Thank You for Playing
Today’s JLN Financials newsletter is topped by three stories with a common theme. Can you spot it? Let’s play.
Six years after the global financial crisis and four years after the passage of Dodd-Frank, and the story from market participants is one of failure – or at least of having fallen short of initial goals.
Summary of the Dodd-Frank Act => http://jlne.ws/X6HB6X
Behind door number one we have a foreign exchange market that simply cannot come together under one roof, despite the best intentions. Thus, regulations have failed the first test, which is increased risk monitoring by regulators and, ultimately, transparency.
More on FX Regulation => http://jlne.ws/WnurA4
Opening door number two reveals the cracks in the ecosystem upon the imposition of the Volcker Rule. The crisis so weakened the big banks’ ability to provide robust, liquid markets for many instruments. Now the impending Volcker Rule threatens to further fragment the market. So much for curtailing systemic risks and conflicts of interest and solving the “too big to fail” problem .
Volcker Rule Summary, news and links => http://jlne.ws/oSXASc
And, finally, behind door number three we see a regulator, the Federal Reserve, who is putting together yet another financial stability monitor. Dodd-Frank created the Financial Stability Oversight Council (FSOC) to be the see-all and end-all super-authority, comprised of the regulatory heads and industry and academic leaders, with all sorts of powers, from rule writing to coordinating emergency liquidations. Now, apparently, the Fed feels it needs to create yet another committee to monitor financial stability. Does it feel the FSOC is lacking in some way, or does the Fed wish to forge its own path outside the Treasury Department, which heads the FSOC? Either way, it points to the failure of Dodd-Frank as a means of trans-regulatory efficiency.
FSOC Summary => http://jlne.ws/1qyfhIw
I am not certain we will like the lovely parting gifts associated with this game.
Quote of the Day
Having a central utility would create enormous single point-of-failure risks.
Forex industry group ACI, quoted in the FT story “Doubts raised over global forex platform”
Doubts raised over global forex platform
Sam Fleming and Daniel Schäfer in London and Jamie Smyth in Sydney – Financial Times
A proposal to reform the foreign exchange market by creating a central platform looks unlikely to get off the ground after industry participants raised doubts about the practicality of the scheme.
Look Out for Volcker in Illiquid Market Already Feeling Squeezed
Lisa Abramowicz – Bloomberg
The difficulties that traders are having maneuvering in the $10 trillion U.S. corporate-bond market may be poised to get worse. It’s been a struggle for investors to be nimble in credit markets given Wall Street’s pullback since the financial crisis.
Fed forms committee to monitor asset price bubbles
Julia Rampen – Investment Week
The US Federal Reserve has created a committee to monitor financial stability and help prevent the emergence of asset price bubbles.
UK To Be First Non-China State To Issue Renminbi Bond
Tim Worstall – Forbes
George Osborne has announced that the UK is to be the first Western, or non-China, state to issue a renminbi bond. This is part and parcel of his design to make the City of London the pre-eminent offshore trading center for the currency as the restrictions on non-domestic use are gradually weakened.
***DA: And London is first out of the gate. Singapore, New York and Zurich are champing at their respective bits.
Sydney to Become Renminbi Hub: Westpac
Westpac Head of Institutional Banking Rob Whitfield discusses Sydney possibly becoming the next Renminbi hub by the end of the year and why global markets could be heading for a significant correction. He speaks to Bloomberg’s Stephen Engle from the World Economic Forum in Tianjin, China.
***DA: Oh, yeah. And let’s not forget Sydney.
Bond Losses Seen as Emerging-Market Company Debt Matches GDP
John Glover – Bloomberg
Investors in emerging-market debt have become more vulnerable to interest rate and currency shocks after corporate borrowing in some nations rose to match the output of their economies, according to the Bank for International Settlements.
Belgium a 17b euro tax haven for France’s richest entrepreneurs: report
South China Morning Post
France’s wealthiest entrepreneurs hold around EUR17 billion (HK$168 billion) in neighbouring Belgium where taxes are lower, according to a French newspaper report. While some have had Belgian bases for many years, a wave of fiscal exiles have gone north since Francois Hollande became president in 2012, the financial paper L’Echo claimed.
***DA: See? Not just a U.S. phenomenon.
European ‘Project’ Not Irreversible, New Paper Says
Pedro Nicolaci da Costa – MoneyBeat – WSJ
There is still a modest risk that a weak economy and rising political dissatisfaction could unravel Europe’s currency union, despite gradual, halting progress toward further integration there, according to new research.
