First Impressions

David Robin

Fed Carousel: Newedge’s Robin says bond market could move in Q2 2014
Fed tapering, a government shutdown and last minute debt-ceiling deal rocked the bond market in recent weeks. John Lothian News’ editor-in-chief Jim Kharouf sat down with David Robin, managing director of Newedge to talk about what’s next for the bond market and interest rate futures volumes. In Robin’s view, we are not likely to see another Washington fiasco as we did back in October. “The significance of the debate itself and the process the marketplace and the political theater underwent, has sort of got the marketplace in a situation where know that for any extended period of time, the Fed is the only game in town,” Robin says.

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Quote of the Day

“…since the 1980s, the proportion of debt owned by the top 1 per cent started to rise sharply, hitting 30 per cent in 2000 and 42 per cent in 2013. The last time it was this high was in 1922, when the ratio was 45 per cent.”

From today’s piece from the Financial Times’ “To shoot oneself in the foot, US Treasury style.”

Lead Stories

EU Inflation Rate Falls to Four-Year Low
Paul Hannon –
The annual rate of inflation in the 28-member European Union fell to its lowest level in four years during October, adding to fears the bloc could be in danger of entering a damaging and prolonged period of falling prices.
**JK: Inflation falls under 1 percent.

Inflation is an unpleasant side effect, not the cure
Samuel Brittan –
Sometimes the person in the street is wiser than the policy intellectual. After decades worrying about too much inflation some of the would-be intellectual policy commentators are now worrying about too little. But the UK consumer is hardly likely to complain that the consumer price index is “only” 2.2 per cent higher than a year ago and has hardly ever been as low as the official target of 2 per cent.
**JK: Historical walk down inflation memory lane.

To shoot oneself in the foot, US Treasury style
Izabella Kaminska | FT Alphaville
It’s something that comes to mind when reading Gillian Tett’s latest on who really owns the bulk of the Treasury market. As Tett notes, referencing the work of Sandy Hager, a postdoctoral research fellow at the London School of Economics:
**JK: Interesting look at the 1 percent’s bond holdings.

Regulators Looking to Tame Unruly Bitcoin World
Robin Sidel and Ryan Tracy – MoneyBeat – WSJ
The top banking regulator in New York is accelerating his hunt for bitcoin bad guys, announcing that he will hold hearings that could help determine whether virtual currency companies will need to apply for a special “bitlicense” to operate in the state.
***JM: Ok, I get few enough opportunities to say “I told you so” that I’m going to put a waving flag and circus music on this article today.

ICBC Dishes Out ‘London’ Dim Sum to Asia Instead
Ben Edwards  – MoneyBeat – WSJ
Keen to promote London as a hub for offshore yuan trading, U.K. Chancellor George Osborne last month took to micro-blogging site Twitter to announce that Chinese lender Industrial and Commercial Bank of China Limited would be the first mainland headquartered Chinese bank to sell offshore yuan bonds in London.
***DA: Look out – Britain has a knack for removing the taste from any dish once it gets hold of the recipe.

Moody’s Lowers Ratings of Four U.S. Banks After Review
Laura Marcinek – Bloomberg
Moody’s Investors Service cut its ratings on four of the biggest U.S. banks after deciding the government would be less likely to help them repay creditors in a crisis.

EU Stumbles Toward Bank Plan Deadline as Schaeuble Won’t Budge
Rebecca Christie & Rainer Buergin – Bloomberg
European Union finance ministers scaled back their ambitions for talks in Brussels on setting up a single system for handling euro-area banks, leaving just weeks to overcome splits before a year-end deadline.

Central Banks

ANALYST: This Is What ‘Central Bank Anarchy’ Looks Like
Jow Weisenthal – Business Insider
Here are some acerbic comments from SocGen FX strategist Kit Juckes on the current world of “Central Bank Anarchy” as he puts it in an email to clients.

As The Fed Pushes To Rein In Short-Term Funding, WWYD?
Ryan Tracy – MoneyBeat – WSJ
Janet Yellen’s comments on short-term funding Thursday were the latest – and strongest — indication the Federal Reserve is about to open a new regulatory front by taking on the risks those markets pose. Yet a key question remains: What Would Yellen Do?

A belief in central bankers as a cure-all for economic ills is not confined to Britain
Jeremy Warner – The Telegraph
Success as a chief executive, it is sometimes said, is largely about timing. Get in at the bottom, leave at the top, and you will be seen in the City as a miracle-worker, even though you may only be riding the cycle. The same is true of central bankers.

European Banking Unity Is No Easy Target
Jack Ewing and James Kanter – The New York Times
Low interest rates have a dark side, the German central bank warned on Thursday, sounding a gloomy note as European finance ministers gathered in Brussels to discuss the politically tricky question of how to share responsibility for fixing sick banks.


Yen Fall a Surprise Following Finance Minister Remarks
Tatsuo Ito – MoneyBeat – WSJ
For investors, the road to profits can come from getting into a market move early and selling out just before it peaks. This “don’t-miss-the-bus mentality” is being seen in the foreign exchange market as a reason behind Thursday’s sharp fall in the yen after a seemingly routine remark by Japanese finance minister Taro Aso.

Rajan’s breathing exercise fails to pacify the rupee
Business Standard
Raghuram Rajan tried to pacify currency markets by giving yoga lessons on deep breathing in his statement where he said that there is no fundamental reason for volatility in the value of rupee. He said that we are left with fears about what others will fear and do in a particular situation. He advised that at such times, it makes sense to take a deep breath and examine the fundamentals.

Indexes and Index Products

Vanguard slashes fees on passive products
Mike Foster – Financial News
Vanguard has thrown down the gauntlet to rival providers by slashing the fees on 23 of its passive products in Europe, including those charged by its popular emerging markets exchange-traded fund.

Lyxor boosts Bats Chi-X Europe’s ETF ambitions
Anish Puaar – Financial News
Bats Chi-X Europe, Europe’s newest stock exchange, is continuing to build its listings business with the addition of exchange-traded funds from Lyxor Asset Management.

CBOE responds on Vix
John Hiatt –
John Hiatt, director of research and product development at the Chicago Board Options Exchange, responds to a recent Structured Products article concerning the Vix volatility index

BlackRock turns to regional and community banks in ETF push
BlackRock Inc, a money manager that has long worked with the largest U.S. financial institutions, is now turning to the country’s smaller banks, where it sees a promising market for exchange-traded corporate bond funds.


Gold Making People Crazy in Search for Sunken Treasure
Vernon Silver – Bloomberg
Captain Robert Mayne stands at the wheel as he guides the steel-hulled Aqua Quest from the docks in the Florida Keys, pointing the vessel toward what he’s been assured is a gold-laden shipwreck that may be worth tens of millions of dollars. Mayne, 60, says experience has taught him such gold hunts can be perilous: inspiring obsession, sending treasure hunters on endless journeys and blinding them to reason.

Paulson & Co. Stands Pat on Gold, Cuts Sprint Stake
Paul Refkoff – MoneyBeat – WSJ
John Paulson, the billionaire investor who has been one of the most bullish investors in gold, made no changes in his exposure to the precious metal in the third quarter, according to a securities filing Thursday.

Republicans Asserting Reliance on Gold as World Loses Faith
David J. Lynch & Peter Robison – Bloomberg
While many Wall Street analysts, including Jeffrey Currie at Goldman Sachs Group Inc., say gold will continue to decline as the economy grows, some leading Republicans continue to urge a special role for bullion.

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