Doug Ashburn – JLN
Remember when the swap execution facility was the top of the news? Yeah; it’s been a while. So here is a quick update. Twenty seven entities or so applied for SEF status after the rules were finalized in 2013, and most were granted “temporary” status while regulators slogged through the rulebooks. Since then, the industry has wondered when these SEFs would be granted permanent status. Buried in paragraph five in a speech to be delivered by CFTC Chairman Tim Massad is the announcement of 18 permanent SEF designations. Five more (mostly latecomers) are still awaiting the thumbs-up. The full list can be found in our MarketsWiki entry below.
JLN Survey 2016 – Still Time to Get in the Running for an Apple Watch
All we ask of you for the chance to win an Apple Watch is three minutes of your time — it’s a quicker process than rush hour queues at Starbucks, less than the preparation time of some instant dinners and about the length of a commercial break. If time is money and various Apple Watch models retail from $350 on up … Let’s just say you’re better off taking the survey than getting roped into the next Powerball madness. Click HERE to get started.
Quote of the Day
“From a fundamentals perspective the answer is ‘weeeee?.?.?.?splat!!?.?.?.?boing!’, or whatever a dead cat sounds like.”
Michael Every of Rabobank to clients in the story, “Impatient investors head for the exits”
Davos 2016: Migration crisis, gender diversity and Brexit – as it happened
Davos 2016: Migration crisis, gender diversity and Brexit – as it happened
****SD: Live updates from day three of the WEF. Living in Davos during WEF must be like living in Park City, Utah, during Sundance, but, obviously, less fun.
Saudi Arabia’s Secret Holdings of U.S. Debt Are Suddenly a Big Deal
Andrea Wong and Liz McCormick – Bloomberg
It’s a secret of the vast U.S. Treasury market, a holdover from an age of oil shortages and mighty petrodollars: Just how much of America’s debt does Saudi Arabia own?
But now that question — unanswered since the 1970s, under an unusual blackout by the U.S. Treasury Department — has come to the fore as Saudi Arabia is pressured by plunging oil prices and costly wars in the Middle East.
China’s banking crisis looms like Banquo’s Ghost in Davos
Ambrose Evans-Pritchard – The Telegraph
Bad debts in the Chinese banking system are four or five times higher than officially admitted and pose a mounting risk to the country’s financial stability, the world’s leading expert on debt has warned.
Harvard professor Ken Rogoff said China is the last big domino to fall as the global “debt supercycle” unwinds. This is likely to expose the sheer scale of malinvestment that has built up during the country’s $26 trillion credit bubble.
****SD: Gotta love what Evans-Pritchard did with his titles today — see “Mario Draghi denies that ECB bazooka is empty amid fears QE is turning toxic” under Central Banks.
Blizzard Jonas forecast
Tanya Lewis – Business Insider
A potentially historic snowstorm, dubbed Winter Storm Jonas, is expected to clobber the US’s east coast from Friday afternoon through Sunday, affecting millions of Americans and bringing heavy snow, strong winds, and a risk of coastal flooding.
“It is a potentially paralyzing storm,” Louis Uccellini, director of the National Weather Service, said Thursday in a conference call with reporters.
****SD: If you have travel plans involving the East Coast this weekend, stay safe and good luck. Here at JLN, Jim Kharouf and John Lothian were planning on attending the CFTC TAC meeting in DC on Tuesday — we’ll have to see how that plays out.
Squeezed bank dealers quit European government bond markets
John Geddie – Reuters
A rise in the number of banks giving up primary dealer roles in European government bond markets threatens to further reduce liquidity and eventually make it more expensive for some countries to borrow money.
China is trying to conquer ‘The Impossible Trinity’: an economic puzzle no-one has ever solved
Ben Moshinsky – Business Insider
It’s called the “Impossible Trinity” for a reason.
In economics, you can’t have it all. A country must choose two out of the following: control of a fixed and stable exchange rate, independent monetary policy and free and open international capital flows.
Impatient investors head for the exits
Dan McCrum, David Oakley and Roger Blitz – Financial Times
Violent deaths for felines are metaphorically useful for physicists and stock traders alike. Schrödinger locked them in safes with hydrocyanic acid, while investors throw them out of windows.
****SD: Talking about dead cat bounces leads to the inevitable Schrödinger reference, which can quickly shift the topic towards quantum mechanics. And then my brain explodes.
At Davos, it’s time for the big money to make a big bet on slowing climate change
Ion Yadigaroglu and Peter Davidson – Quartz
Last year climate change figured prominently at the financial confab. Now that there’s a historic agreement to limit emissions, attention should turn to the only source of funding big enough to put words into action: Pension funds and insurance companies.
World Economic Forum: Experts Launch Bid To Strengthen Global Trade At Davos
The World Economic Forum and International Centre for Trade and Sustainable Development today released a sweeping set of proposed reforms to international trade and investment rules and institutions.
