John Lothian News has been pulling a double-shift this week, as FIA Expo kicks into high gear in Chicago. Comments and content will be a bit lighter than usual for a couple days as we engage with the thousands of market participants that have descended onto S. Michigan Ave. If you are in town, be sure to look us up.
Quote of the Day
“So far, the uses of bitcoin as a medium of exchange appear limited, particularly if one excludes illegal activities.”
François R. Velde, senior economist at the Federal Reserve Bank of Chicago in the story, “Federal Reserve Economist On Bitcoin: ‘Small Phenomenon But Growing’”
European Bonds Surge as ECB Unexpectedly Cuts Key Interest Rate
Neal Armstrong & Anchalee Worrachate – Bloomberg
Euro-area government bonds surged, led by Italian and Spanish securities, after the European Central Bank unexpectedly cut its benchmark interest rate to a record low, boosting demand for fixed-income assets.
EM bond rebound brings record within reach
Robin Wigglesworth – FT.com
Debt sales from the developing world have rebounded after a summer of turmoil and the US budget crisis stunted demand, leading analysts and bankers to predict the second record year of bond issuance in a row.
Ireland heads for end of bailout in final review
Three years after going cap in hand to international lenders for a bail out, Ireland is set to step out on its own again. The European Union and International Monetary Fund are due to sign off later on Thursday on the last part of a 85 billion euro ($114 billion) bailout, leaving Ireland to exit the process by the end of the year, the first crisis-hit euro zone country to do so.
US to sell $15bn of floating rate debt
Michael Mackenzie in New York – FT.com
Investors will be able to buy up to $15bn of Treasury bonds offering protection from a rise in interest rates, in the first new type of debt to be issued by the US government since 1997.
Why Fannie and Freddie Are Paying Back Uncle Sam
Nick Timiraos – MoneyBeat – WSJ
Fannie Mae, along with Freddie Mac, is approaching the point at which it will have sent more money to the Treasury in dividends than the amount it borrowed over the past five years. A few years ago, the conventional wisdom in Washington said that Fannie Mae and Freddie Mac wouldn’t ever be able make taxpayers whole for the 2008 bailouts of the mortgage-finance giants. Those who haven’t followed the companies closely will be surprised to learn that Fannie and Freddie are now on the brink of doing just that.
Mrs. Watanabe Goes on JGB Shopping Spree
Eleanor Warnock – MoneyBeat – WSJ
Feeling upbeat about prospects for an economic recovery, Japanese retail investors — the proverbial Mrs. Watanabes — have gone on something of a shopping spree. And what is the product they have been clamoring for? The lowest-yielding bonds in the world.
UK corporates ready to follow sovereign into sukuk
by Kanika Saigal – Euromoney magazine
As London positions itself as a hub for Islamic finance on the occasion of the ninth World Economic Islamic Forum, Badlisyah Abdul Ghani, CIMB Islamic CEO, predicts UK corporates are already primed to enter the sukuk market.
JPMorgan Leads U.S. Banks Boosting Share of European Bond Market
Neal Armstrong – Bloomberg
U.S. banks increased their share of Europe’s fixed-income market at the expense of local competitors as trading volumes slid in 2013, Greenwich Associates said in an annual survey report.
Bank of England Keeps Interest Rates at Record Low
The Bank of England left policy unchanged on Thursday, sticking to its commitment to keep interest rates at rock-bottom until the country’s recovery is more firmly established.
India Gives Foreign Banks New Door Into Local Market
KEITH BRADSHER and ELLEN BARRY – NYTimes.com
India’s central bank unveiled late Wednesday a far-reaching set of regulations to allow foreign banks into the country’s long-protected domestic market. But it demanded that they do so through subsidiaries incorporated in India and said that eligibility would be limited to banks from countries that reciprocate by letting in Indian banks.
Czech Central Bank Launches Foreign-Exchange Intervention
The Czech central bank on Thursday voted to launch foreign-exchange interventions to loosen monetary policy after a year of verbal warnings as the bank has been undershooting its 2% inflation target.
The forex market is designed to encourage crime
Patrick Jenkins – FT.com
It is notoriously idiotic to leave the purchase of holiday currency until arriving at the airport – as I learnt to my cost (yet again) last week. With a choice of two currency outlets, both run by the same operator, there was one dreadful rate on offer: £1 would net me €1.05. Buying back £1 would cost €1.35.
US Treasury renminbi undervaluation claim disputed
Peter Garnham – Euromoney magazine
The US government has upped the ante in its criticism of China’s foreign exchange regime, but Lombard Street Research reckons the renminbi is, in fact, overvalued by 30% on a trade-weighted basis, citing, in part, rising unit labour costs and disinflationary pressures.
World central banks to hold fire in face of weak dollar: Poll
The Economic Times
Global central banks are unlikely to take steps to make their currencies more competitive against the US dollar whose current weakness should prove to be temporary, a Reuters poll found.
Forexware Partners With Tradenext Limited
Goldman Sachs Under Investigation in Currency Probe
Gavin Finch & Michael J. Moore – Bloomberg
Goldman Sachs Group Inc. (GS), the world’s most profitable securities firm before the financial crisis, said it’s under investigation by regulators probing the potential manipulation of foreign-exchange rates.
Federal Reserve Economist On Bitcoin: ‘Small Phenomenon But Growing’
Kashmir Hill – Forbes
It’s a big moment for Bitcoin. The digital currency has gotten an official nod from the overseer of U.S. currency in the form of a primer out of the Federal Reserve Bank of Chicago.
Indexes and Index Products
Turkey and Russia Join the Big Guns in Barclays Index
Serena Ruffoni – MoneyBeat – WSJ
Turkey and Russia look set to feel The Index Effect. And that could mean fresh inflows for the two markets which have been battered by the emerging markets selloff over the past six months.
ETP investors boost European exposure
Sarah Krouse – Financial News
Investors in exchange-traded products upped their exposure to Europe in October, with ETPs offering exposure to the region raking in $6.19 billion in flows during the month.
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Fresh money is needed for gold equities to recover
A major move upwards in gold would likely be enough to get people interested in gold equities again, says Hallgarten & Co.’s Chris Ecclestone. But, such a move is unlikely at this stage, which leaves gold equities languishing.
***JM: Wouldn’t a major move upwards require that people first get interested? It’s not like prices rise and fall without people…
Does Smaug Have Enough Gold?
Rhett Allain – Wired
I guess dragons love gold. In the recent trailers for The Hobbit: The Desolation of Smaug (YouTube clip) you can get a glimpse of all the gold Smaug has. Why does a dragon need this much gold? I don’t get it. Maybe Smaug doesn’t actually like gold but he just wants to keep it away from other people.
***JB: Hard to say but if all the gold ever mined in the history of the world can fit into a cube 68-feet per side then it seems Smaug may have more gold than we do.