First Impressions

Plugging Away
Our Chicago summer intern event begins next Tuesday, so we are running out of opportunities to plug it in the JLN Financials Newsletter. One of our speakers, Ben Van Vliet, is a professor at IIT Stuart School of Business and the author of several books on high frequency trading.

In this teaser for his upcoming speech, Van Vliet talks about the evolution of HFT firms from using speed as the sole determinant of profitability, to today where other organizational issues can be the difference between success and failure. He sees this as a natural process, and one that happens to all industries as they mature.

World Of Opportunity Chicago 2014: Ben Van Vliet (Promo)
JohnLothianNews.com
Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Ben Van Vliet, assistant professor at the Illinois Institute of Technology Stuart School of Business, will be discussing the organizational structure of High Frequency Trading as well as what key components help give traders a competitive advantage. For more information on the event and how to register, click here.

Watch the video »

Quote of the Day

Sluggish export volume is becoming an increasingly serious issue. We expect the trade balance to remain in the red for the long term.

Naohiko Baba, chief Japan economist at Goldman Sachs, in the FT story “Japan’s record trade deficit raises fresh doubts about Abenomics”

Lead Stories

European Central Bank Announces Data Theft
Todd Buell – WSJ
The European Central Bank said Thursday that email addresses and contact data left by people registering for events at the central bank has been stolen. “There had been a breach of the security protecting a database serving its public website. This led to the theft of email addresses and other contact data left by people registering for events at the ECB,” said the central bank.
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***DA: Moriarty strikes again!

Japan’s record trade deficit raises fresh doubts about Abenomics
Jonathan Soble in Tokyo – Financial Times
Japan’s trade deficit widened to an unexpectedly large Y822bn ($8.1bn) in June, contributing to a record shortfall for the first half of the year and raising fresh doubts over the government’s Abenomics strategy to revive growth.
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***DA: Can’t say I didn’t warn you!

Why Deutsche Bank’s Bad Data is So Important
Jenny Strasburg – MoneyBeat – WSJ
The Federal Reserve Bank of New York’s frustration with the quality of data flowing from Deutsche Bank AG’s U.S. operations reached a boiling point in December, as reflected in a letter from the bank’s lead supervising examiner disclosed in a Tuesday Wall Street Journal story. Bottom line: The customer—in this case the U.S. government–was not satisfied.
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***DA: If I ran a bank I would give a foreign regulator as little as possible to see if I could get away with it.

Invesco’s Greenwood: Why the Eurozone is still heading for deflation
Alasdair Pal – Investment Week
Invesco Pereptual’s chief economist John Greenwood has sounded a warning on the Eurozone, predicting GDP and inflation will both undershoot their already low targets.
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Europe’s ‘covered bond’ decline is no loss
Ralph Atkins in Athens – Financial Times
When a product – especially a creation of financial engineering – has lasted since the 18th century, there must be a good reason. “Covered bonds”, ultra-safe securities backed by mortgages that date from Prussian times, had moments of glory after the collapse of Lehman Brothers in late 2008. The market proved resilient as a source of bank finance.
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Larry Summers Interview on Ex-Im Bank, Secular Stagnation and Trade
Danny Vinik – New Republic
Larry Summmers is the Charles W. Eliot professor at Harvard and the former treasury secretary for President Clinton. We talked recently about secular stagnation, the Export-Import bank and the trade deals Obama is working on. This interview has been edited and condensed.
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***DA: While historically not a huge fan of Summers, this was a pretty good interview. I agree with his views on income disparity but disagree with him on fiscal policy.

Patient capital is a virtue
William Lazonick – Financial Times
Whenever financial markets get hyperactive (the norm rather than exception over the past three decades), we hear calls for “patient capital” that can fund long-term investment in the productive capabilities that are essential for a prosperous economy.
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Argentina debt mediator postpones start of New York talks
Reuters
A court-appointed mediator in the Argentina debt dispute said he had to push back by a day the start of the latest round of settlement talks on Wednesday because the Argentine delegation “could not get here in time.”
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***DA: No airline jokes today. Too many incidents in recent days, including a new one today.

