First Impressions

Vol Spike: CBOE Futures Exchange’s Jay Caauwe Introduces the Short-term Volatility Index
JohnLothianNews.com

In February 2014, the CBOE Futures Exchange began listing contracts on the short term volatility index (VXST) – a 9-day variant of its flagship 30-day VIX futures.

In an interview with John Lothian News Editor-At-Large Doug Ashburn, CFE’s Jay Caauwe discusses the launch of VXST, the rationale behind the listing of VXST futures and which participants and strategies will be prevalent.

Watch the video »

Quote of the Day

“So, yes, Geithner started out January 2008 well behind the curve, and far, far to the right of the expectations of the Yellen Tendency and others with beliefs marked-to-market.

And–whether it was the vulnerability of the “too big to fail” money-center banks, the state of financial system, the state of aggregate demand, the state of the labor market, or the dysfunction of the Republican Party–I do not think that he ever managed to catch up to the curve.”

J. Bradford DeLong, professor of Economics and chair of the Political Economy major at the University of California, Berkeley, in the story, “Federal Reserve transcripts: The Great Recession! It’s right behind you!”.

Lead Stories

Euro zone lending contraction compounds ECB headache
Reuters
Lending to households and firms in the euro zone fell again in January and money supply growth remained subdued, adding to pressure on the European Central Bank to take action next week to support the economy.
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***DA: Although it is hard to force borrowing onto a public that is retrenching. And aggressive loans to shaky borrowers put the eurozone in its current precarious state.

‘Tartan’ bond plan branded a ‘gimmick’
Ralph Atkins – FT.com
Even if Scotland’s nationalists fail in their bid for independence – a referendum on exiting the United Kingdom will be held in September – the country will soon taste one feature of life as an autonomous state: raising debt in capital markets.
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***DA: So long as it doesn’t taste like haggis.

Jefferies Executive Tells Jury Lying to Clients Improper
John Dillon and Chris Dolmetsch – Bloomberg
A colleague of former Jefferies & Co. bond trader Jesse Litvak, who is on trial in Connecticut for fraud in the trading of mortgage-backed securities, testified that it’s against the firm’s policy to lie to clients.
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***JB: Official written policy is one thing. Enforcement internally of those written policies is something else entirely.

Greece’s lenders accept lower capital ratio for bank health test- source
Reuters
Greece’s international lenders have agreed that a lower capital ratio can be used in a second stress test of the country’s major banks, bringing it in line with a European banking benchmark, a banker close to negotiations told Reuters on Thursday.
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***DA: If you can’t pass the test, make the test easier.

Firms Bank on Bitcoin Bounce Back
WSJ.com
Perseus Telecom, a provider of high-speed telecommunications lines for securities exchanges and trading firms, is joining forces with bitcoin-trading platform Atlas ATS and Strevus Inc., which produces compliance-management tools for financial institutions and other firms, to build one or more U.S.-based digital-currency exchanges in the U.S. and elsewhere.
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Sticking a finger into the ECB’s air
David Keohane | FT Alphaville
To QE or not to QE remains the question. Comfortingly, just about everybody is united in uncertainty.
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Fed, chucklehead
Cardiff Garcia | FT Alphaville
A hat tip to rock-star Alphaville alum Tracy Alloway for passing along this chart from The Socionomics Institute, now updated to include last week’s release of the 2008 transcripts (click to enlarge):
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***DA: This graphic is a hoot.

Raghuram ‘Volcker’ Rajan… good luck with that
David Keohane | FT Alphaville
“If you do a Volcker, you kill the supply side, and then you are in a bad situation,” Mr Rajan said during an interview in November. Erm…
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Central Banks

Here’s the most important thing Janet Yellen said today
Washington Post Blog
Federal Reserve Chair Janet Yellen veered off script Thursday morning during her remarks before the Senate Banking Committee – and that impromptu remark was the most important thing she said in eight hours (and counting!) of congressional testimony this month.
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***DA: The seed has been planted for “untapering?”

Carney Ordered Full Examination of Records in BOE Currency Probe
Scott Hamilton – Bloomberg
Mark Carney told Bank of England directors that he ordered a “full examination” of internal records for a probe into allegations that officials condoned practices behind the currency-manipulation scandal.
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Federal Reserve transcripts: The Great Recession! It’s right behind you!
The Economist
THERE is a delicious moment in the popcorn thriller Air Force One, a summer blockbuster in which terrorists hijack the titular plane and the president of the United States, played by a steel-gazed Harrison Ford, works to foil their plot, recapture the plane, and avert an international crisis, all more-or-less single-handedly. In the aftermath of a moment of heroism the president is face-to-face with one of his secret service agents—who (we know but the president does not) helped the terrorists get on board the plane. Mr Ford’s character trustingly enlists the agent’s help and hands him a weapon, provoking a wonderful, audible groan across the threatrical audience.
It is the rare Hollywood script imbued with as much dramatic irony as the most recent batch of Federal Reserve transcripts, covering the 2008 meetings of the Federal Open Market Committee.
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Bank of Japan’s Sato sees flexibility on timing of QE exit
Reuters
Bank of Japan board member Takehiro Sato said on Thursday the central bank can be flexible on the timing of an eventual exit from its monetary easing, a sign that simply reaching its 2 percent price stability goal will not trigger immediate action.
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Currencies

