First Impressions

John Lothian News Survey – Final Days!
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Quote of the Day

[We are] carefully thinking through questions about the trade-offs associated with tighter liquidity regulation.

Federal Reserve Chair Janet Yellen, as quoted in the LA Times story “Yellen says Federal Reserve considering tougher rules for big banks”

Lead Stories

China Rate Swap Drops to One-Month Low as New Lending Declines
Lilian Karunungan – Bloomberg
The cost of locking in China’s interest rates sank to a one-month low as data showed a drop in lending and the slowest money-supply expansion on record.
Aggregate financing, the broadest measure of new credit fell 19 percent from a year earlier to 2.07 trillion yuan ($333 billion) in March and growth in M2 money supply slowed to 12.1 percent from 13.3 percent, the People’s Bank of China reported today.
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***DA: Are we losing our risk appetite?

Hedge Fund Gains on Distressed Debt Decline to Seven-Month Low
David Yong – Bloomberg
The performance of global hedge funds investing in distressed debt dropped to its weakest level in seven months in March as Treasury yields increased and emerging-market concerns mounted, according to Eurekahedge Pte.
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***DA: He that liveth by the sword.

Interest Rates and the Budget Outlook
Paul Krugman – The New York Times
The CBO has issued its latest budget update, and as always it’s a very careful piece of work. But there is one thing really worth drawing attention to — not that the CBO is necessarily wrong, but it might be, and at any rate people should be aware of what’s driving the conclusions.
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***DA: Counterpoint, Dr. Krugman. If the IMF is right and we are in for a long long period of low rates, the likely culprit is sustained economic malaise. How have deficits fared during such weakness? Can’t have it both ways.

European Parliament Approves Laws on Banking Overhaul
James Kanter – The New York Times
The European Parliament approved a clutch of laws on Tuesday aimed at shielding taxpayers from the costs of bailing out failing banks and at turning the page on a period of instability in European Union finances that nearly sank the euro, the bloc’s flagship project.
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Five things you should know about the Federal Reserve’s obsession with inflation
Peter Morici – Fox Business
The Fed fears anything less than 2 percent inflation is detrimental to economic growth. It has printed hundreds of billions of dollars to buy Treasuries and other securities, and kept a lid on short term rates to encourage mortgage lending and other consumer and business borrowing.
Yet, inflation remains modest and growth dreadfully slow.
Here are five things to know about inflation and the Fed’s obsession:
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Obamacare Wins U.S. Bond Converts as Slowing Costs Tame CPI
Daniel Kruger – Bloomberg
Regardless of what Americans think about Obamacare, reining in health-care costs is winning the support of investors in U.S. Treasuries.
After doubling in the past two decades, medical expenses rose less last year than at any time since Harry S. Truman was president in 1949, helped by Medicare reimbursement cuts.
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***DA: I would caution not to count these chickens as they have yet to hatch.

Low Interest Rates Are A Terrible Reason For High Stock Prices
Ed Yardeni – Business Insider
Of course, there are still investors who believe that higher valuation multiples are justified by historically low interest rates. However, I’m not in that camp. Multiples should be driven by expectations for earnings growth. Currently, historically low interest rates reflect subpar economic growth with rising risks of deflation.
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***DA: You can say that again. Actually you can shout it from the mountaintop.

JPMorgan Targeting Gulf Leaps to No. 2 for Bonds: Arab Credit
Alaa Shahine – Bloomberg
JPMorgan Chase & Co. is gaining ground in the debt markets of Gulf Cooperation Council states after the biggest U.S. bank helped manage this month’s Islamic bond sale by Saudi Arabia’s utility.
JPMorgan is the biggest bond underwriter after HSBC Holdings Plc (HSBA) in the six-nation GCC in 2014, its best start to a year since 2007, according to data compiled by Bloomberg. The New York-based lender advised on six deals, including Saudi Electricity (SECO) Co.’s $2.5 billion sukuk sale on April 1.
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China GDP Gauge Seen Showing Deeper Slowdown
Bloomberg
China’s loss of economic momentum in the first quarter was deeper than the most widely-cited data will show, according to analyst forecasts for a gauge that’s gaining increasing recognition.
Gross domestic product grew a seasonally adjusted 1.5 percent from the previous three months, according to the median estimate in a Bloomberg News survey ahead of data released tomorrow, down from 1.8 percent in the fourth quarter.
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Turkey’s Central Bank Hikes Interest Rates
Voice of America
Concerns are growing about Turkey’s economy after Moody’s cut its debt-rating outlook from stable to negative.
The financial rating agency blamed political uncertainty for the move and the downgrade comes at a bad time for Turkey’s prime minister, who is expected to run in the August presidential election.
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***DA: Hard to see a scenario where this ends well.

Central Banks

We’re Much Too Obsessed With Central Bankers
Michael Schuman – Time
Japan’s struggles make clear that global financial markets are overly focused on what central banks are doing and not enough on what really ails the world economy.
Turn on CNBC any given morning and you’ll endure fund-manager after banker after stock-market-analyst attempt to decipher what the U.S. Federal Reserve might or might not do, and when it might or might not do it.
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***DA: There are 24 hours of programming to fill. What else can we do? More weight loss infomercials?