Central Banks

Political Crisis Jeopardizes Future of Bulgarian Bank
GEORGI KANTCHEV – NY Times
The fate of one of the biggest banks in the European Union’s poorest country, Bulgaria, remains hostage to a political crisis, which caused the prime minister’s government to resign on Wednesday.
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Bank of England’s Carney gives latest hawkish hint
Joe Parsons – Futures & Options World
The Bank of England’s (BoE) Mark Carney has reiterated the need for interest rates to increase as the UK economy continues to normalise. Speaking to an audience in Glasgow on Wednesday, the governor of the BoE said a rise in the central bank rate will be determined by economic data.
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***DA: Actions speak louder than words.

‘The Age of Asset Management’ — less risk, not more
Brian Reid – Financial Times
As banks learn to live under tighter post-crisis constraints, central bankers around the world are worrying about financial risks that could move from banks to capital markets and perhaps trigger the next great crisis. After the experience of 2007–08, regulators rightly should be on guard for sources of weakness in the financial system.
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Brazil Sells $3.5 Billion 30-Year Bonds
Rogerio Jelmayer – WSJ
Brazil’s government on Wednesday tapped the global debt market, issuing $3.5 billion in new bonds maturing in January 2045, and announced the buyback of shorter-dated global bonds to whittle down the country’s debt-service costs. The new 30-year, dollar-denominated bonds sold at 97.992% of face value, to yield 5.131%.
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Currencies

Volatility comeback: reality or wishful thinking
Solomon Teague – Euromoney Magazine
Morgan Stanley has given traders contemplating their summer holidays further cause to smile by predicting that an uptick in FX volatility might be around the corner.
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***DA: It will take more than an uptick to ignite any real interest in FX. Upsurge, maybe?

FIX Finishes TESI Extension to FX
Timothy Bourgaize Murray – WatersTechnology
The industry group says its Trading Enablement Standard Initiative (TESI) will now be available for foreign exchange (FX) client enablement.
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Reserve Bank of New Zealand points to pause in interest rates
Michael Hunter – Financial Times
The New Zealand dollar came under heavy pressure on Thursday as the country’s central bank indicated that its rate-tightening cycle would be put on pause.
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Indexes & Index Products

When To Pick Mutual Funds Over ETFs (And Vice Versa)
Investors.coCheap? Check. Instant diversification? Check. Popular with novice investors? Check. All of the above is as true of index exchange traded funds as of index mutual funds. Given the overlap, choosing between the share classes can be a bit of a head-scratcher. Here’s what you need to know about when it makes more sense to invest in one over the other.
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S&P MILA Pacific Alliance Indices Launched by S&P Dow Jones Indices
MarketWatch
S&P Dow Jones Indices (“S&P DJI”), one of the world’s leading providers of financial market indices, today announced the launch of the S&P MILA Pacific Alliance Indices. The Indices are the first to measure equity market performance of the Pacific Alliance, a strategic platform that seeks to advance economic integration among the four member states – Chile, Colombia, Peru, and Mexico.
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Gold

U.S. gold ETF delivers first physical bullion coins; holdings grow
Frank Tang – Reuters
Merk Gold Trust, a bullion-backed exchange-traded fund which allows its shares to be redeemed for physical gold, said on Wednesday it has made its first delivery in dozens of U.S. gold coins to an investor.
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China gold demand slumps 19.4 pct on yr, but output rises
Reuters
China’s gold demand slumped 19.4 percent in the first six months of 2014 from year ago, the China Gold Association said in a statement on Thursday, but production rose strongly in the same period as miners ramped up output to protect profit margins.
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Gold, Geopolitics, and that $1,300 Mark
Paul Vigna – MoneyBeat – WSJ
You might expect, what with all the awful headlines in the press about the Ukraine and Flight 17 and Gaza and Iran and Iraq that gold prices would be soaring. After all, global anxiety and uncertainty is usually good for gold, the ultimate hedge against everything. But prices are very little moved, despite the headlines.
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