First Impressions

Bits and Pieces
Sarah Rudolph
The latest news from John Lothian is that he has been on his feet and walking around a bit after his back operation on Tuesday. I’m guessing that means they will let him out of the hospital in a few days, after which he will go to a rehab center. Very good news.

Also, we received a dispatch from Jim Kharouf, who is at the annual OIC conference in Austin. He caught up with Jeromee Johnson of BATS and asked him about the controversy over Michael Lewis’ book “Flash Boys,” and Lewis’ accusations against the exchange.

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BATS takes a swing at Flash Boys and options growth
Jim Kharouf – John Lothian News (JLN)
BATS Global Markets has been in the spotlight lately, which has many at the exchange wondering why it had to be the one that was closest to Brad Katsuyama’s trading terminal in New York.

In the wake of the thunderstorm caused by Michael Lewis’ book “Flash Boys,” and accusations that named BATS as the exchange that was part of the “rigged stock market” claim, Jeromee Johnson, BATS’ vice president, head of BATS Options market, says such charges are flat out wrong. Lewis tells the story of Katsuyama, now president and CEO of IEX exchange, how his cash equity orders would route first to BATS and then to other stock markets while he was at Royal Bank of Canada. Such orders would often tip off high frequency traders of a larger order, at which point they would beat Katsuyama’s orders to other stock exchanges and then sell them back to him at higher prices.

That caused Katsuyama and others to call foul, blaming stock exchanges and HFT firms, a charge that Johnson says is simply false.

(Read the rest of the article at )


Quote of the Day

What the Fed is saying is ignore this first quarter [GDP] number, it’s not reflective of the underlying strength in the economy.

Phil Orlando, chief equity market strategist at Federated Investors, quoted in the Reuters story “Fed shows faith in U.S. economy with bond-buying reduction.”

Lead Stories

Fed shows faith in U.S. economy with bond-buying reduction
The Federal Reserve on Wednesday looked past a dismal reading on first quarter U.S. growth and gave a mostly upbeat assessment of the economy’s prospects as it announced another cut in its massive bond-buying stimulus.

***DA: The plan is the plan; we can always find data to back it up.

Hopeful Signs For Euro-Zone Credit
MoneyBeat – WSJ
Could the euro zone’s credit cycle finally be turning?The single currency region’s money supply and credit data are still dire. But the European Central Bank’s latest credit conditions survey offers some hope: demand for loans is rising and banks are loosening their purse strings.

Junk Loans Pulled as Buyers Say No After Fed Voices Worry
Christine Idzelis and Kristen Haunss – Bloomberg
The tide is turning in the market for speculative-grade loans as investors refuse to buy some deals deemed too risky.
Rocket Software Inc. pulled $725 million of loans from the market this week that would have refinanced debt and paid for a dividend to its co-founders and private-equity firm Court Square Capital Partners LP, according to data compiled by Bloomberg. The deal is at least the third to be withdrawn in the last month, with cable TV provider WideOpenWest Finance LLC canceling $1.97 billion in loans and Dutch LLC, which does business as women’s apparel company Joie, scrapping a $200 million debt offering.

Stressed investors seek periphery debt havens
Ralph Atkins in London –
Have crisis-hit eurozone economies become havens for stressed investors? Even a few months ago, the idea would have seemed ridiculous – to many it probably still does. Yet a rally since late last year in debt markets of countries such as Spain, Italy and Portugal has prompted suspicions that the region is benefiting from a global shift in sentiment.

Green bond market: It’s not easy being green
Edward Russell-Walling – Financial News
Banks seem keen to be green. The number backing the Green Bond Principles has doubled in a few months. The principles, drafted by a committee comprising Bank of America Merrill Lynch, Citigroup, Crédit Agricole Corporate and Investment Bank and JP Morgan Chase, were announced in January with the backing of nine other banks. This month another 12 declared their support.

Portugal to exit EUR78bn bailout without emergency backstop
Peter Spiegel in Brussels and Peter Wise in Lisbon –
Portugal is to exit its three-year EUR78bn bailout without an emergency backstop, in a remarkable turnround for a country that only six months ago seemed destined for a second rescue programme.

Lengthy US loan settlements prompt liquidity fears
Michael Mackenzie and Tracy Alloway in New York –
The market for US bank loans is suffering from a blockage in a key part of its plumbing that could create turmoil as investors start retreating from what has been a boom area of financial markets in recent years.

The funny money debate rumbles on
Izabella Kaminska | FT Alphaville
Paul Krugman is puzzled why it’s suddenly news that banks have the power to create money. As he noted on his blog this week, it’s hardly something that contradicts standing economic theory. We have, as he notes, known about the money-creation role of banks for a long time — a point we’ve also made before on numerous occasions.

Bill Gross: Expect Lower ‘Neutral’ Rates in the New Normal
Paul Vigna – MoneyBeat – WSJ
In the new normal, a world of excessive leverage and slower growth, a “neutral” interest-rate policy will by necessity produce lower rates than in previous business cycles, Pimco’s Bill Gross wrote in his monthly commentary, and understanding that is the key for investors of all asset classes.

