First Impressions

All Smalls and Mediums: Richard Sandor Looks To Transform The Small and Mid-Tier Bank Sector (Part 2)

Over the past 40 years, Richard Sandor has created some of the most successful products in financial markets, from interest rate futures to greenhouse gas derivatives. Now he’s shifted his attention to small and mid-sized banks with a new exchange platform that could transform the way in which those Main Street institutions lend, borrow and set interest rates for themselves. Sandor spoke with John Lothian News about his new venture, the American Financial Exchange, and the future for his latest marketplace.
View the full report in Sway »

Quote of the Day

“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

Janet Yellen at the FOMC press conference, quoted in the story, “Did the Fed just introduce a third mandate?”

Lead Stories

Fed holds rates steady in nod to global economic weakness
Howard Schneider and Ann Saphir – Reuters
The U.S. Federal Reserve kept interest rates unchanged on Thursday in a nod to concerns about a weak world economy, but left open the possibility of a modest policy tightening later this year.

Volatile Markets Fail to Boost Bank Trading Revenues
John Carney – WSJ
Uh-oh. Increased volatility should be good for big-bank trading desks. Instead they seem to have been struggling. That could put a damper on third-quarter results.
Speaking at an investor conference Thursday, Bank of America chief Brian Moynihan cited what could be a 5% to 6% decline in third-quarter fixed-income trading revenue versus a year earlier. Equity trading, though, was up strongly, he added.

Six Things That ZIRP Did for the Corporate Bond Market
Tracy Alloway – Bloomberg Business
The market remains deeply divided about whether the Federal Reserve on Thursday will embark on its first interest rate hike in almost a decade, but it’s worth taking a moment to appreciate just what nearly seven years of near-zero interest rates (what’s affectionately called ZIRP, for zero interest rate policy) accomplished for the U.S. corporate bond market. In two words: a lot.

Jeremy Corbyn’s QE for the people is exactly what the world may soon need
Ambrose Evans-Pritchard – The Telegraph
There are many good reasons to gasp at Jeremy’s Corbyn’s planned assault on capital, but his enthusiasm for “People’s QE” is not one of them.
Overt monetary financing of deficits – the technical term – is exactly what the world will need if the global economy tips into another recession with interest rates already at zero and debt ratios stretched to historic extremes.

Primary Dealers Rigged Treasury Auctions, Investor Lawsuit Says
Alexandra Scaggs and Matthew Leising – Bloomberg Business
The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark — resulting in about $20 billion of fines — suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit.

The global productivity slump: Common and country-specific factors
Barry Eichengreen, Donghyun Park and Kwanho Shin – VOX, CEPR’s Policy Portal
Productivity growth is slowing down around the world. The question is what lies behind this phenomenon and if it can be reversed. This column takes a historic perspective on total factor productivity growth slowdowns to suggest that global factors may play a role in the problem. Factors that are negatively associated with TFP slumps include educational attainment, political development, and high levels of investment. But there is no guarantee that avoiding these factors will necessarily prevent TFP slumps.

CFTC Official Calls for Greater Algo Controls
Sarah Krouse – WSJ
The U.S. Commodity Futures Trading Commission should consider further controls on algorithmic trading, including regulations concerning self-trading, Commissioner Sharon Bowen said Thursday.

Exclusive: Euro zone mulls capping Greek debt servicing cost at 15 percent/GDP
Jan Strupczewski – Reuters
Euro zone governments, Greece’s biggest creditors, are ready to cap the country’s debt servicing costs at 15 percent of GDP annually over the long-term as part of the promised debt relief to help the economy grow, euro zone officials have told Reuters.

China Tries to Extract Pledge of Compliance From U.S. Tech Firms
Paul Mozur – The New York Times
The Chinese government, which has long used its country’s vast market as leverage over American technology companies, is now asking some of those firms to directly pledge their commitment to contentious policies that could require them to turn user data and intellectual property over to the government.

Technology groups warned on stricter financial regulation
Martin Arnold – Financial Times
The chairman of HSBC has said that regulators in China and elsewhere are starting to consider more seriously whether technology companies that provide financial services should, like banks, be regulated more heavily.

Healthy Markets Says SEC Not Doing Enough to Lighten Dark Pools
John D’Antona Jr. – Traders News
Dark pools need to lighten up – literally, according to Healthy Markets Association.
Healthy Markets Association, non-profit coalition of asset managers working to promote data-driven reforms to market structure, on September 15, issued a new report, “The Dark Side of the Pools: What Investors Should Learn From Regulators’ Actions.” In the report, presented to Congress, the group said that U.S. regulators have been behind the curve in properly regulating dark pools and that these alternative trading venues need better oversight.

SEC Removes References to Credit Ratings in Money Market Fund Rule and Form
Press Release – SEC
The Securities and Exchange Commission adopted amendments to remove credit rating references in the principal rule that governs money market funds and the form that money market funds use to report information to the Commission each month about their portfolio holdings. The Commission also adopted amendments that would subject additional securities to issuer diversification provisions in the money market fund rule.

