First Impressions

CFTC’s O’Malia taking a hard look at HFT
JohnLothianNews.com

Michael Lewis’ book “Flash Boys” stirred up debate about high frequency trading like no other. Regulators, such as the Commodity Futures Trading Commission (CFTC) are taking a more in-depth look at the trading method to determine if there might be problems with HFT in the futures space as well.

CFTC Commissioner Scott O’Malia, speaking to John Lothian News for its market structure series, said that HFT has been on the agency’s radar screen for some time, and has created a sub-committee to bring experts on both sides of the debate.

Watch the video »

Quote of the Day

“There is consensus about being dissatisfied with the projected path of inflation. There is a consensus about not being resigned and accepting this as a fact of nature.”

Mario Draghi, president of the ECB, in the New York Times’ piece “European Central Bank Says Stimulus Is Likely, but Not Before June.”

Lead Stories

European Central Bank Says Stimulus Is Likely, but Not Before June
NYTimes.com
The European Central Bank on Thursday held interest rates steady, but signaled that it was likely to take action next month to stimulate the euro zone economy, amid growing concern about economic fallout from the crisis in Ukraine.
jlne.ws/1m5LVfE

**JK – Looking for moves to weaken the Euro.

Dark Pool for Dealers Addresses Shortfall in Corporate Bond Liquidity
Ivy Schmerken – Wall Street & Technology
A new dark pool for trading U.S. corporate bonds has emerged to help dealers identify trading opportunities across their positions and orders as a way to solve the problem of constrained balance sheets.
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**JK – Finding deals in the dark. Interesting.

Why Buffett is steering clear of catastrophe bonds
Gillian Tett – FT.com
When Warren Buffett held his annual shareholders meeting last weekend in Nebraska, investors obsessively discussed everything that the Sage of Omaha said about the equity market and his succession plans. But another intriguing issue, buried deep in corporate filings, went largely ignored
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**JK – That’d be a disaster!

Irish five-year bond yields fall below UK
Telegraph
Ireland’s five-year borrowing costs have fallen to their lowest in the 92-year history of the state after Moody’s restored the country’s credit rating to investment grade.
jlne.ws/1m5LS3q

**JK – “When Irish 5’s are falling…” (Couldn’t resist)

BlueBay Joins BlackRock Seeing Euro-Area Bond Rally Fading Out
Lucy Meakin and Neal Armstrong – Bloomberg
An advance in euro-area government bonds that pushed the 10-year yields of Ireland, Italy and Spain to all-time lows today is about to end, according to investors at BlueBay Asset Management LLP and BlackRock Inc.
jlne.ws/1m5LUZk

What Timothy Geithner Really Thinks
ANDREW ROSS SORKIN – NYTimes.com
“This is kind of like a hearing,” Timothy Geithner said, swaying uncomfortably, face scrunched and hair perfectly tousled. “Do you guys always do it this way?”
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**JK – Geithner makes case for the best trade the US Govt. ever made.

5 Takeaways on Fannie, Freddie Earnings
Five Things – WSJ
Mortgage giants Fannie Mae and Freddie Mac are sending $10.2 billion to the U.S. Treasury after reporting combined first-quarter profits of $9.3 billion. But Thursday’s earnings reports hinted at a possible cooling off in the profits of both companies, which have benefited from large one-time gains over the past several quarters. They also suggested a modestly softer housing demand.
jlne.ws/1m5LXEj

**JK – Geithner likes this news too.

Greed, Fear, Something Else Altogether?
David Weidner – MoneyBeat – WSJ
Investors have rarely gone wrong by following the old Warren Buffett maxim about being greedy when others are fearful and fearful when others are greedy. But what’s happening in the stock market today isn’t exactly greed and it surely isn’t fear. Instead, it appears to be a rally built on a lack of attractive alternatives rather than empirical support.
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**JK – Where else are you going to put your capital?

Central Banks

5 Takeaways From Mario Draghi’s May Press Conference
Five Things – WSJ
Markets have waited for months for the European Central Bank to give an indication of when it might tweak monetary policy to address falling inflation and a rising euro. On Thursday, Mario Draghi, the bank’s president, gave the clearest indication yet that action could be imminent. Here are five takeaways from the press conference that followed the bank’s rate decision today.
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Yellen comments don’t get much market traction
Reuters
Janet Yellen’s first public comments about market risks this week were largely shrugged off by the market itself, where the hunt for yield doesn’t look to be going away anytime soon.
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BOK Holds Rate to Support Economy as Won Rise Adds to Risks
Eunkyung Seo and Cynthia Kim – Bloomberg
South Korea’s central bank left its key rate unchanged and the government said it will speed up spending, seeking to spur growth that faces headwinds from a surge in the won and weaker consumption after a deadly ferry accident.
jlne.ws/1m5LVfK