Yellen says Federal Reserve considering tougher rules for big banks
Jim Puzzanghera – Los Angeles Times
The Federal Reserve is considering tougher rules for big banks to keep credit flowing in case of another financial crisis, Fed Chairwoman Janet L. Yellen said Tuesday.
Although officials from the Fed and regulatory agencies approved more stringent requirements for the eight largest banks last week, Yellen said additional measures might be needed to keep short-term credit markets from freezing up during stressful financial conditions.
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***DA: Now as before, there is only one entity on the planet capable of backstopping a systemic crisis, and Ms. Yellen is the head of it.

ECB Talking Up QE Focuses Belka on Zloty Defenses: Poland Credit
Maciej Onoszko – Bloomberg
European Central Bank President Mario Draghi’s plan for further monetary easing is prompting his counterpart in Poland to respond with preparations of his own to keep the zloty from threatening the nation’s recovery.
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A new policy tool for banks to stop asset bubbles wreaking economic havoc
Philip Pilkington – The Guardian
After years of denial central banks are finally coming around to recognise that they must take responsibility for asset bubbles that can wreak economic havoc. Executive director of the Bank of England Andrew Haldane highlighted this earlier this month when he stated that managing the asset managers would “require fresh thinking on new policy tools”.
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Currencies

Draghi’s Euro Warning Seen as Cheap Talk by Traders: Currencies
Anchalee Worrachate – Bloomberg
For currency traders, talk is cheap, even when the person speaking is the president of the European Central Bank.
Mario Draghi’s suggestion this weekend that the ECB may ease policy to address the euro’s advance marked a strengthening of a position he’s been setting out for weeks. Yet the 18-nation currency has shrugged off his repeated comments and climbed since the beginning of March, while options traders are about the least bearish on the euro since November 2009.
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***DA: We’re gonna intervene! We mean it this time! Seriously, stop buying our currency. You’ll be sorry!

Dollar disillusion
FX-MM
Last week’s aggressive rhetoric of the European Central Bank (ECB) – which emphasised its readiness to act if necessary, most likely via quantitative easing – did not have a lasting effect on the euro. At least, that is what the performance of the EUR/USD suggested as it recovered back above 1.38; the result of dovish Federal Open Market Committee (FOMC) minutes which undermined the US dollar, with the DXY dollar index giving up 1.1% over the past week. Indeed, the euro corrected against all G10 currencies apart from the US dollar and (to a lesser extent) the Swedish krona.
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CREDIT SUISSE: The ‘Fragile Five’ Currencies Could Soon Be More Like A ‘Formidable Five’
Jens Erik Gould – Business Insider
In recent years, economists have had a thing about easily pronounceable acronyms for groups of countries in similar situations. It started with the fast-growing emerging market BRICs—Brazil, Russia, India, China, and South Africa—and continued with the heavily indebted euro-area group known as PIIGS—Portugal, Italy, Ireland, Greece, and Spain.
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Gold

Gold: In search of a new standard
Xan Rice – Financial Times
On the morning of September 12 1919, just 10 months after the end of the first world war, bankers at NM Rothschild & Sons in London sat down to calculate a fair price for gold. They had been asked to do this by the Bank of England, which wanted to restore the city’s status as an international finance centre.
Sir Brien Cokayne, the BoE’s governor, envisaged “an open market for gold in which not only every seller would know that he would receive the highest price the world could pay but also every buyer would know that he would get his gold as cheaply as the world could supply it”.
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New York Fed contradicts its former vice president about gold accounts
Chris Powell – GoldSeek
Dear Friend of GATA and Gold:
The Federal Reserve Bank of New York has contradicted the assertion of its former vice president that it has provided gold accounts to bullion banks.
The assertion of such accounts was made by H. David Willey, the former New York Fed vice president in charge of foreign central bank accounts and the gold vault at the New York Fed, in a speech given in May 2004 to the American Institute for Economic Reserve in Great Barrington, Massachusetts.
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A Gold Obsession Pays Dividends For Indian Women
Julie McCarthy – NPR
It’s indestructible. It’s fungible. It’s beautiful. And for Indians, gold – whether it’s 18-, 22- or 24-carat — is semi-sacred.
The late distinguished Indian economist I.G. Patel observed, “In prosperity as in the hour of need, the thoughts of most Indians turn to gold.”
No marriage takes place without gold ornaments presented to the bride. Even the poorest Indian outfits girls in the family with a simple nose ring of gold.
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Gold Futures Drop Most This Year on Stimulus Concerns
Debarati Roy and Nicholas Larkin – Bloomberg
Gold headed for the biggest drop this year on concern that a pickup in U.S. consumer prices will give the Federal Reserve leeway to further scale back stimulus. Palladium fell for the first time in six sessions.
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