Bank of America’s Fight to Keep Brian Moynihan’s Dual Roles
Michael Corkery – The New York Times
Forget the Iowa caucuses or the New Hampshire primary. One of the more intense and dogged campaigns is currently being waged by Bank of America to convince shareholders that Brian T. Moynihan should keep his job as both chairman and chief executive.

Central Banks

Did the Fed just introduce a third mandate?
Bob Pisani – CNBC
Well. That was something. Even though the Fed did not move, they did surprise.
Did the Fed just introduce a third mandate?
This is the sentence that had everyone talking: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

FRB: Federal Reserve issues FOMC statement–September 17, 2015
Press Release – FOMC
Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved lower; survey-based measures of longer-term inflation expectations have remained stable.

Chair’s FOMC Economic Projections (PDF)
Press Release – FOMC
Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of projected appropriate monetary policy, September 2015.

Dots Suggest Fed Will Move Slow and Steady
Kristen Scholer – WSJ
The dots suggest the Fed is going to take its time.
The Federal Reserve kept short-term interest rates pinned near zero Thursday, and officials lowered their expectations of where they see the federal-funds target ending this year, next year and in 2017, suggesting that the course of tightening will be slower than previously anticipated.

Fed’s Hesitance, Not Its Decision, Surprises Economists
Nelson D. Schwartz – The New York Times
The Federal Reserve appears hesitant about raising interest rates, experts said in the wake of Thursday’s announcement, despite months of anticipation and widely differing forecasts at Wall Street’s biggest firms.
Although a majority of economists on Wall Street thought the Fed might not make its move on Thursday, several said the language in the rate-setting committee’s statement suggested that policy makers were even more reluctant to tighten monetary policy than they had thought.

U.S. Stocks Fluctuate as Rate Hold Fuels Debate on the Economy
Anna-Louise Jackson and Joseph Ciolli – Bloomberg Business
The Standard & Poor’s 500 Index fluctuated as the Federal Reserve’s decision to keep interest rates near zero percent fueled a debate on the economy’s strength.

Fed Rate Wait Doesn’t Make it Easy for the ECB
Richard Barley – WSJ
Get a move on. The European Central Bank spent the eurozone debt crisis combating economic and market divergence within the currency bloc as government bond markets fragmented and economies tottered. With the U.S. Federal Reserve deciding Thursday to stand pat on interest rates, for now, the ECB is still waiting for what it hopes will be a much more welcome form of divergence: in monetary policies.

ECB to release data on central-bank balances
Todd Buell – MarketWatch
The European Central Bank said Thursday it will publish the individual balances of national central banks in the European TARGET payment system, making it easier to track the flow of payments across the eurozone.

One Monetary Policymaker Wants Negative Rates in the U.S.
Luke Kawa – Bloomberg Business
The Federal Reserve elected to keep interest rates on hold following its September meeting, citing developments in the global economy and financial markets that will exert downward pressure on inflation in the near term.
Along with the statement, the central bank also released a set of projections—known as the “dot plot”—from members of the Federal Open Market Committee, which include forecasts of where each policymaker thinks the Fed should have its policy rate at the end of a given period.
There’s one remarkable outlier in the projections: For the first time ever, one monetary policymaker thinks the U.S. needs to move to negative interest rates until at least the end of 2016 to achieve full employment and get inflation back to 2 percent.

Swiss central bank keeps key rates unchanged
Neil MacLucas – MarketWatch
Switzerland’s central bank kept a key deposit rate at -0.75% and reiterated it will intervene in currency markets if necessary to blunt the strength of the Swiss franc, which it said remains “significantly” overvalued, despite easing in recent weeks.


Renminbi may be risk that wags the tail
Dan McCrum – Financial Times
Let’s put off the Federal Reserve, for a moment. Instead consider China, its currency and a piece of financial jargon known as “tail risk”.
A “tail”, like many terms misappropriated by finance, has a former life in statistical mathematics where it refers, very broadly, to anything which doesn’t happen very often.

Forex Investors See Regulation as a Top Issue
Chiara Albanese – WSJ
Global regulators are tightening rules around trading in financial markets after a series of scandals, which could make currency trading more difficult and expensive, said industry participants at a foreign-exchange conference in London on Wednesday.

More than 500 Registered for Forex Network Chicago
Profit & Loss
More than 500 foreign exchange professionals are registered for the 13th annual Profit & Loss Forex Network Chicago conference on 24 and 25 September, in what promises to be the best Chicago event yet. The conference, taking place at The Westin Chicago River North, will feature a keynote address from J. Christopher Giancarlo, Commissioner at the US Commodity Futures Trading Commission, and a series of business sessions, networking opportunities and a state-of-the art trading technology exhibition.

The Euro Is Weaker Than You Thought, and the Reason is China
Alessandro Speciale and Jeff Black – Bloomberg Business
Everyone knows that the world’s economic center of gravity is shifting toward Asia. What’s less obvious is the impact that can have on major reserve currencies.