Danny Blanchflower Shows That The World Is A Lot Less Keynesian Than It Used To Be
Tim Worstall – Forbes
Although I’m sure that this isn’t what he meant to do Danny Blanchflower has just come out with some proof that the world, or at least the UK part of it, is a lot less Keynesian than it used to be.

Central Banks

BOE’s Haldane Offers Few Clues on Monetary Policy
Jason Douglas – MoneyBeat – WSJ
Andrew Haldane, the Bank of England’s big thinker on financial stability, takes up a new role setting interest rates as the central bank’s chief economist in June but his views on monetary policy are largely unknown.

BOJ Inflation Confidence Seen Cutting Chance of Stimulus
Toru Fujioka and Masahiro Hidaka – Bloomberg
The confidence Bank of Japan officials are demonstrating in achieving their inflation target is lowering the chances of additional monetary easing this year even as the economy weakens.
Consumer prices, excluding fresh food, will increase 1.9 percent in the fiscal year starting April 1, 2015, and 2.1 percent the next year, according to the median estimates of BOJ board members in a quarterly outlook released yesterday. Governor Haruhiko Kuroda said the timing on hitting the BOJ’s 2 percent goal hasn’t been pushed back at all.

Parsing the Fed: How the Statement Changed
Kathleen Madigan – MoneyBeat – WSJ
The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take.The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the April statement compared with March.

Turkey’s Central Bank Chief Signals Possible Rate Cuts
Turkey’s central bank chief unexpectedly signaled a possible rate cut on Wednesday, raising fresh concerns that the lender had capitulated to government pressure to loosen monetary policy and could now struggle to tame sticky inflation.

Reserve Bank of India refuses overseas bond sale with bank guarantees
The Economic Times
Overseas bond sale planned by troubled firms with the backing of bank guarantees will be hit after the Reserve Bank of India curbed the practice and also laid out strict conditions for loans to overseas ventures which were used to pay back domestic loans.


Global mergers are forex market ‘dark matter’
Delphine Strauss –
Should currency investors care about corporate mergers and acquisitions? The pound’s bounce at the start of this week suggests at least some of them do. Despite the hurdles Pfizer has to overcome in its pursuit of the UK’s AstraZeneca, confirmation of its interest propelled sterling to a fresh four-and-a-half-year high this week.

In Bitcoin Debate, Larry Summers Sides with the History of Change
Michael J. Casey – MoneyBeat – WSJ
Larry Summers has a warning for bitcoin’s naysayers: ignore change at your own peril. The former Treasury Secretary isn’t fully endorsing digital currencies, but he has taken a hard look at them and sees huge potential to strip out costs from an inefficient, cumbersome global financial system.

BitBeat: Bitcoin’s ‘Big Step Forward’
MoneyBeat – WSJ
To Jesse Powell, the CEO of Payward, which operates the Kraken exchange, Bloomberg’s decision to report bitcoin prices on its terminals, was “a big step forward for the industry” that shows “at least a recognition that there is some interest out there.” Bitcoin price quotes provided by Kraken and Coinbase went live and up on Bloomberg terminals as of this morning.

Indexes & Index Products

Russell Introduces New High Efficiency Factor Index (HEFI) Series
Press Release (BusinessWire)
Russell Investments today announces the new Russell High Efficiency™ Factor Index (HEFI) Series, a set of comprehensive index tools designed to help institutional investors effectively manage factor exposures in investment portfolios. This new series of “smart beta” indexes, jointly created by Russell’s index and investment divisions, uses a consistent, transparent, factor-based weighting methodology to provide exposure to four commonly identified and utilized investment factors: low volatility, momentum, quality and value.

Risk In Focus: A Round Table
JOI Articles
isk management received a renewed wave of attention after the 2008-2009 financial crisis, and as the markets continue to sail through uncharted waters, it remains a hot topic. The Journal of Indexes chatted with various experts on the issue, touching on subjects like volatility, diversification and tail risk.

Credit Suisse’s Greg King joins ETF firm Global X
Credit Suisse AG’s former head of exchange-traded products, Greg King, has joined New York-based ETF sponsor Global X Management Company LLC to head product development and strategic ventures, the company said on Thursday.


MCX discontinues gold, silver contracts expiring 2015
Leading commodity bourse MCX on Wednesday said it discontinued six futures trading contracts in gold and silver expiring in 2015, effective Tuesday, due to procedural problems.

CORRECTED-Daily gold transfers climb to 3-month high in March, LBMA
Gold transferred between accounts held by bullion clearers rose 6.2 percent to an average daily volume of 18.9 million ounces in March, the highest level in three months, the London Bullion Market Association (LBMA) said on Wednesday.

Barrick Gold Profit Slumps 90%
Barrick Gold Corp., the world’s biggest gold miner, posted a 90% drop in quarterly profit on lower gold prices and sales amid questions about its direction after a failed merger effort with Newmont Mining Corp.

Gold falls after Fed gives upbeat view of U.S. outlook
Gold fell on Thursday, a day after the Federal Reserve announced a further cut to its extraordinary stimulus measures and reiterated its confidence in the U.S. economic outlook, despite a weak reading of first-quarter growth.

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