BOJ to set aside more reserves as balance sheet grows
Reuters
The Bank of Japan will set aside four times the amount of money it normally would as reserves to offset the risk posed by the assets it is rapidly adding to its balance sheet with its quantitative easing.
jlne.ws/1m5LVfN

Kuroda Fails to Sway Analysts Forecasting Easing in ’14: Economy
Toru Fujioka and Masahiro Hidaka – Bloomberg
Governor Haruhiko Kuroda is failing to convince economists that the Bank of Japan has done enough to spur 2 percent inflation, with most sticking to forecasts for added easing by the year end, a survey showed.
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Federal Reserve Board Invites Comment On Proposed Rulemaking Implementing Section 622 Of The Dodd-Frank Act
jlne.ws/1m5LXEv

Speech By Federal Reserve Governor Tarullo On Rethinking The Aims Of Prudential Regulation At The Federal Reserve Bank Of Chicago Bank Structure Conference, Chicago, Illinois
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Sweden Turns Macro-Prudential
MoneyBeat – WSJ
Sweden’s financial markets regulator raised capital requirements in an effort to control already heady levels of private sector debt and what looks like a housing bubble without having to resort to higher rates. That’s because, if anything, the Swedish economy needs rate cuts rather than hikes.
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Currencies

The currency question Alex Salmond cannot answer
Paul Donovan | FT Alphaville
As the referendum on Scottish independence approaches, the rhetoric around the currency arrangements for an independent Scotland has escalated.
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Big banks extend dominance of forex league table
Delphine Strauss – FT.com
The biggest banks have reinforced their dominance of the $5.3tn a day foreign exchange market in the past year, according to a closely watched industry survey.
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Citigroup Tops Euromoney FX Poll After 12-Year Gap
WSJ.com
Citigroup Inc. has snatched back its position as the world’s biggest currencies-dealing bank after a 12-year hiatus, taking the crown from Deutsche Bank AG, according to a closely followed industry survey. Barclays PLC retains its third-place slot in the annual benchmark rankings announced by publisher Euromoney Institutional Investor on Thursday.
jlne.ws/1m5KTjR

Tarf trouble in Taiwan: Sliding renminbi threatens heavy losses
Lukas Becker – Risk.net
Derivatives linked to the US dollar-renminbi exchange rate have been successful during the Chinese currency’s four-year rise. But now it is sliding, corporate users are looking at heavy losses and regional banks could face a big funding hit.
jlne.ws/1m5LVwa

Winklevoss Twins to List Bitcoin Fund on Nasdaq
RACHEL ABRAMS – NYTimes.com
Despite cautions and hesitations among regulators about investing in virtual currency, the Winklevoss twins are inching closer to creating the first publicly traded Bitcoin fund.
jlne.ws/1m5LVwb

Election Commission Votes to Allow Bitcoin Donations
NYTimes.com
The Federal Election Commission on Thursday voted to allow political committees to accept Bitcoin donations and outlined the ways that the virtual currency can be used by federally regulated campaigns.
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Bitcoin Campaign Donations Get Green Light From FEC
Michael J. Casey – MoneyBeat – WSJ
A much-anticipated Federal Election Commission decision Thursday gave the green light for bitcoin political contributions. The question now is how much is allowed.
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BitBeat: Chicago Court OKs Sunlot-Mt. Gox Settlement
MoneyBeat – WSJ
Sunlot Holdings’ bid to buy and rejuvenate bankrupt bitcoin exchange Mt. Gox got a boost from a Chicago judge Thursday.
jlne.ws/1m5LVwl

Indexes & Index Products

Buy a Stock-Buyback Fund, Short Housing?
John Kimelman – Barron’s
What’s better than companies that routinely buy their own shares? A nifty exchange-traded fund that invests in such companies. The PowerShares Buyback Achievers (ticker: PKW) is not cheap when compared to many popular ETFs—it has an expense ratio of 0.71%. But it’s probably worth it.
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Deep Value in the S&P 500 Index
Alex Bryan – Morningstar
Most value index funds target the cheaper half of the market, which tends to sweep in a large helping of blend stocks that dilute their value tilts. In contrast, Guggenheim S&P 500 Pure Value (RPV) targets the cheapest third of the S&P 500 Index and weights its holdings by the strength of their value characteristics.
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Miscellaneous

Dollar DCM volume hits record in Asia
Euromoney magazine
Dollar-denominated debt capital market volume in Asia reached almost $27 billion in April, the highest monthly volume on record, bolstered by a $5 billion, five-tranche bond from Sinopec, the third-largest dollar bond in the region (ex Japan) on record.
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