Mario Draghi denies that ECB bazooka is empty amid fears QE is turning toxic
Ambrose Evans-Pritchard – The Telegraph
The European Central Bank has ample ammunition to fight a fresh global downturn and is ready to act decisively to stave off deflation if necessary, Mario Draghi has assured nervous investors in Davos.
Almost out of ammo, central bankers urged to go back in
Simon Kennedy and Joe Weisenthal – Sydney Morning Herald
Just when central bankers thought they were headed out, they’re getting dragged back in.
Even with their toolkits depleted, monetary policy makers are being pushed to gear up yet again to counter the disinflationary fallout from slumping commodities and China’s slowdown.
****SD: We are so close to an “ECB head seeks new arms” type title once the bazooka is useless and the governors are out of ammo.
Draghi Sees Major Central Banks Pursuing Divergent Monetary Policies ‘For a While’
Tom Fairless – WSJ
European Central Bank President Mario Draghi said Friday that major central banks would pursue divergent policies for some time, underlining the ECB’s readiness to provide additional stimulus to the euro area economy even after the Federal Reserve began raising interest rates last month.
“It’s entirely natural that monetary policies do differ and they will be on a diverging path for a while, and this will be reflected in different interest rates,” Mr. Draghi said.
WEF Panel Mixed On Monetary Policy, Financial Regs Needed To Boost EU
Mark Hanrahan – International Business Times
The complexity of the challenges facing Europe’s financial system was laid bare in Davos on Friday, as a panel at the World Economic Forum sounded many upbeat notes on the progress of financial regulation but warned that existing quantitative easing policies aren’t enough to drive growth.
The panel of leading European bankers and financial officials, convened as part of the WEF in the Swiss Alps to discuss the topic of “Rebooting Europe’s Financial Confidence,” addressed a wide range of topics, expressing differing views on tools to boost eurozone economies.
How Draghi’s hint on easing may affect Fed’s next moves
Steve Liesman – CNBC
Despite efforts of some Fed officials to remain above the fray of recent market volatility, the policy statement from the central bank after next week’s meeting seems likely to offer investors some relief that the Fed is not hell-bent on four rate hikes this year.
When stimulus fails to stimulate
Neil Staines – TradingFloor
On Tuesday we discussed the the current financial market backdrop and how sentiment towards equities and broader risk assets had become the dominant driver of activity and the main focus of attention.
We also noted our view that “monetary developments, while remaining the key driver of medium-term trends, will likely play a secondary role in the short-term direction of markets” as “global central banks are reaching a period of enforced inactivity or at least of significantly reduced activism.”
In this regard, yesterday’s developments are very significant.
Market Did Work of Four Fed Rate Hikes, Morgan Stanley Says
Matthew Boesler – Bloomberg
Volatility in financial markets since the Federal Reserve last month announced its first interest-rate increase in nearly a decade is having the same effect as four additional quarter-point hikes, according to Morgan Stanley.
Investing in 2016: ‘The Only Winning Move is Not to Play the Game’
Dennis K. Berman – WSJ
The world’s central banks can’t save us anymore.
That was the message from some of the world’s most prominent investors at the World Economic Forum in Davos, Switzerland, on Friday.
Their mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long. From this anecdotal sampling, at least, that has created growing distortions in nearly all asset prices—from stocks to bonds to real estate.
Hungarian Academics Protest Central Bank’s Education Splurge
Marton Eder – Bloomberg
A group of prominent economists at the Hungarian Academy of Sciences criticized the central bank’s educational programs, saying they promote the views of its leadership at public expense and breach rules governing universities. The bank rejected the allegations.
The academics’ criticism concerns about 200 billion forint ($692 million) earmarked by the National Bank of Hungary from its profits for foundations set up to support the teaching of economics. The monetary authority is also helping establish a new university campus in eastern Hungary. The funds’ endowment is roughly on par with the government’s annual spending on all state higher education combined.
Ireland needs rules to avoid boom-bust cycle, central bank head says
Padraic Halpin – Reuters
Ireland needs rules to avoid boom and bust cycles as its small, highly globalised economy makes it especially vulnerable to economic shocks, Ireland’s new central bank governor said on Friday, in his first major policy speech.
That Bank Line in Shanghai? Monkey Business
James Areddy – WSJ
As a line of people grew and grew outside a bank in the heart of Shanghai’s financial district this week it sparked rumors capital flight was taking hold in the city that likes to think of itself as China’s business capital.
The truth, at least in this case: monkey business.
A bank queue could appear to illustrate a narrative gaining currency around the world that China’s people are losing confidence in the yuan and trying to cash out in case new capital controls get applied. The country’s foreign exchange reserves have taken a beating.
How a Further Fall in China’s Yuan Could Shake the World; Modeling the effects of a 10 percent drop against the dollar.
Enda Curran – Bloomberg
China’s weakening currency has rattled investors around the globe. How much of a threat does it pose?
