First Impressions

FinTech Exchange Chicago: Future Is Now For Some FinTech and Right Around The Corner For Other Technology
Spencer Doar,

FinTech Exchange 2016 Chicago was no wistful exercise in futurology last month. It was firmly set in the do-or-die present of technological solutions and opportunities.

Chicago may not be thought of as a fintech hub among key global financial centers such as New York or London, but the homegrown talent was out in force along with a slew of imported presenters on the forefront of finding and pioneering new technology opportunities.

The themes were well known — big data analytics, blockchain, machine learning and the necessity of reimagining the assumptions around how a business runs. And of course, the event’s overarching message of “Run, don’t walk, to the cloud” was loud and clear.

Watch the videos and read the story »

Quote of the Day

“I am the king of debt. I love debt. I love playing with it.”

Donald Trump in the story, “Donald Trump Trolls America’s Bankers”

Lead Stories

Why the Eurozone May Avoid a Greek Crisis This Summer
Whisper it, but this summer might not be marked by a flare-up of the Greek crisis. The move to set out a path to debt relief for Greece at Monday’s meeting of eurozone finance ministers is a clear step forward, even if no firm decisions were taken. That marks a rare occasion when a Eurogroup meeting on Greece has exceeded expectations. Greek bond yields fell sharply Tuesday in recognition of that, with 10-year yields reaching their lowest point this year. But the chronic problem linked to Greece’s debt isn’t going away.

****SD: The EU may also spontaneously combust.

Germany is the eurozone’s biggest problem
Martin Wolf – Financial Times
Why is conventional German thinking on macroeconomics so peculiar? And does it matter? The answer to the second question is that it matters a great deal. A part of the answer to the first is that Germany is a creditor. The financial crisis has given it a dominant voice in eurozone affairs. This is a matter of might, not right. Creditors’ interests are important. But they are partial, not general, interests.

****SD: Ich bin ein problem.

Policy rates unlikely to climb back to pre-crisis average levels
Interest rates are likely to rise only very gradually and may not return to the average levels seen in the 10-20 years before the global financial crisis, Moody’s Investors Service said in a report today. This benign rates outlook is different from past monetary cycles when policymakers increased rates more swiftly and sharply following periods of low policy rates.

Free Lunch: Removing the overhang
Martin Sandbu – Financial Times
Eurozone governments are finally edging towards a restructuring of the loans they have been extending since 2010 to refinance the Greek government’s debt to private creditors. (As a research paper confirms, a small share of those loans went to pay for Greek public spending.) At least they are now willing to talk about it, and at Monday’s eurogroup meeting, they began to put some concrete options on the table. While nominal debt writedowns are ruled out, everything else seems up for debate, from maturity extensions and interest rate caps through to payment holidays and, most crucially of all, “flexibility to accommodate uncertain GDP growth” as the post-meeting statement puts it. That sounds very much like GDP-linked bonds, an excellent idea we have discussed before.

EU moves ahead on talks to limit banks’ sovereign debt exposure
EU states are moving ahead with talks on whether to limit the amount of sovereign debt banks can hold, despite some countries’ fears that the policy could upset bond markets and banks’ financial stability. In a document drawn up as the basis for discussion by government officials in Brussels on Tuesday, the Dutch presidency of the European Union says the bloc may need to regulate banks’ sovereign holdings before decisions are taken at a global level.

BIS Channels Rajan as Borio Calls for New Global Monetary Order
The world’s dollar-dominated monetary order has serious instabilities that can best be fixed by central banks explicitly coordinating policy, Claudio Borio, the chief economist of the Bank for International Settlements, argued in a new paper.

****SD: That’s pretty close to New World Order.

Lending Club bombshell rocks marketplace lending
Euromoney Magazine
The shock resignation of Lending Club founder and chief executive Renaud Laplanche on Friday capped a grim few days for marketplace lending. Lending Club dominates this sector in the US and Laplanche, who co-founded the firm in 2006, has been one of the industry’s most high-profile advocates. Lending Club had been due to announce its first quarter results on Monday and the industry was hopeful for a good set of numbers after the slowdown in loan growth reported by rival platforms Prosper Marketplace and OnDeck the week before.

