First Impressions

Bits & Pieces By John J. Lothian

It has been a week of market closures, some planned, others unplanned. First, we shut down the futures pits at the CME Group in Chicago and New York. Then the NYSE decides to take part of the day off when it discovers some issues with a software upgrade, according to reports.

I am signed up for market status texts reports from the NYSE and my phone started exploding with messages yesterday morning as NYSE started to discover its problems.

In other news, my friends at the Pathway to Adventure Council of the Boy Scouts of America report that Advantage Futures Trading Tech 300 kickoff merit badge fair day on July 15 has been sold out. We have 24 young men signed up for the chess and public speaking merit badges to be led by Advantage’s Terry Duffy. This is not the CME’s Terry Duffy, but still Terry Duffy.

The word is that GlenStar Properties, which owns the CBOT Building and is a MarketsWiki partner level sponsor, will be offering the engineering, electricity and search and rescue merit badges for the Trading Tech 300 program in August. Details and sign up to start soon.

I will be away at summer camp with my Boy Scout troop the week of July 18 to 24. With 9 new scouts in my troop, this will be quite the challenging week.

Finally, don’t forget to sign up your interns or yourself for our Summer Intern Education series in New York and Chicago. Details are available on

Quote of the Day

“There is a lot of M&A financing in the pipeline waiting for the uncertainty to lift. Even with all the turmoil the world doesn’t stop, and neither does the need for financing.”

Raman Srivastava, the head of global fixed income at Standish Mellon Asset Management Co., in the story, “M&A Debt Needs Pile Up as Bond-Market Pause Belies Coming Deluge”

Lead Stories

Conciliatory Greek reform plan sent to creditors ahead of deadline
Dody Tsiantar – LA Times
The Greek government on Thursday delivered a new package of economic reforms to European creditors that Athens media said included raising taxes and the retirement age — two issues leftist government officials had previously said were “red lines” they wouldn’t cross.

Tsipras seeks to rush austerity package through Greek parliament
Peter Spiegel, Eleftheria Kourtali and Claire Jones – Financial Times
The Greek government submitted its highly-anticipated plan for the country’s economic overhaul to bailout authorities on Thursday night amid signs Alexis Tsipras, prime minister, was facing resistance to the proposal by some of the more radical elements in his own party.

M&A Debt Needs Pile Up as Bond-Market Pause Belies Coming Deluge
Cordell Eddings – Bloomberg
The backlog of companies that need to tap the U.S. bond market is growing as borrowers wait for turmoil to blow over from Greece and China’s stock-market slump.
A record pace of takeovers announced this year heralds a potential deluge of issuance that Bank of America Corp. analysts predict will make July and August the busiest ever for sales of corporate securities. CVS Health Corp. has arranged $13 billion in financing to buy Omnicare Inc. Halliburton Co. has lined up $8.6 billion to buy Baker Hughes Inc. And Charter Communications Inc. is said to be marketing as much as $15 billion in debt to fund its acquisition of Time Warner Cable Inc.

IMF cuts global growth forecast for 2015
The International Monetary Fund has cut its forecast for global growth this year, as a result of a slowdown in the US economy.
The IMF now says the global economy will expand by 3.3% in 2015, compared with a previous forecast of 3.5%.

Deutsche Bank: China Can Learn From 1987 Plunge Protection Team
Julie Verhage – Bloomberg
After the Shanghai Stock Exchange Composite Index slid 5.9 percent, to 3,507.19, on Wednesday, it bounced back 5.8 percent, to 3,709.33, today.
With the roller coaster ride continuing, Chinese officials have taken action.
Over the past two weeks, they’ve unveiled fresh measures almost every day in an effort to boost confidence and reverse a rout that saw the market lose $3.9 trillion in less than a month. The Shanghai Composite had traded as high as 5,178 just last month before its historic crash.

Tsipras and Merkel both to blame for Greek tragedy
Clive Crook – Chicago Tribune
By voting no in last Sunday’s referendum, and by such an impressive margin, Greece won itself a moment’s elation — and may come to regret the consequences for years. It was one more in an absurdly extended series of miscalculations.

Greek Samurai Bonds Signal Imminent Default as Rescue Hope Fades
Luca Casiraghi – Bloomberg
As Greece enters its final days of bailout negotiations, bondholders are losing hope they’ll be repaid.
A 20 billion yen ($165 million) Samurai note sold in 1995 falls due on July 14 and is quoted at less than 50 percent of face value, according to data compiled by Bloomberg. As recently as Friday, the 11.7 billion yen of notes outstanding were quoted above 60 percent and analysts said they were likely to be repaid.

Falling Oil Prices Renew Junk Bond ETF Default Fears
Tom Lydon – ETF Trends
With oil prices sliding back down, junk bond exchange traded funds could also experience another round of selling on increased default concerns over speculative-grade energy bond issuers.

U.S. Fed buys $5.2 billion of mortgage bonds, sells none
The Federal Reserve bought $5.249 billion (3 billion pounds) of agency mortgage-backed securities in the week from Jul. 2 to Jul. 8, compared with $10.012 billion purchased the previous week, the New York Federal Reserve Bank said on Thursday.