Cables, sharks, and the geography of the foreign exchange market
Barry Eichengreen, Arnaud Mehl and Romain Lafarguette – VOX, CEPR’s Policy Portal
There is ongoing debate about the impact of technological progress on the geography of trade and production. One view is that cheap technology has attenuated the effect of distance, while others argue that location still matters. This column explores the issue in the context of foreign exchange markets. It examines how submarine fibre optic cables that link locations to financial hubs have affected the location of transactions. The findings suggest, on balance, that technological progress has made proximity to a trading centre more important.
Higher inflation is the price we will pay for a falling pound
Andrew Sentance – The Telegraph
Sterling has been on the slide in 2016. The value of the pound has fallen by nearly 5pc against the currencies of our major trading partners since the turn of the year.
Trader Talk in Currency-Rigging Suit Draws Scrutiny From U.S.
Tom Schoenberg and David McLaughlin – Bloomberg
Investor suit against 16 banks reveals new details of conduct; Prosecutors censor online chats that could harm criminal case
Investors’ pursuit of the world’s biggest banks in a civil lawsuit over currency trading reveals details about trader conduct that has also drawn the scrutiny of U.S. prosecutors, according to documents and people with knowledge of the matter.
Hong Kong Dollar Jumps Most in 12 Years as Global Stocks Rally
Saijel Kishan – Bloomberg
Hong Kong’s dollar jumped the most in 12 years as the prospect of more stimulus from Japan and Europe ignited a global stocks rebound and curbed bets the city’s currency peg will end.
Indexes & Index Products
When Diversification Fails
Jodie Gunzberg – Indexology: S&P Dow Jones Indices
Today, there is a new risk-on/risk off based on rising interest rates. This is different than the risk on risk off we saw post the global financial crisis, since that one was from unprecedented quantitative EASING. One thing is the same – and that is the bi-modal view of either rising rates work – or they don’t. Right now it doesn’t seem like it’s working, so risk-off.
Eurex Exchange’s MSCI news – January 2016
The most important facts on volumes, open interest and other interesting developments on our MSCI Derivatives. Volume development & open interest; December 2015 saw all-time record trading in the Eurex MSCI segment, with a total of 403,000 contracts traded.
The Only Thing to Fear is a Lack of Fear
Adam Warner – Schaeffer’s Research
One of the biggest reasons to panic right now remains the utter lack of panic. Yes, the CBOE Volatility Index (VIX) has lifted lately, but not nearly to to extent one might expect given the very ugly market backdrop. We noted this the other day, though more that VIX was simply rising in line with the market declines.
Defensive Indexes: Russell Stability Indexes Show Flight to Quality Amid Global Equity Market Volatility
As global equity markets rode a roller coaster of volatility to start the new year, US stocks turned down sharply, reflected by an 8.2% decrease for the US large-cap Russell 1000® Index and an 11.3% decrease for the US small-cap Russell 2000® Index year-to-date as of January 15.
European Bear Markets – FTSE/CAC/DAX/IBEX
Kevin Davitt – CBOE Options Hub
After yesterday’s waterfall-like selloff, a number of global indices are now in bear market territory (20% off highs).
S&P Long-Term Value Creation Global Index Launched by S&P Dow Jones Indices
As large institutional investors’ concern about the short-termism in the capital markets grow, S&P Dow Jones Indices (S&P DJI), one of the world’s leading index providers, launched today the S&P Long-Term Value Creation (LTVC) Global Index. The S&P LTVC Global Index is designed to measure companies that have the potential to create long-term value based on sustainability criteria and financial quality.
What the ECB’s Comments Mean for European ETFs
The European Central Bank (ECB) announced that interest rates would remain unchanged due to the success of its stimulus program, but noted that weaker-than-expected inflation would mean that additional measures are still on the table for its March meeting.
Barrick Sees Up to $3 Billion in Impairments on Lower Gold
Danielle Bochove – Bloomberg
Barrick Gold Corp., the world’s largest producer of the metal, said it may book as much as $3 billion in impairment charges as a prolonged gold slump forces it to revise its price assumptions for 2016.
LME Said in Talks With Banks to List London Gold Contracts
Eddie Van Der Walt and Agnieszka De Sousa – Bloomberg
The London Metal Exchange is in talks with the World Gold Council and five banks about the possibility of introducing futures contracts on gold and standardized central clearing, according to two people familiar with the matter.
Kook arrested for stalking Jamie Dimon
Jamie Schram and Rebecca Rosenberg – New York Post
JPMorgan Chase boss Jamie Dimon was followed around the Big Apple by a stalker, The Post has learned.
Greg Waltman, 30, who runs a clean energy firm, called Dimon at his Midtown office 30 times over the last several weeks, according to a Manhattan Criminal Court complaint.
In each of the calls, Waltman demanded to speak directly to Dimon — although he never got through to the 59-year-old chief executive of the country’s largest bank.
****SD: Waltman said Dimon owed him money. It’s just an amusing part of this story that perfectly coincides with the news that Dimon has plenty of moolah as he made $27m this year, a 35 percent increase from 2014.