First Impressions

Navigational Beacon: NASDAQ OMX Group’s Hans-Ole Jochumsen Steering through Challenges
JohnLothianNews.com

A recurring theme at this year’s IDX London was navigating the many challenges facing the financial sector. In this video, NASDAQ OMX Group’s Hans-Ole Jochumsen talks to John Lothian News about three such challenges – exchange competition, allocation of technology resources, and the global regulatory environment.

Watch the video »

Quote of the Day

“The effect of all the collateral issues we see now is an indication of not so much how things are, but how bad things will be when you really need liquidity. That’s when you get into potentially dire situations.”

Jeffrey Snider, chief investment strategist at West Palm Beach, Florida-based Alhambra Investment Partners LLC in the story, “ Bond Anxiety in $1.6 Trillion Repo Market as Failures Soar”.

Lead Stories

European High-Grade Bond Fund Inflows Set Fresh Record
Ben Edwards – MoneyBeat – WSJ
Investors handed European high-grade bond funds $1.6 billion over the last week, according to EPFR data reported by Bank of America BAC +1.14% Merrill Lynch. That is the fifth consecutive week that inflows have exceeded $1 billion, extending a record stretch, Bank of America says.
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Sweden Stunner on Rates Seen Forcing Norges Bank to Act
Saleha Mohsin – Bloomberg
Sweden’s surprise interest-rate cut last week will probably prompt a Norges Bank response to shield the economy from a strengthening currency, according to DNB ASA (DNB), Norway’s biggest lender.
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Are Markets Underestimating Rate Hike Risks?
Alen Mattich – MoneyBeat – WSJ
Investors are seriously underestimating where official interest rates ought to be in a couple of years’ time if the Bank for International Settlements’ calculations are correct. In which case policymakers face a fiendishly tricky job.
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***DA: Not in Sweden, anyway.

What’s Happening to Italian Banks’ Bad Loans? – The Short Answer
WSJ
Italian banks badly need to sell bad loans. Having tripled to just-shy of €300 billion ($408 billion) since the end of 2008, they have become the banks’ number one problem.
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***DA: This has created a bottleneck in the banks’ lending operations, and impediment to progress.

Bond Anxiety in $1.6 Trillion Repo Market as Failures Soar
Liz Capo McCormick – Bloomberg
In the relative calm that is the market for U.S. Treasuries, a sense of unease over a vital cog in the financial system’s plumbing is beginning to rise.
The Federal Reserve’s bond purchases combined with demand from banks to meet tightened regulatory requirements is making it harder for traders to easily borrow and lend certain desired securities in the $1.6 trillion-a-day market for repurchase agreements. That’s causing such trades to go uncompleted at some of the highest rates since the financial crisis.
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Seventy Bitcoin risks
Joseph Cotterill – Financial Times
Click to enlarge, via the European Banking Authority’s response to virtual currencies. Do note E31.
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***JM: Yes, do note E31, bottom of the second page…

Lyxor AM launches high-yield bond fund
Andrew Pearce – Financial News
Lyxor Asset Management is the latest asset manager to launch a high-yield bond fund to take advantage of current market conditions.
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Goldman Sachs Brings Forward Rate Forecast Before U.S. Auctions
Susanne Walker and David Goodman – Bloomberg
Goldman Sachs Group Inc. brought forward its forecast for the Federal Reserve to raise interest rates after U.S. employers added more jobs last month than forecast, sending five-year Treasuries lower for a fourth day.
The yield on the five-year note reached almost the highest level since April before trading little changed. The central bank will increase its benchmark interest-rate target in the third quarter of 2015, rather than the first three months of 2016, according to a report from Goldman Sachs.
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Central banks ending era of clear promises, return to ‘artful’ policy
Reuters
The world’s major central banks are returning to a more opaque and artful approach to policymaking, ending a crisis-era experiment with explicit promises that they found risked their credibility and did not substitute for action.
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Pimco Says Canada Is ‘Worst’ Market for Bond Transparency
Ari Altstedter – Bloomberg
In the 20 years that Ed Devlin has traded bonds across three continents, the market of his native Canada has earned a dubious distinction in his eyes.
“It’s among the worst,” said Devlin, who’s worked in New York, London, Tokyo and Toronto and oversees $17 billion for Pacific Investment Management Co., manager of the world’s biggest bond fund. “It’s the worst in terms of transparency, it’s the worst in terms of liquidity.”
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***DA: Worst? Really? That is a tremendous claim.

France hits out at dollar dominance in international transactions
Michael Stothard in Aix-en-Provence – Financial Times
France’s political and business establishment has hit out against the hegemony of the dollar in international transactions after US authorities fined BNP Paribas $9bn for helping countries avoid sanctions.
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***DA: Competitive devaluation is evolving, and getting ugly.

Yellen’s Economy Echoes Arthur Burns More Than Greenspan
Rich Miller – Bloomberg
Federal Reserve Chair Janet Yellen faces an economy that is starting to look more like Arthur Burns’s in the 1970s than Alan Greenspan’s in the 1990s.
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Carney’s Hawkish Turn Seen Setting Fashion for Yellen
Simon Kennedy – Bloomberg
Mark Carney was hailed as a fashion icon by the British media in his first months as governor of the Bank of England. The cut of his dark-blue suits won praise as did his casual wear when he was photographed in shorts and a polo shirt at a music festival.
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***DA: When Volcker was hiking rates, his favorite fashion accessory was a lit cigar.