Hayes Said Traders Would Help Rig Libor for a Mars Bar
Liam Vaughan and Gavin Finch – Bloomberg
Libor rigging was commonplace at UBS Group AG and was as easy as offering colleagues a bar of chocolate, Tom Hayes said in a nine-year-old Internet message shown to jurors at his criminal trial.

Swiss banks agree US tax evasion deal with Justice Department
Two more Swiss banks have agreed deals with the US Justice Department over tax evasion by Americans.
Banque Pasche will pay $7.22bn (£4.7bn) and Arvest Privatbank $1.04bn in penalties under a deal that means they will not face criminal charges.

How Puerto Rico’s Debt Levels Compare With Those of U.S. States
Taylor Riggs – Bloomberg
Puerto Rico’s debt levels have been rising to unsustainable levels, a stark contrast to U.S. states, which have been trying to reduce debt levels after the recession. What pushed Governor Alejandro Garcia Padilla to say on June 29 that the island’s debt is “not payable”? The charts below may help explain what went wrong.

Central Banks

ECB Policy Makers Forced to Deal With Possibility of ‘Grexit’
Todd Buell – WSJ
The European Central Bank has insisted since the beginning of the Greek crisis that membership of the currency bloc is irreversible. But recently a change of mood has become palpable among policy makers.

Fed’s George Says Central Bank Should Implement Modest Rate Rises ‘Now’ – Real Time Economics
Michael S. Derby – WSJ
Federal Reserve Bank of Kansas City President Esther George renewed her call for the U.S. central bank to raise borrowing costs in the American economy, saying Thursday that “we would be wise to act modestly but act now.”
Ms. George, who has long warned the Fed risks creating unstable markets and an inflation surge if it keeps rates too low for too long, said the U.S. economy has been growing and is likely to continue to grow. For her, that renders moot the need for the Fed to keep its short-term target rate at an emergency near-zero setting.

Federal Reserve Governor Backs Stress Test Surcharge
Claire Groden – Fortune
The country’s biggest banks would need to hold more capital in the event of a downturn.
Federal Reserve Gov. Lael Brainard said Thursday morning that she supports a controversial proposal to include capital surcharges for the eight largest U.S. banks during the Fed’s annual stress tests. The surcharges, which bankers have opposed, would require those banks to hold more capital — which increases banks’ resilience in case of a downturn — than other financial institutions.

IMF says U.S. rate hike likely not influenced by Greece, China
Anna Yukhananov and Megan Cassell – Reuters
The International Monetary Fund on Thursday said it seemed Greece’s crisis and market volatility in China would not affect when the U.S. Federal Reserve chooses to raise interest rates.

Tame Inflation Gives China More Leeway on Monetary Policy
Consumer inflation in China edged up in June, though will likely remain tame the rest of the year, economists said, leaving Beijing leeway to try to rejuvenate growth in the world’s second-largest economy.

How Accurate Are Central Bank Forecasts? (VIDEO)
Bloomberg’s Jennifer Ryan discusses central bank forecasts and which institution is most accurate. She speaks with Manus Cranny on Bloomberg Television’s “The Pulse.”

Philip Cross: Cheap money can hurt the economy
Philip Cross – Financial Post
The Canadian and U.S. economy’s unexpected weakness early in 2015 is fanning speculation about lower interest rates, after the Bank of Canada’s surprise cut in mid-January. Before listening to these siren calls for ever more monetary policy stimulus, it would be wise to read the recent annual report of the Bank for International Settlements, the Swiss-based bank for the world’s central banks. Beholden to no government, the BIS speaks with a refreshingly candid, clear and unconventional voice.

FSB praises progress of benchmark reforms
Cian Burke – Futures & Options World
The Financial Stability Board (FSB), the international body tasked with coordinating the work of national financial authorities, has praised the progress made in reforming major interest rate benchmarks including the development of alternative risk-free rate benchmarks.


Euro, Envisioned as Force for Unity, Becomes Weapon in Greek Crisis
Peter Eavis – NY Times
As the Greek crisis escalated in recent days, Europe’s common currency crossed a line that could taint it forever.
The crucial moment occurred when Greece’s debt dispute with other European countries became a fight to stay in the euro. The prospect of a country leaving the currency was once unthinkable. Europe’s goal is to form an “ever closer union” — and the euro’s creators expected the currency to play a driving role in that process.

Russia Tightens Reins on Ruble as Economy Braces for Shocks
Anna Andrianova, Andrey Biryukov and Olga Voitova – Bloomberg
Russia is asserting more control over its currency as crises from Greece to China create new vulnerabilities for the recession-hit economy.
Russia is succeeding at keeping the ruble within an “acceptable corridor” while maintaining its reserves and a positive trade balance, President Vladimir Putin said on Thursday at a meeting of leaders of the BRICS countries in Ufa, Russia. The central bank has the resources to prevent “serious volatility” of the exchange rate, Finance Minister Anton Siluanov said at the same event.