It’s Not 1997: Southeast Asian Currencies Slump Isn’t a Crisis
Sandrine Rastello and Sharon Chen – Bloomberg Business
Southeast Asian currencies are tumbling, and that may be a good thing.
Indonesia’s rupiah and Malaysia’s ringgit have fallen to levels hit during the Asian financial crisis of 1997-98, leading a decline in the region’s currencies. The drop won’t spark the same economic meltdown this time around, according to analysts who watched the disaster unfold almost two decades ago. In fact, it could be a healthy realignment that helps boost exports.

UBS Developing Blockchain-based ‘Settlement Coin’
Erin Lace – The CoinTelegraph
Swiss banking giant UBS is developing a new blockchain-based currency “settlement coin” – a digital currency that’s backed by fiat money and fits into the existing regulatory framework.

Central Asia Battered by Currency Turmoil
Joanna Lillis and Anna Lelik – EurasiaNet
Authorities in Kazakhstan have burned through $414 million over two days in an effort to halt the slide of the country’s currency, the tenge, which broke the psychologically important barrier of 300 to the dollar on September 16. But the emergency government intervention may be too late for people like Almaty trader Natalya Ovchinnikova, who is nervously looking down the barrel of bankruptcy.

Indexes & Index Products

Intervention amplified losses for ETFs tracking China mainland
Tim McLaughlin and Jessica Toonkel – Reuters
Just as China shows that its domestic stock market can be something of a one-way street — investors can put money in, but not take money out – the biggest mutual fund company, Vanguard Group, is moving ahead with plans to expose more mom-and-pop investors to the country’s heavily restricted exchanges.

Vix ETFs contributed to August turmoil
Joe Rennison – Financial Times
The upsurge in stock market turmoil during August was exacerbated by specialised exchange traded funds that track volatility and use leverage to magnify investor returns, according to some analysts.

Market Attributes: Risk & Volatility Dashboard Sep 17th, 2015
Press Release – S&P Dow Jones Indices

All Investors Are Long Volatility, But There’s Help
Mike Venuto –
Over the past few years, there has been a lot of discussion about volatility as an asset class. The recent turmoil in the market has reignited this debate.
In my opinion, volatility is not an asset class; rather, it’s a market factor that all investors are inherently long. Factors are idiosyncratic risk that traditional index investors inadvertently accept. Assets are tangible; they can grow and compound value.

Daily ETF Watch: Direxion Debuts 2X Funds
Heather Bell –
Today Direxion launched two new bull/bear pairs of inverse and leveraged ETFs. The four funds offer geared exposure to the cybersecurity and pharmaceutical spaces. The funds, their tickers and expense ratios are as follow.

Fin Min confident Peru to keep MSCI ranking
Peruvian Minister of Economy and Finance Alonso Segura affirmed there is optimism about Peru’s ability to remain in the emerging-market category and considered as productive the meeting with Morgan Stanley Capital International (MSCI) representatives in New York.


Gold Is So Cheap, It’s Being Given Away
Helen Thomas – WSJ
It is a sign of the beleaguered state of the gold sector that people are effectively giving the stuff away for nothing.
Consider Randgold’s agreement to form a 50/50 joint venture with AngloGold Ashanti, aimed at redeveloping the Obuasi mine in Ghana, which AngloGold largely closed last year. Details weren’t disclosed, but it doesn’t appear Randgold is paying anything upfront for the mine, which offers 5.3 million ounces of reserves. Instead, the pair will share development costs and rehabilitation liabilities.

Gold sector considers wage deal after talks
Govan Whittles – EWN
A new wage offer from gold mining companies is currently being considered by union members in the industry after the CCMA mediated talks in Johannesburg this week.


Symphony is a real challenge to Bloomberg
John Gapper – Financial Times
Over the years, many “Bloomberg killers” have launched and failed. They have come for the king of the financial data and analytics business and missed.
Now comes Symphony, a start-up messaging service and technology platform, nurtured by Goldman Sachs in its tussle with Bloomberg. This is a problem: if there is one organisation that other banks and investment managers resent more than Bloomberg, it is Goldman. On past form, Symphony’s launch this week could be written off.

The Hyper Growth Of Daily Fantasy Sports Is Going To Change Our Culture And Our Laws
Darren Heitner – Forbes
How many times have you seen that DraftKings commercial on TV this year? One . . . maybe two million times? Ever wonder why they are advertising so aggressively? It is because Draftkings spent more on television commercials than any other company in the U.S. this past week.

As Zombie Rumors Fly, China Punishes Social Media Pranksters
Austin Ramzy – The New York Times
A dead alien in the refrigerator. Zombies on the loose. A mythical beast in the hills.
Scenes straight out of pulp magazines lurk in the back alleys of Chinese social media, where they can quickly find an eager following and, almost as quickly, earn a rebuke from skittish authorities.

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