****SD: Also see, Goldman, Jefferies Put LendingClub Deals on Hold

U.S. economy seen expanding 2.2 percent in second quarter: Atlanta Fed
The U.S. economy is on track to grow by a 2.2 percent annualized rate in the second quarter following data that showed stronger consumer spending and fixed investments, the Atlanta Federal Reserve’s GDPNow forecast model showed on Tuesday.

****SD: We’ll see how long this estimate stays above 2 percent…

President Xi’s stance on China’s economy laid bare as he distances hallmark policy from Western-style supply-side economics
South China Morning Post
An explanation of President Xi Jinping’s hallmark economic policy, in his own words, was ­published in People’s Daily yesterday – one day after it printed an interview with an unidentified “authoritative” source repudiating China’s debt-fuelled growth policies.

Prime money market funds pull back from short-dated debt paper
Financial Times
New regulations are leading US prime money market funds to pull back from investing in the short-dated debt market for commercial paper, hitting demand for an important dollar funding source for foreign banks. According to a report from Fitch, the rating agency, these funds, which have more freedom over the assets they invest in, have shrunk by $276bn since October to $1.2tn and are for the first time smaller than funds that invest only in government securities.

Tidjane Thiam on the defensive as Credit Suisse posts second straight loss
The Telegraph
Credit Suisse’s chief executive Tidjane Thiam defended his record since joining the bank last year, as it posted a second consecutive quarterly loss.

Central Banks

Central Banks Reaching the Limits of What Monetary Policy Can Do, Says RBI Chief
The head of India’s central bank questioned on Tuesday the ability of his counterparts in developed economies to boost demand, and said that their continued efforts to do so risked doing more harm than good to the global economy.

****SD: Someone writes this story every day.

Don’t Blame the Fed For America’s Economic Problems
The Fed’s decision recently not to raise the federal funds rate ratified widely held market views that officials won’t feel comfortable raising the rate until June at the earliest. But it also raises two fundamental questions: first about whether the Fed’s policy approach today is the right prescription for the economy and second whether the Fed has the best tools to steer the economy down the right path if the outlook darkens. Both of these questions should prompt many wonder: where is fiscal policy?

****SD: Blaming one thing and one thing only never reflects the reality of the situation.

German financial watchdog warns on low rates ‘poison’
Financial Times
Low interest rates are a “seeping poison” for Germany’s banking system, the head of the country’s financial watchdog has warned, in the latest expression of German fears over the European Central Bank’s policies. In a bid to revive Europe’s moribund economy, the ECB pushed its deposit rate into negative territory in 2014, before cutting it further to minus 0.4 per cent in March.

Analysis: Negative Rates Are Better at QE Than QE
When it comes to unconventional monetary policy, negative rates may be making more of a splash than quantitative easing. Just not the way economists would expect them to. Data from Commerzbank AG suggest that large-scale bond purchases by central banks—known as quantitative easing or QE—have hit the limits of their effectiveness. With short-term interest rates already close to zero, central banks across the developed world have launched QE programs in an attempt to lower long-term yields as well.

ECB asks euro zone banks to detail Brexit plans
The European Central Bank has asked large euro zone banks to detail how they are preparing for a British exit from the EU, including how they would deal with the shock to markets and any changes they would have to make to their business models.

China trade may sway Fed’s rate decision
The Federal Reserve’s debate over whether to raise U.S. interest rates in June may be decided in the coming week, as investors look for any cracks in China and evidence of a solid start to the second quarter in the United States.

Kashkari Says Current Fed Monetary Policy Stance Is Appropriate
Minneapolis Federal Reserve Bank President Neel Kashkari on Monday signaled his support for the cautious and patient approach to rate hikes laid out by Fed Chair Janet Yellen, saying the current stance of monetary policy is “about right.”

Monetary policy: Goodhart’s new law
The Economist
Charles Goodhart gave a talk in London on May 10th, at a lunch organised by Sushil Wadhwani, the economist and fund manager. Mr Goodhart, best known for his law that economic measures tend to misbehave once targeted, was tackling the issue of why repeated monetary stimulus by central banks had failed to stimulate credit creation.