***DA: Let us hope they never forget the horrors of 20th Century warfare.
Fed Chief Yellen Seeks Interest-Rate Consensus
Jon Hilsenrath – WSJ
As vice chairwoman of the Federal Reserve, Janet Yellen was an unabashed advocate of easy money who pressed colleagues to embrace her view. As chairwoman she has taken a much different approach, becoming a restrained consensus seeker modeled after her predecessor, Ben Bernanke.
World waits for white smoke from U.S. Fed
John O’Donnell – Reuters
The U.S. Federal Reserve may give clearer hints on when it will hike the cost of borrowing in the United States in the coming week, as struggling Europe braces for a tight vote in Scotland on whether to leave the United Kingdom.
***DA: As opposed to smoke and mirrors.
The Fed can take its time, if it wants to
Cardiff Garcia – Financial Times
By most accounts — the musings of Wall Street strategists and media Fed watchers, speeches by FOMC members, countless online FOMC previews — momentum is building for the Fed to soon change its “considerable time” language, and to give clearer guidance on when and why it will start raising rates.
***DA: “Considerable time” is one of those weasel phrases that sound meaningful but are not – like “your call is important to us,” or “this train will begin moving momentarily.”
As Fed, ECB Act, Other Central Banks Drift
Michael J. Casey – MoneyBeat – WSJ
With the European Central Bank dramatically easing its monetary policy while markets await signals from the Federal Reserve for an eventual rate increase, the rest of the world’s central banks are all but paralyzed.
Jury out on ECB’s ABS plan
Solomon Teague – Euromoney Magazine
Market players are hoping Draghi can overcome liquidity and scale challenges in his much-trumpeted ABS purchase plan – seen by some as QE by another name – but if he fails the central bank will have no option but to resort to QE, say analysts.
Hollande Saviour Is ECB as Ex-Partner Adds to Woes: Euro Credit
Francois Hollande is finding out that the European Central Bank is about the only friend he has left.
A majority of the French said in a poll last week that they’d like their president to step down before his term ends in 2017; his ex-girlfriend Valerie Trierweiler has written a scathing tell-all book that paints him as cold and calculating; and Prime Minister Manuel Valls faces a confidence vote in parliament tomorrow with mounting opposition in the governing party to his business-friendly policies.
RBI’s Raghuram Rajan: India’s Economic Recovery Still Uneven
Gabriele Parussini – WSJ
India’s economy is on the way to recovery but the road ahead may be bumpy, Reserve Bank of India Gov. Raghuram Rajan said Monday.
Merkel Says No Shift After German Anti-Euro Party Surges
Chancellor Angela Merkel said an electoral surge by Germany’s anti-euro party won’t dictate her policies after it advanced in a region mostly dominated by her Christian Democrats since the Berlin Wall fell 25 years ago.
***DA: Add Germany to the list of nations experiencing a surge in extremists gaining ground in the legistature.
MEPs could block Scotland’s EU membership if it pushes for euro opt-out
Members of the European Parliament could block an independent Scotland’s EU membership if it insists on keeping currency and border treaty opt-outs negotiated by the UK, sources in the two largest political groups in Brussels told EurActiv.
China appoints Bank of China as yuan clearing bank in Paris
China’s central bank said on Monday it had appointed Bank of China, the country’s main foreign exchange lender, as the yuan clearing service bank in Paris – the latest move to expand the offshore yuan market.
TeraExchange Enhances Bitcoin Offering – Launches New Platform and Price Index
A leading Swap Execution Facility (SEF) has extended its product offering to include virtual currencies. TeraExchange has created a Bitcoin derivatives exchange as interest in the instrument continues to expand. The move strengthens the position of virtual currencies as they pitch for recognition as a tradable asset class.
Satoshi Nakamoto, Hacked or Not, Remains Anonymous
MoneyBeat – WSJ
The Satoshi-hack story may be over. We haven’t heard from the hacker who apparently broke into Satoshi Nakamoto’s email in days, and it appears the account’s been locked. Moreover, nobody has paid his bounty of 25 bitcoins for the identity of Nakamoto. It’s not even clear the hacker has it. All in all, it’s looking like one big, nasty prank.
Indexes & Index Products
Chinese ETFs shut to new investment
Josh Noble in Hong Kong – Financial Times
A wave of international demand for Chinese equities has forced some providers of exchange traded funds, including Deutsche Bank, to shut products to new investment.
Greece, Qatar and UAE reclassify to emerging status on 22 September, says S&P
This year’s major changes to the S&P Global BMI indices are the reclassification of Greece to Emerging status from Developed status, as well as the reclassification of Qatar and UAE from Frontier status to Emerging status.
Glencore’s U.S. metals storage chief Casciano leaves after 15 years
The U.S. head of Glencore Plc’s metals warehousing subsidiary has resigned after 15 years, the second senior departure from one of the world’s biggest metals warehousing companies in recent months.