Where did THAT Come From?
Doug Ashburn – John Lothian News
This morning’s nonfarm payroll number blew through pretty much all estimates this morning, reviving the dreaded “taper talk.” In the “good news is bad, bad news is good” market in which we live, the number made for an interesting 20 minutes at 8:30 EST today. When the headline number of 204,000 jobs added far surpassed the 120,000 consensus number, The S&P 500 futures broke 11 handles before staging a significant rally. Treasuries, however, are seeing climbing yields as speculation returns that the Federal Reserve will scale back its bond-buying program sooner rather than later. We shall see.
Meanwhile, in France, president François Hollande has not been able to tax the country’s way back to fiscal health. As pointed out by the Wall Street Journal story, this is the third downgrade for France since Hollande was elected in May 2012. The question now is whether Hollande stays the course or moves to make French businesses more competitive.
So, is good news bad or good? France’s CAC 40 was down today but is still sitting at record highs. After this morning’s head-fake the U.S. equity market is continuing its race forward. But keep your eye on the bond market.
***JB: I was recently in Paris and, interestingly, the locals were grousing that the government recently voted down a measure to let businesses (such as retail stores) open on Sundays (most of Paris is closed on a Sunday except for some stores along the Champs-Élysées which are given specials status). I wasn’t in Paris more than 10 minutes, literally, before a cab driver was telling me all about it. The people want it and it makes economic sense in perhaps the most visited city in the world. So far though it is a no-go. Liberté, égalité, fraternité indeed…
Quote of the Day
“We believe the French government’s reforms to taxation, as well as to product, services, and labor markets, will not substantially raise France’s medium-term growth prospects.
Furthermore, we believe lower economic growth is constraining the government’s ability to consolidate public finances.”
Standard & Poor’s on the downgrade on France in the Wall Street Journal’s “S&P Cuts France’s Credit Rating by One Notch to Double-A.”
Fed tapering talk grows after upbeat US payrolls data, keeping a lid on markets
LONDON — Another largely solid U.S. jobs report kept a lid on markets Friday by keeping investors on alert for a possible reduction in the Federal Reserve’s monetary stimulus. http://jlne.ws/1cIDHrN
S&P Cuts France’s Credit Rating by One Notch to Double-A
Inti Landauro – WSJ.com
Standard & Poor’s Friday cut France’s credit rating by one notch to double-A, dealing a blow to President François Hollande’s efforts to turn around the euro zone’s second-largest economy.
France rating downgrade heaps pressure on François Hollande
Michael Stothard in Paris and Josh Noble in Hong Kong – FT.com
Rating agency Standard & Poor’s has cut France’s sovereign credit rating by one notch to “AA”, heavily criticising a government already under fire for not doing enough to cut government spending and stimulate economic growth.
ECB Cuts Rates Unexpectedly as Low Inflation Threatens Recovery
The European Central Bank surprised financial markets by reducing interest rates and saying more cuts could come—underscoring the risks that the recent inflation plunge in the euro zone poses to the region’s fragile economy and the global recovery.
ECB rate cut is only a first step
For all the talk of recovery in recent months, economic activity in the eurozone has been weak and unemployment, particularly in crisis-hit countries, stubbornly high. If anything, the ECB should have acted sooner.
Pimco Said to Wager $10 Billion in Default Swaps: Credit Markets
Mary Childs – Bloomberg
Pacific Investment Management Co. is wagering at least $10 billion in the credit-default swaps market that U.S. corporate bonds will gain as the Federal Reserve extends unprecedented stimulus into 2014, according to traders and investors.
Currencies market probe shifts to the US
Daniel Schäfer and Delphine Strauss in London and Camilla Hall in New York – FT.com
A global probe into alleged manipulation of the multibillion-dollar currencies market has widened its focus to include the US, with Barclays putting three New York-based traders on leave and Goldman Sachs and Morgan Stanley becoming embroiled in the investigations.
Senate panel to hold Yellen Fed hearing on November 14
The Senate Banking Committee said on Thursday that it will hold a hearing on November 14 on the nomination of Federal Reserve Vice Chair Janet Yellen to take the helm of the central bank when Ben Bernanke steps down at the end of January.
Preparations For Nibor Go-Live On Oslo Børs 9 December 2013
Oslo Børs will take the role as the calculation agent for the Norwegian interbank offered rate Nibor as of 9 December 2013.