Regulator penalises US forex trading group FXCM twice
Daniel Schäfer and Philip Stafford in London – FT.com
FXCM, a US forex trading group, has been hit with a penalty for failing to pass on profits to clients as regulators crack down on retail foreign exchange markets.
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Why would anyone trade forex?
Jonathan Eley – FT.com
The Financial Conduct Authority has today fined FXCM GBP4m for a practice it euphemistically termed “asymmetric price slippage”, and which most of us would describe as ripping off clients.
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***DA: The bucket shops of the late 19th Century participated in “assymetric price slippage.” I certainly hope that is not what is alleged here.

What Happens if China Widens the Yuan’s Trading Band?
Anjani Trivedi – MoneyBeat – WSJ
Over the past two weeks, China’s yuan has unexpectedly fallen, catching investors and strategists off guard following years of steady gains. The move is stemming from the central bank, which is engineering the fall as part of efforts to prepare the tightly tethered currency for wider trading, The Wall Street Journal has reported.
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***DA: What do you think will happen? Price discovery; that’s what.

Why the Yuan’s Decline Matters
MoneyBeat – WSJ
China’s yuan has fallen steadily against the U.S. dollar in the past week. On Wednesday, The Wall Street Journal reported that it wasn’t market forces or traders behind the move, but that the Chinese central bank was deliberately pushing the currency lower. That a central bank would do this on purpose has caught some off-guard, especially since the yuan was long seen by investors as a currency that was only going up.
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China: Progressing Towards Financial Market Liberalisation And Currency Internationalisation – Speech By Yves Mersch, Member Of The Executive Board Of The ECB, Renminbi Forum Luxembourg, 26 February 2014
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Bitcoin Derivatives Market Trading BTC.SX Temporarily Suspended
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U.S. attorney subpoenaed Mt Gox, other bitcoin businesses: source
Reuters
Manhattan U.S. Attorney Preet Bharara has sent subpoenas to Mt. Gox, other bitcoin exchanges, and businesses that deal in bitcoin to seek information on how they handled recent cyber attacks, a source familiar with the probe said on Wednesday.
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Advantage London in Race to Create Renminbi Hub
MoneyBeat – WSJ
China’s currency is losing ground, but in the race to become an international renminbi trading hub there are few slouches.
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Citigroup: Here Are Three Risks Facing Bitcoin
MoneyBeat – WSJ
Many bitcoin advocates are hopeful that there are lessons to be learned from the Mt. Gox episode that ultimately will help the virtual currency mature and prosper. Others, however, argue that bitcoin faces reputational damage that could be irreparable following the exchange’s shutdown.
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Indexes & Index Products

NASDAQ OMX Global Indexes Named “Most Innovative Index Provider”
Press Relese (via The Wall Street Journal)
The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) the market leading provider of innovative, transparent indexes, has been named “Most Innovative Index Provider” by ETF Express. Award winners were chosen based on votes cast by readers of ETF Express, which includes investors, fund managers, fund administrators, custodians, advisers, and distributors.
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Nordic and Baltic Equity Indexes Transition to Global Index Calculator Effective September 2014
Press Release (via GlobeNewswire)
Effective September 8, 2014, NASDAQ OMX will start to calculate Nordic and Baltic equity indexes and other related indexes via its state-of-the-art Global Index Calculator powered by NASDAQ OMX INET technology — the world’s fastest trading system technology.
Within the Genium Consolidated Feed (GCF), the indexes will be connected to a new source that replaces the current ICS sources. ICS sources not affected by this migration project will still be available in GCF.
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S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Deletion From The S&P/TSX Preferred Share Index
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Gold

HKEx says expects LME trading fees to rise in 2015
Reuters
Hong Kong Exchanges & Clearing expects London Metal Exchange trading fees to rise in 2015, the chief executive of the world’s fourth largest exchange said on Wednesday.
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LME rules will see Rusal lose ‘tens of millions of pounds’, court hears
Xan Rice – FT.com
Rusal, the world’s biggest aluminium producer, told a court that it could lose “at the very least tens of millions of pounds” under new regulations from the London Metal Exchange that it has called a breach of its human rights.
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World’s biggest gold ETF eyes 1st monthly inflow in over a year
Reuters
The world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Shares, is on track for its first monthly inflow of metal in more than a year after a run of weaker U.S. data boosted investment interest in gold.
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California Drought Creates New Gold Rush
James Dinan – The Weather Channel
California’s historic drought has been a nightmare for many. But it could be a dream come true for a few gold prospectors.
Record-low water levels are leading prospectors young and old to areas that haven’t been touched by human hands in decades. One such area is Placer County, where prospectors first made their mark during the Gold Rush of 1849.
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