First Impressions

Scott O’Malia

CFTC’s Scott O’Malia Calls for a Plan of Action on Swap Data
New Dodd-Frank rules have allowed regulators their first look into swap data repositories, but the quality of swap data is not always up to par. In fact, it has been called “a mess” by CFTC Commissioner Scott O’Malia, who also chairs its Technology Advisory Committee. O’Malia sat down with John Lothian News editor-at-large Doug Ashburn at SEFCON IV to discuss the commission’s data challenges and his “call to action” in early 2014.

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Quote of the Day

An inflation floor of 1.75 percent could delay the point at which both the floor is satisfied and a threshold is crossed by about one year. This exercise suggests that the choice of an inflation floor could exert a considerable delay on the liftoff of the federal funds rate from the zero lower bound.

Economists at the Federal Reserve Bank of Cleveland in its

Lead Stories

Economists At The Cleveland Fed Have Found A Powerful New Way To Augment Forward Guidance
Matthew Boesler – Business Insider
One of the big questions that emerged from the minutes of the Federal Open Market Committee’s October meeting was how the Federal Reserve’s monetary policymaking body could reinforce the forward guidance it offers on the likely future path of short-term interest rates.
***DA: Spoiler alert: The tactic involves adding an inflation floor to the unemployment floor. In other words, we could be in it for the long haul.

Deutsche Bank to RBS Fined by EU for Rate Rigging
Gaspard Sebag & Aoife White – Bloomberg
Deutsche Bank AG (DBK) and Royal Bank of Scotland Group Plc (RBS) are among six companies fined a record 1.7 billion euros ($2.3 billion) by the European Union for rigging interest rates linked to Libor.
***DA: The hits keep a’coming.

Deutsche Bank Bans Fixed Income Chat Rooms Amid Probes
Nicholas Comfort – Bloomberg
Deutsche Bank AG (DBK), Europe’s biggest investment bank by revenue, barred multi-party chat rooms at its fixed-income and currency trading businesses as regulators continued punishing banks for alleged rate-rigging.
***DA: Does this mean such conversations will move to a venue with no audit trail?

House of Morgan Divided on Junk as Returns Wane: Credit Markets
Matt Robinson – Bloomberg
JPMorgan Chase & Co. recommends sticking with U.S. high-yield bonds next year as the best protection against rising interest rates. Morgan Stanley cautions that valuations are unattractive following a record five-year rally.
***DA: Today’s investment environment is not about asset valuation so much as central bank policy.

China’s free trade zone plans herald quicker FX reforms
China plans to roll out financial sector reforms in the Shanghai special economic zone in the next three months and most will be implemented in a year, suggesting authorities are accelerating the pace of dismantling capital account controls.
***DA: Next stop on the “legitimate currency” tour.

Japan readies $182 billion economic package, no new debt needed: sources
Japanese Prime Minister Shinzo Abe is readying a $182 billion economic package this week in his latest bid to pull the economy out of deflation, but the new measures will not require the government to sell more debt.
***DA: This round of stimulus is brought to you by tax receipts on asset valuations from the last round of stimulus. How long can that continue?

Why Aren’t Investors Forming New Banks?
Ryan Tracy  – MoneyBeat – WSJ
In Tuesday’s Wall Street Journal, we wrote about the Bank of Bird-in-Hand – the first start-up bank to get regulators’ blessing in the U.S. in nearly three years. The lack of new banks is part of the reason why the number of banks in the U.S. is now lower than at any time since at least 1934 (or even earlier – more on that point later). Why the slowdown in new bank applications?
***JM: Probably for the same reason there aren’t more masochists.

Australia’s debt ceiling, we barely knew you
David Keohane | FT Alphaville
“With just over a week before Australia was expected to hit its borrowing limit, the government reached a deal with the Green party in the Senate to abolish the Commonwealth debt ceiling, which is expected to pass Parliament sometime this week.”
***JM: Good heavens, they ditched it even after the US has shown so clearly year after year what a valuable and effective tool it is???

