First Impressions

ICE Cover: Jeff Sprecher taking on “fierce competition” and hackers

NOTE:  This was filmed awhile back but we felt it is worth another view for those who may have missed it the first time around.

Exchanges have never faced more challenges and opportunities than they do today. John Lothian News sat down with six exchange CEOs at the 2014 FIA BocaConference to talk about their views on four main topics: competition, regulation, growth and technology. Here’s what Jeff Sprecher, CEO of the Intercontinental Exchange Group, had to say about each.

“It’s interesting to me that regulators today are trying to introduce more global competition when in reality, for those of us who are in the business, we realize that competition has never been more fierce and more global,” Sprecher said. “And frankly, we are all trying to look at the same opportunity set and trying to use our current positioning like never before.”

Watch the video »

Quote of the Day

“The Bundestag would certainly have major concerns to clear the way for unlimited bond purchases by the ECB.”

Norbert Barthle, the budget spokesman for the Christian Democrats in parliament in the story, “ German Unease With ECB Simmers as Anti-Euro Party Gains”.

Lead Stories

China opens debt window for local governments
Jamil Anderlini in Beijing –
China will allow local governments to sell bonds for the first time in a big step towards tackling a looming crisis in local public finances and reining in the shadow banking sector that municipal authorities rely on for funding.
**JK – If this is anything like the City of Chicago’s bond strategy, this will be a disaster.

Senate Clears Path to Confirmation Vote on Fischer to Fed Board
The Senate voted Tuesday to advance the nomination of Stanley Fischer to join the Federal Reserve’s Board of Governors. Mr. Fischer passed the procedural hurdle on a 62-35 vote, with all the opposition coming from Republicans. The Senate is expected to vote to confirm him to the central bank’s board Wednesday.
**JK – The Fed has become fishers or Fischers and Fishers.

Mutual funds not guilty of systemic risk charge
Burton Malkiel –
On both sides of the Atlantic, regulators say mutual funds may be “systemically important financial institutions” and therefore subject to bank-like regulation. This would be incorrect and harmful.
**JK – How many ways can you say “strangulation?”

European Central Bank ‘unlikely to fire the big bazooka’
Mario Draghi, ECB president, is on course for further striking headlines after the central bank’s next governing council on June 5. A strong hint this month that the ECB will act against the dangers of low eurozone inflation has led markets to conclude that it will move to negative interest rates – charging banks which use its overnight deposit facility.

Bond Drought Hits Buyers in $2 Trillion ABS Market: Euro Credit
Alastair Marsh and Stephen Morris – Bloomberg
The $2 trillion asset-backed securities market in Europe is out of kilter as growing demand for the debt, which policy makers are promoting as a savior for the region’s economy, meets shrinking supply.
Investors have been pouring money into ABS funds managed by Amundi, the region’s largest asset manager, Credit Suisse Group AG (CSSIFAB), Julius Baer Group Ltd. and YCAP Asset Management, which have seen assets grow as much as 77 percent this year, according to data compiled by Bloomberg.

Fuld Was Top CEO When Fed Last Raised as New Neutral Era Beckons
Simon Kennedy – Bloomberg
It may be hard to remember, but there was once a time when central banks raised interest rates.
The last time the Federal Reserve did so, in June 2006, Barack Obama was still a U.S. senator and Richard Fuld appeared on Barron’s list of the 30 most respected corporate titans.
And difficult as it is to imagine, central bankers will again make money more dear, maybe as soon as next year in the U.S. When they do, the pressing question will turn to how high they go.
**JK – Another reason not to create “best” anything lists in the corporate world.

Rogoff on negative rates, paper currency and Bitcoin
Izabella Kaminska | FT Alphaville
Ken Rogoff wades into the negative rate debate this month, in a paper that discusses the costs and benefits of phasing out paper currency — a topic previously explored by Willem Buiter and Miles Kimball (and of course Satoshi Nakamoto).

African bonds lose honeymoon feeling
Javier Blas in Kigali, Rwanda –
Few statistics better show the rise of Africa over the last decade than the sharp increase in the number of countries in the region boasting a sovereign credit rating.

Bond markets join the green revolution
Andrew Bolger –
The corporate green bond market is forecast to reach $20bn this year, double the size of last year’s issuance, according to Standard & Poor’s. The rating agency said this reflected how green bonds, earmarked for environmental purposes, were an important source of capital for companies and were also increasingly popular with investors.
**JK – Bond heros.

Rise of the Bond villains
Izabella Kaminska | FT Alphaville
The dialogue is from A View to a Kill, in which James Bond — a la Roger Moore — poses as an FT reporter “James Stock” to figure out whether tech billionaire Max Zorin is simply a savvy microchip entrepreneur or a megalomaniac eugenicist with a plan to takeover the world.
**JK – And Villains.

Central Banks

NY Fed president floats change to exit strategy
Robin Harding in Washington –
One of the US Federal Reserve’s most influential officials has called for a change to its exit strategy from easy monetary policy.

German Unease With ECB Simmers as Anti-Euro Party Gains
Rainer Buergin and Karin Matussek – Bloomberg
Lawmakers from Chancellor Angela Merkel’s party are criticizing European Central Bank policies as a German anti-euro party gains support before elections across Europe this week.

Bundesbank Warns Market Calm Hides Risks in Yield Search
Jeff Black – Bloomberg
New risks to financial stability could emerge from the combination of generous central bank policies and investors’ search for yield in a low-interest rate environment, Bundesbank board member Andreas Dombret said.
“We do see risks, despite the fact that the markets are calm,” Dombret said in an interview in Frankfurt yesterday. “Real-estate markets in some European countries are pretty high, corporate bond valuations seem stretched and high. The low volatility leads to market participants thinking that they don’t need to hedge.”