SWIFT rejects Bangladeshi claims in cyber heist, police stand firm
SWIFT has rejected allegations by officials in Bangladesh that technicians with the global messaging system made the nation’s central bank more vulnerable to hacking before an $81 million cyber heist in February. The comments were in response to a Reuters story that cited Bangladeshi police and a central bank official as saying that SWIFT technicians introduced security holes into the bank’s network while connecting SWIFT to Bangladesh’s first real-time gross settlement (RTGS) system.

****SD: Also see, Bangladesh Bank Heist Probe Said to Find Three Groups of Hackers

Central Bank Credibility Takes Another Hit
Dent Research – FXStreet
A few weeks ago, the Fed met and announced their policy decision with no change and no big surprise. No shocker there. But after parsing the statement for changes from their previous statement, there were a couple items of interest. Until this last meeting they had said that: “Global economic and financial developments continue to pose risks.” This time they removed that language entirely.

Indian central bank governor says helicopter money no panacea
Indian Central Bank Governor Raghuram Rajan said on Tuesday that he had doubts “helicopter money”, or free cash given directly to citizens to stimulate growth, would be successful if adopted by developed world policymakers.

Fed’s Williams talks inflation, video games in online Q&A
If you ever wondered what an hourlong, online, wide-ranging question and answer session with an influential central banker would look like, wonder no more.

Regulatory News

The European Union remains a laggard on banking supervisory transparency
Financial supervisors must provide the public with more information about the European banking sector in order to ensure financial stability. The level of transparency in national supervision of banks has dropped since 2013.


Fed’s Dudley: More Reserve Currencies Would Make for Stronger Financial System
Katy Burne – WSJ
Federal Reserve Bank of New York President William Dudley said Tuesday he would welcome more currencies achieving reserve status, noting the more countries that meet the requirements, the more insulated the financial system could be from destabilizing capital flights.

Renminbi trade is not a numbers game
Financial Times
China bears rejoice: if Hong Kong’s exports to China can jump an eye-popping 200 per cent, as they did last month, then mainlanders must still be actively seeking ways to move funds offshore. But bears with a short-term eye beware: it pays to trade what China actually does with its currency — not what its numbers say.

Goldman Sachs Calls Dollar Bottom as Economic Concern Subsides
Goldman Sachs Group Inc. says the dollar slump is over. The greenback has rallied almost 1 percent from a one-year low reached last week, extending gains even after April payrolls data showed the weakest job growth in seven months. Goldman Sachs says the post-payrolls rally shows that market expectations for growth and Federal Reserve interest-rate increases have fallen too far, too fast, positioning the currency for a rebound. Strategists at Societe Generale SA and Brown Brothers Harriman & Co. are less bullish, saying a broader dollar recovery will depend on further economic data.

Alarm bells ring for EM currency investors
Financial Times
Investors in emerging market currencies would be well advised to take their well-worn tin hats out of the loft for a polish — even if it is a bit early to start wearing them in the office again. Since January, when the asset class embarked on a rare positive run, there has been little need for body armour. It has seemed as if the market had a change of heart.

Big bucks: high denomination banknotes – in pictures
The Guardian
From the 1,000 Swiss franc note to the $10,000 Singapore dollar note, here are some of the world’s highest-value notes

For Japan, forex intervention easier said than done
Nikkei Asian Review
Japanese Finance Minister Taro Aso may have been venting frustration with America when he overtly mentioned the option of stepping in to halt the yen’s rise, but market watchers have seen through his talk to the difficulty of such a step. “Naturally, we are prepared to intervene,” Aso told the audit committee of the upper house Monday.

Sugar and coffee pushed by volatile Brazilian real
Financial Times
Sugar and coffee prices are being swayed by the Brazilian real, which has been see-sawing on the uncertainty around the South American country’s proceedings to impeach its president. The Brazilian currency plunged after the impeachment process was suspended at the start of the week but then regained ground as the decision was reversed.


Trump Trolls America’s Bankers
As if China and Japan didn’t have enough to worry about, Americans may be about to put a defaulter-in-chief in the White House. Somehow, the typical oh-Donald-Trump-can’t-be-elected assurances mean little to nations stuck with more than $1 trillion each of Treasuries on which The Donald says he’d effectively renege.