Rising bond yields point to China’s coming transition
Simon Rabinovitch –
For many years the Chinese bond market trundled along in obscurity, attracting little cash and even less attention from investors. Suddenly, though, it has been thrust into a starring role in doomsday scenarios for corporate China.

London-China ties strengthen as China Construction Bank touts UK business
Kanika Saigal – Euromoney magazine
With extended opportunities for UK investors in China through programmes such as the RQFII scheme, China Construction Bank opened its doors this week to London-based investors, signalling the strength of the Sino-UK relationship.

Central Banks

Draghi Says Europe No Japan as Crisis Spurs Price Cuts
Angeline Benoit & Marcus Bensasson – Bloomberg
While deflation has scarred Japan’s economy for two decades, European Central Bank President Mario Draghi said last month he sees no parallels to that in the 17-nation bloc, adding that some price adjustments are “welcome.” He spoke after the bank cut its benchmark interest rate to a record low of 0.25 percent.

Foreign bankers line up to meet Rajan after subsidiary promise
Business Standard
Top executives of foreign banks are making a beeline for appointments with Reserve Bank of India (RBI) Governor Raghuram Rajan. The agenda, among other things, is to discuss the subsidiarisation of foreign banks in India, say people familiar with the development.

Bank of England still undecided over stress test scenarios
Alexander Campbell –
The details of the planned stress tests for major UK banks will be heavily dependent on regulatory judgement, with the Prudential Regulation Authority (PRA) – the Bank of England’s macroprudential arm – still undecided on how to construct the stress scenarios that will be used.


BSE currency futures face uncertainty in ‘overcrowded’ market
Garima Chitkara –
The new currency futures launched by the Bombay Stock Exchange (BSE) on November 29 may fail to attract necessary broker interest in a low volume market, according to market participants.

Sterling strength trumps euro resilience
Jamie Chisholm –
The Bank of England and the European Central Bank will deliver their latest policy decisions on Thursday. Neither is expected to significantly shift strategy.

Dmitri Chavkerov of Forex Peace Army Advises Traders To Be Extra Careful With Automated Forex Robots As They Are Likely To Eventually Blow the Trading Account
***JM: This is just about the most charming press release I’ve seen all year.  I want to give it a hug.

Nordea Opens Currency Desk in Singapore in 24/7 Trading Push
Niklas Magnusson – Bloomberg
Nordea Bank AB (NDA), the Nordic region’s largest bank, will open a full-scale currency and money markets desk in Singapore to offer clients trading around the clock as it expands services for customers with operations in Asia.

Indexes and Index Products

Exchange-traded fund strategists make hay on industry boom
As the $2.2 trillion exchange-traded fund industry grows at a rapid clip, a group of investment consultants who specialize in creating portfolios of the funds – so-called ETF strategists – are reaping high returns.

Commodity trackers flee for surging stocks
Gregory Meyer in New York –
Index-tracking commodity investors are fleeing the strategy at a record pace as surging stock markets leave raw materials in the dust.

Corporate treasurers seek alternatives to money-market funds
Rebecca Brace – Euromoney magazine
Corporate treasurers are diversifying away from using money-market funds (MMFs) to manage short-term liquidity in response to low rates and proposed regulatory changes that are threatening to impair the MMF industry.

MTS Launches RFQ Trading For ETFs
MTS, Europe’s premier fixed income trading venue, is to launch Request-for-Quote (RFQ) trading for ETFs via its multi-dealer-to-client MTS BondVision platform. The new service will offer liquidity providers access to a diverse community of global institutional investors.


Gold mining stocks look like value traps
John Authers –
US stocks have been a veritable gold mine this year. But gold mines have not. In an equity market rally remarkable as much for its uniformity as for its strength, the underperformance of gold mining stocks sticks out ever more. But that does not yet mean that they deserve to be bought.

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