Fed Officials: Rate-Hike Tack Will Be Flexible
Michael S. Derby –
Two Federal Reserve officials are making the case that the novel tools likely to be employed to push short-term interest rates higher don’t necessarily augur a permanent policy-making overhaul, shedding light on the debate going on within the central bank.

Bank of England Faces Political Headaches
Alen Mattich – MoneyBeat – WSJ
The Bank of England’s policy setters could well find themselves tip-toeing through a political minefield over the next year.

BOE Minutes Show First Hint of Votes to Raise U.K. Rates
For some Bank of England officials, the time to raise interest rates in the U.K. is getting closer. Minutes of the Monetary Policy Committee’s May meeting, published Wednesday, show the nine-member panel voted unanimously to keep the central bank’s benchmark interest rate at a low of 0.5% and the size of its bond portfolio at 375 billion pounds ($514 billion).

After Fed, Bernanke Offers His Wisdom, for a Big Fee
On Tuesday, Ben S. Bernanke spoke in Abu Dhabi; on Wednesday, he was in Johannesburg. By Friday, he was in Houston. That week in March was a particularly busy one for Mr. Bernanke, the former chairman of the Federal Reserve.


Germany’s Banking Watchdog Widens Foreign Exchange Probe
Germany’s financial watchdog said it has found evidence that traders attempted to manipulate foreign exchange rates and it has broadened a probe of Deutsche Bank AG to include other banks.

Commerzbank Suspends Two Foreign-Exchange Traders
Commerzbank AG said Wednesday it has suspended two currencies traders, alleging it caught them in the act of attempting to manipulate foreign-exchange rates. The two traders were trying to move the Polish zloty’s rate against the euro, according to a person familiar with the matter.

Markets See EU RMB Centres As Key To Global Role For China FX, Aite Group & Clearstream Report Says
A study from Aite Group, commissioned by Clearstream, on “Internationalising the Renminbi: Weaving a Web for the Next World Currency” shows that market participants in Asia and Europe see the development of offshore centers in Europe as having a key impact on the global liquidity of China’s trading currency, the renminbi (RMB).

Senior EU business executives still strongly in favour of euro
Sarah Gordon, Europe Business Editor –
Senior company executives in the European Union still strongly support the single currency, but enthusiasm in the biggest member states for further European integration is waning.

Morgan Stanley Squares Off Against JPMorgan on Baht
Kyoungwha Kim and Lilian Karunungan – Bloomberg
Depending on whether you listen to Morgan Stanley or JPMorgan Chase & Co., the imposition of martial law in Thailand will either send the baht tumbling to levels last seen in 2006 or put an end to its losses.

Citigroup Moves Technical FX Strategists in 24-Hour Push
Kristine Aquino – Bloomberg
Citigroup Inc. relocated two members of its technical strategy team to Singapore and London, underscoring a push by the world’s top foreign-exchange trader to provide 24-hour analysis and expand its geographic reach.


Investors pile into palladium and platinum ETFs
Xan Rice –
Holdings of physically backed palladium and platinum exchange traded funds have surged to record highs on the back of concerns over supply from Russia and South Africa and hopes of stronger industrial demand.

Investec Structured Deposits Have Delivered 6.3% Per Annum Average Maturity Returns – Past Performance Data Suggests Structured Deposits Can Provide Better Returns Than Cash Deposits
Past performance data from Investec Structured Products shows returns from their structured deposits with a kick-out feature have outperformed savings bond rates since 2010, with average returns of 6.3% per annum, according to Investec Structured Products (ISP), the leading structured products specialist in the UK


Risk Appetite Leaves Gold in the Cold
Some investors are giving up on gold. A rally in the price of gold at the beginning of the year has petered out, as an improving U.S. economy and receding inflation fears send money managers in search of better returns in stocks and bonds.

Gold miner Rio Alto to buy Sulliden Gold in $300-million deal
The Globe and Mail – The Globe and Mail
Rio Alto Mining Ltd said it would buy Sulliden Gold Corp Ltd in a deal valued at about C$300-million ($275-million), creating a gold miner focused on Peru, the fifth biggest gold producer in the world.
Rio Alto will pay 0.525 of one Rio Alto share for each outstanding Sulliden share. The offer values Sulliden at C$1.12 per share, representing a 43 per cent premium to the stock’s Tuesday close on the Toronto Stock Exchange.

Indian Investors Sell Gold
Biman Mukherji and Debiprasad Nayak –
Worried Indian investors are selling gold, eroding prospects that a change of government policy in India will boost imports and underpin a fragile recovery in the price of the metal.

Gold Demand in Vietnam Seen Plunging as Inflation Slows
Gold consumption in Vietnam, the largest Southeast Asian user after Thailand, will probably shrink by more than half this year after global prices fell, the currency stabilized and the government tightened rules.

Worldwide Gold Jewelry Demand Increases 3%
Anthony DeMarco – Forbes
Demand for gold jewelry by volume continued its growth of the past few quarters based on consumers across the globe (with notable exceptions) taking advantage of a year-over-year 21 percent drop in the price of the precious metal, according to a report by the World Gold Council. Economic recoveries in some countries also is viewed as a contributing factor for this continued growth.


Inequality of Returns and Reinvestment Opportunity
This is Ashok
Larry Summers has one of the more careful reviews on Piketty’s Capital. His two central objections (in an otherwise glowing review) focus on Piketty’s assumptions that…

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