****SD: From the WSJ, Donald Trump Amplifies His Stances on Tax Cuts, U.S.’s Debt

Donald Trump now says U.S. bonds ‘absolutely sacred’
Donald Trump sought Monday to clarify his views on fiscal and monetary policy, saying he was open to compromise on tax cuts but wouldn’t try to alter the terms of the nation’s $19 trillion in debt, which he called “absolutely sacred.”

Does securitisation of online loans have a future in Europe?
Financial Times
Europe’s securitisation market has just endured its worst quarter in nearly half a decade. However, last month something new piqued the industry’s attention. April saw the continent’s first securitisation backed by loans made through an online marketplace lending platform. The deal, worth just under £130m, came via Funding Circle, which allows both institutions and retail investors to make loans to businesses.

****SD: Admittedly not bonds, but bond-like.

Indexes & Index Products

5 Reasons to Watch the Russell 2000
Greg Harmon – Dragonfly Capital
The Russell 2000 is the barometer for the stock market for many. The thought goes that as investors are willing to place money into riskier smaller companies there is a risk on attitude and all stocks will rise. That narrative may or may not be true. But there are 5 reasons to watch the small cap index ($IWM) as a possible vehicle to profit from directly.

Why Strategic Beta Makes Sense
Thanks for bearing with me this far. As I have learned from bitter experience, the topic of strategic beta–or “smart beta,” as fund marketers would have it–is not exactly a crowd-pleaser. Today’s article would generate much more interest were the subject Vanguard, or 401(k) plans, or how to make one’s money last while in retirement. Compared with those evergreen themes, the latest investment innovation seems trivial.

Index IDEA: FTSE Russell & Deutsche AM examine emerging markets factors YTD
FTSE Russell
After a challenging start to 2016, emerging markets indexes have steadily trended upward since February 11th. According to global index provider FTSE Russell, the FTSE Emerging Index has risen 7.2% in 2016 as of April 26th.


Gold Loses Some of Its Allure
Gold prices settled lower in U.S. trading on Tuesday, as investors sought out riskier assets amid a stock-market rally and an increase in oil prices. Gold futures for June delivery, the most actively traded contract on Tuesday, settled about 0.1% lower at $1,264.80 a troy ounce on the Comex division of the New York Mercantile Exchange. The drop comes after gold shed about 2% in price on Monday, its biggest one-day loss in nearly three months, as the dollar gained strength.

Gold supported despite wobble in Indian demand
Ole Hansen – TradingFloor
The latest run-up in gold resulted in a new peak for the year at $1,305/oz on May 2 and was driven by demand for futures and exchange-traded products from professional and retail investors. This paper demand, which has been very strong since the beginning of the year, has been spurred by several factors, mainly:

Government measures curbing gold import and black money
Business Standard News
Governance measures taken by the finance ministry along with schemes to mobilise idle gold and sovereign bonds seems to be working. Experts believe all the measures put together will have the desired impact on demand for physical gold. Unproductive demand can be curbed and black money will find it difficult to move to gold.

Gold Net Long Positions Are Overstretched: Gold Price Will Likely Correct As The US Dollar Makes A Short-Term Recovery
Seeking Alpha
Positioning in gold has hit critical mass — speculators are now net long gold at levels that surpass those seen during the Great Financial Crisis (GFC) of 2008/2009 and the 2011 major top in gold prices. Net non-commercial positions in gold soared from 220,857 to 271,648 within two weeks. We have not seen this level of activity since at least the GFC (see chart below).


Chinese state media insist that economic growth will be “L-shaped,” which means what exactly?
An odd phrase has popped up this year in Chinese economy talk: “L-shaped growth.” In January, an interview with an “authoritative figure” appeared in the People’s Daily, the communist party’s mouthpiece. “China’s economy is unlikely to achieve a V-shape rebound, but instead an L-shape growth,” the anonymous figure said.

An Investment Banker’s Worst Nightmare
One day late last month, two big companies announced takeovers that had something in common: Neither Comcast Corp. nor AbbVie Inc. used a banker. Comcast and AbbVie, both giants in corporate America, aren’t alone. More companies are deciding to do without bankers when they make acquisitions.

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