-performing loans – on individual banks when it completes a landmark review.

***DA: My hunch is they will not reveal anything, shall we say, revealing, for fear that panic may ensue.

Druckenmiller Says Fed Policy Underappreciates Risk
Katherine Burton – Bloomberg
Stan Druckenmiller, the hedge-fund manager with one of the best track records over the past three decades, said the Federal Reserve’s policy of keeping interest rates near zero for so long is baffling and risky.

ECB Found Too Timid by Many in Poll as Europe Worsens
Rich Miller – Bloomberg
International investors say the euro area’s economy is in its worst shape in more than a year and in danger of dropping into deflation, with a central bank that many believe is not doing enough to help, according to a Bloomberg Global Poll.
More than one in three described the region’s economy as worsening, the most since May 2013, when Europe was just emerging from recession. Seventy-seven percent viewed disinflation or deflation as a greater threat than inflation (ECCPEMUY) to the area over the next year, the July 15-16 survey also found.

Wages Going Sideways Buy Time for Carney on Rates
Jennifer Ryan – Bloomberg
U.K. wages, which Bank of England policy makers identify as the key barometer in the debate over borrowing costs, are going nowhere.
Pay excluding bonuses rose just 0.7 percent in the three months through May from a year earlier, the least since records began in 2001, government data published yesterday showed. As recently as May, the BOE expected earnings growth to approach 2.5 percent by the fourth quarter.

Some Top Money Managers Push for Fed to Start Raising Interest Rates
The Fed is out of step with Wall Street, say some of the country’s wealthiest investors.


U.S., EU Escalate Russia Sanctions as Putin Holds Firm
Margaret Talev, Indira A.R. Lakshmanan and Ian Wishart – Bloomberg
The U.S. and the European Union imposed the most aggressive sanctions to date on Russian business and said more may follow, acting after threats to squeeze the $2 trillion economy over the conflict in Ukraine.
Russia’s ruble and bonds plunged and stocks fell to a more than six-week low after the Obama administration unveiled the plan and Ukraine said a fighter jet was shot down by the Russians yesterday. Targeted companies include OAO Rosneft (ROSN), Russia’s largest oil company, natural gas producer OAO Novatek (NVTK), OAO Gazprombank, the country’s third-largest lender, and eight defense firms. EU leaders agreed to blacklist companies and halt lending to public-sector projects in Russia.

RMB: China vs the world
Rob Hartley – Euromoney Magazine
The prospect of fierce competition between Chinese and western banks for international RMB business strengthens

Betting on UK current account-sterling relationship a risky business
Solomon Teague – Euromoney Magazine
Debate rages whether current accounts drive FX moves in developed markets or whether it’s a case of correlation, rather than causation. The role current-account deficits play in predicting FX moves has long been the subject of debate.

Indexes & Index Products

ETP providers build out currency products
Farah Khalique – Euromoney Magazine
Exchange-traded product (ETP) provider ETF Securities launches its first range of currency basket ETPs in Europe on the Deutsche Boerse this week, as European investors become more familiar with the asset class and providers concoct increasingly sophisticated products.

Exchange-Traded Products Hit Record Assets in Europe
Chiara Albanese – MoneyBeat – WSJ
European investors are developing a taste for passive funds. Rather than picking individual stocks or selecting individual fund managers, many investors are piling into investment products that are traded on exchanges like a regular stock but that mirror the performance of an index based on shares, currencies, commodities or interest rates.


Time called on the London gold fix
Neil Hume and Xan Rice – Financial Times
The near-century old gold fix could soon be history after the four banks that run the global benchmark said they were seeking an independent party to take over the twice-daily fixing process.

Metals exchanges eye gold price fix mandate
Joe Parsons – Futures & Options World
The world’s top commodities exchanges are already circling in the hope of securing a potentially lucrative new mandate to run the gold price fixing process. The London Gold Market Fixing (LGMF) said on Wednesday it wanted to appoint a third party administrator to assume responsibility for the administration of the gold price discovery process.

New silver price is ‘improvement’ on fix
Xan Rice – Financial Times
The unfortunate name will disappear. So too will the private teleconference, as well as the ownership by a handful of banks that have run the London Silver Fix – the global benchmark price – since 1897. And the cloak of secrecy over the trading volumes will be lifted.

Gold Dreamers Face Harsh Reality
Noah Smith – Bloomberg
I can’t tell you that gold is a bad investment. Even after the recent plunge, if you bought gold in 2004, your investment would have earned you an annualized rate of about 10.4 percent, after accounting for inflation. That is darned impressive. If you bought in 1994, it would have earned about 3.9 percent per year — not too shabby. Even if you bought all the way back in 1984, you would have earned 1.8 percent in real terms. (Of course, this assumes that is wrong, and that inflation hasn’t been massively understated.)

***JM: If you’re telling me that a 1.8% annual return on a 30-year investment is not a reason to avoid it, you lost me somewhere.

Metalor Singapore Added To The Gold GD List
Metalor Singapore, the newly created refinery of the Metalor Group, has been added to the LBMA’s Good Delivery List for gold with effect from 17th July, 2014.

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