Argentina Says BNY Mellon Violating Contract as Debt Talks Begin
Charlie Devereux and Katia Porzecanski – Bloomberg
Argentina said Bank of New York Mellon Corp. is violating its contract as trustee of the country’s debt obligations by withholding a payment to holders of restructured debt that was due June 30.
U.S. District Court Judge Thomas Griesa is exceeding his jurisdiction by blocking payment to holders of bonds issued under U.K. law, President Cristina Fernandez de Kirchner’s government said today in a legal notice published in the country’s newspapers. Last week, holders of Argentina’s euro-denominated bonds asked a U.S. judge for an emergency ruling to help them recover money from the blocked payment.
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Central Banks

Draghi’s $1.4 Trillion Shot: Silver Bullet or Misfire?
Jana Randow and Alessandro Speciale – Bloomberg
Mario Draghi’s plan to end the euro area’s lending drought risks missing the target.
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Sizing Up the ECB’s Big Guns
Richard Barley – MoneyBeat – WSJ
How big is a bazooka? Think at least a trillion. It seems to be the policy maker’s number of choice.
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PBOC Wades Into Fiscal Waters as China Boosts Stimulus
Bloomberg
China’s central bank is seeking to support economic growth with unconventional tools that Credit Suisse Group AG and Everbright Securities Co. say look more like fiscal policy.
The People’s Bank of China this year started a 100 billion yuan ($16 billion) quota for relending earmarked for agriculture and small businesses. It offered another 300 billion yuan for low-income housing, China Business News said.
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***DA: It used to be that a central bank independent from fiscal authorities was a hallmark of strength.

Glimmer of light amid fixed income gloom as central bank rates diverge
Matt Turner – Financial News
Banks’ revenues from their fixed income and forex divisions in the second quarter are likely to be better than the doom-laden predictions of a few months ago as the divergence of interest rate policies among major central banks opens up more trading opportunities.
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ECB’s Lautenschlaeger does not see bond-buying: paper
Reuters
European Central Bank executive board member Sabine Lautenschlaeger said she does not see the ECB embarking on a bond-buying spree in the near future, according to a German newspaper report.
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Currencies

Eurex set for European FX futures contract debut
William Mitting – Futures & Options World
Eurex is set to launch foreign exchange derivatives on Monday, marking the group’s first FX derivatives and a direct challenge to CME Group, Europe’s sole currency futures market.
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***DA: The new cola wars, only with FX derivatives instead of soft drinks.

Suppressed volatility creates challenges and opportunities for FX managers
Solomon Teague – Euromoney Magazine
With currency moves relatively muted and few discernible trends to trade, it has not been an easy market for many FX traders, but low volatility has created favourable conditions for the recovery in the carry trade. The eerie calm and the Fed-driven global capital market have caused market players to adopt tail-risk hedges and long-vol trades for the inevitable turn in the cycle.
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Irish Central Banker Lays Down the Law at Bitcoin Gathering
Amir Mizroch – MoneyBeat – WSJ
Many bitcoin backers trekked to Dublin this week hoping that a senior central banker scheduled to speak at a bitcoin conference there would help bestow a measure of legitimacy to the virtual currency. Not so fast.
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Forex trading faces up to the end of a thrilling ride
Joel Clark – Financial News
Not very long ago, foreign exchange was widely seen as one of investment banks’ best businesses – a liquid, capital-efficient market serving a clear purpose for the real economy. Some of those characteristics endure today, but record low volatility, punitive regulation and damaging investigations have combined to make FX a far less attractive business than it once was.
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Want euros in London? Don’t ask your bank
Patrick Graham – Reuters
From a small, white-washed basement close to London’s Liverpool Street station, Sakthi Ariaratnam is beating banks at what you would have thought was their own game – and it is relatively easy.
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***DA: Wide exchange spreads are nothing new.

FX Volume Up in June at EBS, CME Group
Profit & Loss
Currency trading volume edged up again last month on the EBS platform and at CME Group, the first of the reporting venues to release FX trading figures for June
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Indexes & Index Products

Open Platform: The ‘Hidden Tax’ of Index Data
Justin Wheatley – WatersTechnology
As index use has grown, so have the ways in which entrenched index providers are extracting revenues from licensing their indexes and underlying data. But with cost still a key concern, with the popularity of exchange-traded funds growing, and with incumbents facing fresh competition, the industry may be ripe for change, says StatPro group chief executive Justin Wheatley
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New Russell owners likely to keep only indexing unit
James Comtois – Pensions & Investments
Russell Investments’ asset management and consulting businesses will most likely be sold by the London Stock Exchange Group PLC, which is purchasing the entire firm for $2.7 billion, sources say.
The price tag for those business lines could be between $700 million and $1 billion, the sources estimate.
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ETFs back on song in second quarter
Mike Foster – Financial News
Exchange-traded fund inflows shot up to $123.9 billion in the first half of the year, a rise of 25% compared with the same period in 2013, after a strong performance in the second quarter, according to data compiled by BlackRock.
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Gold

Financial Conduct Authority says no evidence of gold price rigging
Andrew Critchlow – The Telegraph
Does the system of fixing the daily price of gold in London really need fixing, or should it be allowed to fade into the annals of history?
Traders and market participants will gather today in London to debate the question which has hung over the City’s precious metals market ever since it emerged earlier this year that major abuses of the 100-year-old process known as the “London gold fix” had taken place.
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***DA: Nothing to see here folks. Move along.

SET takes shine to spot gold market
Bangkok Post
The Stock Exchange of Thailand (SET) expects to settle the process of gold delivery with traders by the end of the year in a move that will pave the way for the establishment of a physical gold exchange.
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Gold market to return to net hedging in 2014 – GFMS
Jan Harvey – Reuters
Gold producers will return to net hedging for the first time since 2011 this year, GFMS analysts at Thomson Reuters said on Friday, after Polyus Gold this week announced a two-year progamme to sell gold forward.
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