The Return of the Drachma?
Jad AbdelMalak –
After the rejection of further austerity measure by the Greek on Sunday, it is predicted that investors may refuse to lend Greece money at almost any cost since banks and government lacks funds to operate. According to former U.S. Treasury Secretary Larry Summers, Greece will run out of money very soon as there will be an urgent need to either provide with some sort of IOU scrip to meet the demands of funds or to resolve them in a way, since Greece lack the ability to print euros. These IOU scrips are to buy some time until a deal is reached with Europe to provide Greece money for operation.

Offshore Chinese yuan moves off 4-month lows as shares rise
Economic Times
The Chinese yuan in the offshore market rose from four-month lows on Thursday as relieved investors welcomed gains by mainland and Hong Kong stocks.

First Sighting of Drachma in the Wild, Via Credit-Card Mystery
Mehul Srivastava, Elizabeth Dexheimer and Dakin Campbell – Bloomberg
Long-Feared Currency Makes Fleeting Appearance on Reporter’s Bill

Indexes & Index Products

A Record Level Of 40 Billion US Dollars In Net New Assets Was Gathered By ETFs And ETPs Listed In Europe In The First Half Of 2015 According To ETFGI
A record level of US$40 billion in net new assets (NNA) was gathered by ETFs and ETPs listed in Europe in the first half of 2015, surpassing the prior record of US$32 billion gathered in the first half of 2014, according to ETFGI’s preliminary ETF and ETP global insights report for the first half of 2015. At the end of June 2015, the European ETF/ETP industry had 2,118 ETFs/ETPs, with 6,502 listings, assets of US$499 Bn, from 50 providers listed on 25 exchanges in 21 countries.

Commodity Indices Can Outsmart Another 45% Oil Drop
Jodie Gunzberg – Indexology: S&P Dow Jones Indices
Many key factors are currently driving oil down and the bloodshed might not be over. As mentioned in a recent CNBC interview, from current levels, the S&P GSCI Crude Oil Total Return could drop another 45% before surpassing energy’s worst historical loss of 78.4% that happened in 2008-2009.

Press Release: S&P Dow Jones Indices Statement on NYSE Floor Trading Halt Impact on Previously Announced Changes to the S&P 500
S&P Dow Jones Indices (S&P DJI) has announced that it will not delay the implementation of the previously announced changes to the S&P 500, S&P MidCap 400 & S&P SmallCap 600 scheduled to take place after the close of trading July 8.


This 65-year beer vs gold price chart is the only one you need
Frik Els –
It’s still months away, but amid all the turmoil on financial markets and chaos in the global economy, you can’t help but look forward to this year’s Oktoberfest.
Incrementum’s ninth annual In Gold We Trust report analyzes gold primarily as a monetary asset and not as a commodity like say hops or barley.

U.S. Dollar Is Now the Safe Haven Asset, Not Gold
Jill Malandrino – TheStreet
For most of 2015, gold has been trading in range around $1,200 as it struggles to find conviction to the up or downside as interest rate hike speculation and Greece’s ability to pay debt is trumping fundamentals. It has mostly been more of a technical trade.
Commodities are priced in U.S. dollars, so as the greenback moves higher, instruments like oil and gold generally move lower, and the inverse applies due to the strong correlation in the moves. Commodities move on other fundamentals such as supply and demand in addition to the U.S. dollar.

Gold companies set to cut back amid slump in price
Allan Seccombe – BDlive
Global gold companies will cut 2.2-million ounces of gold from their forward sales or hedge books between April and year-end, with few signs miners want to lock in the gold price, GFMS said on Wednesday.

Amcu pulls out of gold wage talks
Molaole Montsho – IOL Business
The Association of Mineworkers and Construction Union (Amcu) has declared a deadlock in the gold sector because no progress had been recorded over three weeks, the union said on Thursday.
“The Chamber of Mines gold sector negotiations have been on-going for the third week now with little to no progress, hence we have declared a deadlock. The Chamber’s response to the unions and employers has been respectively disappointing,” the union said on its website.


Is He from Another Planet? Kenya’s New Central Bank Governor Turns Down A House, Cars
Dana Sanchez – AFKInsider
Kenyans are used to senior government officials leading lavish lifestyles, so they like Patrick Njoroge, the new central bank governor who rejected the grand house that comes with his prestigious job, BBC reports.
Former central bank governors lived in the luxurious Muthaiga Estate in Nairobi, famous for its beautiful gardens used to host parties. They drove range rovers or mercedes and had security cars.
Njoroge prefers a simple lifestyle and not everyone is happy about that. Many found it challenging, Victor Nyakachunga wrote in the Standard. His “refusal to take his turn to eat is surprising” says business columnist Otieno Otieno in the Daily Nation.

Treasury Secretary Says ‘Wall Street Reform Is Working’; Lew says U.S. must ‘sustain and build on the progress we have made,’ calls on regulators to ‘finish important rules’
Ryan Tracy – WSJ
U.S. Treasury Secretary Jacob Lew defended the Dodd-Frank financial overhaul Wednesday, nearly five years after it became law in July 2010.

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