***JM: Not seeing anything here about whether manipulation of the rate will be handled by just one person, or if they’ll share that in some kind of rotation…
Swaps-Secrets Demands Said to Put Brakes on EU’s Antitrust Probe
Gaspard Sebag & Stephanie Bodoni – Bloomberg
The European Union’s antitrust probe into credit derivatives trading by 13 of the world’s biggest banks stalled after the lenders’ lawyers won the right to see confidential information compiled by investigators.
Nasdaq to Quote Structured Note Prices as SEC Urges Transparency
Kevin Dugan – Bloomberg
U.S. investors will be able to shop for structured-note deals for the first time in the $40-billion-a-year market as Nasdaq OMX Group Inc. is set to publish daily values of the securities.
Is Euro Zone Troubled to the Core?
David Cottle – MoneyBeat – WSJ
Financial markets have been more than glad to have the euro-zone debt crisis off the radar for much of this year. But a fresh downgrade to France’s credit rating shows its lasting effects are never far away.
Danger: US mortgage market whiplash risk
Gillian Tett – FT.com
This week, the US government was handed one small reason to smile. A survey by the National Association of Realtors suggests house prices rose in nine out of 10 US cities in the year to October, growing on average by 14 per cent.
Reaction Is Cautiously Positive to India’s Bank Rules
NEHA THIRANI BAGRI – NYTimes.com
New regulations issued by India’s central bank would make it easier and more attractive for global banks to enter the Indian market, a senior banker and several analysts said on Thursday, though they cautioned that restrictions in the rules might slow the pace of expansion.
Emerging Markets Super-Cycle Promises Growth: Cutting Research
Simon Kennedy – Bloomberg
The emerging-markets juggernaut that propelled the globe out of the 2009 recession is taking a pause rather than running out of steam.
ECB on crash course with Germany on banking union
Peter Spiegel in Brussels – FT.com
The European Central Bank has put itself on a crash course with Berlin on the future of the EU’s so-called “banking union”, writing in a legal opinion that a new bank bailout authority should be centralised and cover all eurozone banks.
Horizons: ECB’s ‘Surprise’ Reflects a Lack of Transparency
Michael J. Casey – MoneyBeat – WSJ
Should people have been so surprised by the European Central Bank’s quarter-point rate? Much as the U.S. Federal Reserve’s system for signaling policy has come under criticism, it seems the ECB’s isn’t too good, either. Today’s news shows it’s time for a more transparent communications policy, one that better captures the voices of its members from the euro zone’s embattled peripheral regions.
Balancing Act for India’s Top Banker
KEITH BRADSHER and ELLEN BARRY – NYTimes.com
Raghuram Rajan, the head of India’s central bank, began his career as an economic theoretician. But a willingness to delve into the mechanics of an economic system may prove to be a bigger asset as he tries to straighten out India’s economy.
Scots cannot ditch England and keep its central bank
Martin Wolf – FT.com
On September 18 2014, Scotland will hold a referendum on independence. While Scottish voters alone will decide the result, it will affect the rest of the UK as well. Among areas where the impact will be felt are monetary and financial arrangements. The Holyrood government favours continuation of Scottish membership of the sterling area. It is not for me to decide whether that would be acceptable to Scots. But it is for me and other voters in the rest of the UK to decide whether such an arrangement would be acceptable to us. The answer should be no.
Russia Holds Key Rate on Inflation Risks as Growth Stalls
Scott Rose & Olga Tanas – Bloomberg
Russia’s central bank refrained from cutting interest rates after a surprise acceleration in consumer-price growth threatened efforts to hold inflation to within this year’s target range.
FX volumes drop as Fed weighs, manipulation probe lurks
Daily spot foreign exchange trading volumes on Thomson Reuters dealing platforms fell in October, reflecting a broad decline in turnover across the world’s largest financial market, company data showed on Thursday.
Has the Euro Finally Turned? It all Depends on U.S Jobs, Yellen Hearings
Michael J. Casey – MoneyBeat – WSJ
Faced with some compelling reasons to sell euros and buy dollars Thursday, currency traders are getting some tantalizing hints that the European currency’s persistent bull run is coming to a close.
What’s a Euro Worth?
Alen Mattich – MoneyBeat – WSJ
One euro is worth $1.33. It ought to be worth $1.50. