First Impressions

John’s Back (but no, he’s not back yet)
Sarah Rudolph
John had his back surgery yesterday and it went well. The surgery actually took about two hours. Amazing what they can do these days. At some point he was even well enough to send us all a grumpy email, and Jon Matte thinks he may have been sending over some press releases during the surgery.

As of the latest update from John’s wife Cheryl, he was recovering in a room in the ICU and was comfortable and mostly dozing. He’s scheduled to be moved into a regular room some time today.

Will post further updates as soon as we hear more.

Quote of the Day

“Since the financial crisis, U.S. dealers have reduced their reliance on and provision of Treasury repo as a means of funding relative to the size of the overall market. The NSFR requirements risk causing this to slip further.”

Credit Suisse in the story, “Deutsche Bank Attacks Basel Plan’s Threat to Repo Market”.

Lead Stories

China poised to pass US as world’s leading economic power this year
Chris Giles, Economics Editor –
The US is on the brink of losing its status as the world’s largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies.

EU watchdog to clarify sovereign debt ratings rules
The European Union’s regulator for credit rating agencies will clarify new rules on publishing changes to sovereign debt ratings to help investors confused by firms’ differing approaches.

Deutsche Bank Attacks Basel Plan’s Threat to Repo Market
Jim Brunsden – Bloomberg
Global banks from Deutsche Bank AG (DBK) to Credit Suisse Group AG (CS) are urging international regulators to rethink a liquidity rule they say risks harming the market for repurchase agreements and pushing up governments’ borrowing costs.
Draft plans from the Basel Committee on Banking Supervision, aimed at ensuring banks obtain more of their funding from stable sources, also risk penalizing lenders that invest in securitized debt, according to consultation responses submitted by the industry.

Gross Says No Asset Bubbles Given 2% Fed Long-Term Rate
Liz Capo McCormick – Bloomberg
Pacific Investment Management Co.’s Bill Gross said asset markets from stocks to real estate are not overpriced because the Federal Reserve’s long-term policy rate will be half of what policy makers are forecasting.
“Estimates which average less than 2 percent are much closer to financial reality than the average 4 percent ’blue-dot’ estimates” of Fed policy makers, Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website today.

Apollo’s Rowan Sees ‘Danger Signs’ of Crisis in Debt Markets
Devin Banerjee and Sridhar Natarajan – Bloomberg
Apollo Global Management LLC (APO) co-founder Marc Rowan said he sees many signs of a bubble in the credit markets that could lead to another financial crisis.

No One Cares About Economic Data Anymore. That’s Good News.
Neil Irwin –
If people in your office seem to be tingling with excitement this week, it is probably because of all the big economic news on the way. The two biggest regular United States economic reports are scheduled to come out, with first-quarter gross domestic product on tap for Wednesday and April jobs numbers out on Friday. What, no tingling? You’re not alone.

A ripple of hope in a stagnant world
Martin Wolf –
Why are real interest rates so low? And will they stay this low for long? If they do – as it seems they might – the implications will be profound: good for debtors, bad for creditors and above all, worrying for the vigour of global demand.

Lines Get Blurred in the FX Probe
Chiara Albanese – MoneyBeat – WSJ
At least 30 traders (and one salesperson) have been suspended or fired over the last year, since authorities around the world, starting with the U.K., started looking into whether something is rotten at the core of the currencies market. And yet, here’s the latest pronouncement from the U.K.’s financial watchdog: “We are some way away from saying there was actually misconduct at all.” Come again?

Deutsche Bank Among 15 Europe Lenders Cut to Negative by S&P
Zachary Tracer – Bloomberg
Deutsche Bank AG (DBK), Germany’s largest lender, was among 15 European banks that had their outlooks cut to negative by Standard & Poor’s on the prospect that governments are less likely to provide aid.
The outlooks were lowered from stable “to reflect our view that extraordinary government support is likely to diminish as regulators implement resolution frameworks,” the ratings firm said yesterday in a statement.

Piketty’s Wealth Tax Would Require A Constitutional Amendment In The US
Tim Worstall – Forbes
Many thanks to commenter Jeff_S here at Forbes for pointing out that Piketty’s proposed wealth tax to solve the ills of unconstrained inequality would actually require a constitutional amendment for it to be legal. Which is, not being American myself, (and presumably, Piketty not being American the same for him) an aspect of it that I hadn’t considered.

Central Banks

U.S. Senate panel backs Fischer to be Fed’s No. 2
The Senate Banking Committee approved three nominees to the Federal Reserve’s board on Tuesday, including Stanley Fischer to be the U.S. central bank’s No. 2, in a big step toward replenishing the Fed’s governing body.

Elliott’s Singer Mocks ‘Yellen the Magnificent’ in Letter to Investors
Rob Copeland – MoneyBeat – WSJ
Hedge-fund manager Paul Singer has a nickname for Federal Reserve Chair Janet Yellen: “Yellen the Magnificent.” But the spin on Johnny Carson’s famous mocking mystic sketch is not a compliment.

Fed expected to take further step toward ending bond buying
The Federal Reserve is expected to cut its bond-buying program by a further $10 billion on Wednesday as signs mount that the U.S. economy is starting to pull away from its winter slowdown.

RBI may have a 5th deputy governor
Business Standard
The Reserve Bank of India (RBI) is likely to have one more deputy governor in addition to the existing four. Since the existing laws will have to be amended for the appointment of an additional deputy governor, it has been proposed that an officer-on-special duty will be appointed with the rank of a deputy governor.

RBI might not push bond index plan
Business Standard
The Reserve Bank of India (RBI)’s earlier plan for including Indian bonds in a global bond index might have been put on the back burner due to strong foreign exchange reserves.


HKEx CEO: Hong Kong-Shanghai Link to Speed Yuan Internationalization
Gregor Stuart Hunter –
A pilot program linking the Hong Kong and Shanghai stock exchanges will form a key part of China’s plans to internationalize its currency, the chief executive of Hong Kong’s stock exchange operator said on Tuesday.

Yuan ‘Seismic Change’ Far Off for Architect of Hong Kong Peg
Fion Li and Sandy Hendry – Bloomberg
A free-trade zone opened by China last year is unlikely to be a major step toward making the yuan fully convertible and suitable as a Hong Kong dollar peg, the architect of the city’s 30-year-old currency regime said.

Traders Join Exodus as Forex Probes Add Pressure on Costs
Edward Evans and Andrea Wong – Bloomberg
The ranks of foreign-exchange traders are rapidly thinning as a probe into alleged manipulation of benchmark rates widens and pressure mounts on the industry to reduce costs.

If you flip a euro forever…
David Keohane | FT Alphaville
Euro chart du jour, from Nomura: We’d call it the new yen, but we all know what happened there.

BitBeat: For Bitcoin Miners, A Hot Problem This Summer
MoneyBeat – WSJ
Here’s the thing: the hash rate of the bitcoin mining network – or in simple terms, its computational power – is about 60 times higher than it was at the start of last fall. What that increase means is that many Northern Hemisphere miners, whose increasingly high-tech computer rigs have been competing in an arms race to grab a limited flow of bitcoins, are about to run into a very big problem: summer.

France urges action to lower euro’s value
Hugh Carnegy in Paris –
France will push for action to lower the value of the euro after European parliamentary elections next month, Manuel Valls, prime minister, declared on Tuesday.

Indexes & Index Products

A volatile love affair with exchange funds and indexes
Mike Dolan – Reuters
The blossoming love affair with index-based investing and exchange-traded funds is sweeping aside more traditional investment management with its hefty fee premium, even if it is stoking market volatility.
The seemingly contradictory combination of cheaper fees and superior performance is proving too attractive for many savers to ignore and appears a win-win for everyone except active managers and hedge funds.

GMEX Group Subsidiary Global Derivatives Indices Announces Strategic Partnership With Tullett Prebon Information
Global Derivatives Indices (“GDI”), a wholly owned subsidiary of Global Markets Exchange Group International LLP (“GMEX Group”), today announced a strategic collaboration with Tullett Prebon Information (TPI), part of Tullett Prebon, one of the world’s leading inter-dealer brokers. The deal allows GDI the rights to use TPI’s high quality, independent over-the-counter (“OTC”) derivatives data as part of its accurate and reliable index benchmarks.

Eurex to Launch Index Futures Contracts Based on TASE’s Main Index in June
Press Release (via MarketWire)
The Tel Aviv Stock Exchange (TASE) and Eurex Exchange, the international derivatives marketplace and part of Deutsche Börse Group, announced today during a joint press briefing, that Eurex Exchange will list and clear index futures based on the TA-25 index, Israel’s blue chip index, as of 9 June 2014. The TA-25 index is one of the most heavily traded regional equity indexes. Eurex Exchange’s TA-25 index futures will be denominated in US dollars.


CME mulls price fluctuation limits for gold, silver futures
Frank Tang – Reuters
U.S. futures exchange CME Group Inc is considering the introduction of daily limits on price moves in gold and silver futures in a bid to rein in wild volatility that has spooked investors in recent years, a CME official said on Tuesday.

And then there were 2: Deutsche exit renews scrutiny of silver fix
Deutsche Bank’s exit from the London precious metal fixes will leave just two banks running a century-old system that sets the global silver price, likely stirring the debate about regulation of one of the most volatile commodity markets.

China Gold Imports Seen Lower by StanChart as Yuan Slumps
Chanyaporn Chanjaroen – Bloomberg
Gold imports by China may drop over the next few months after the yuan fell, while shipments to India are picking up, according to Standard Chartered Plc, signaling contrasting outlooks for the two largest users.
Weakness in the yuan made domestic bullion in China cheaper than gold bought from overseas, said Jeremy East, global head of metals trading, who relocated to Hong Kong from London in June. Flows into India are higher than a year earlier and there’s speculation import curbs may be eased, said East.

India gold jewellery exports climb, set to keep rising
Siddesh Mayenkar – Reuters
Gold jewellery exports from India rose for a second straight month in March as raw material supply improved after the central bank allowed more banks to import bullion, with industry officials saying the upward trend looks set to continue.

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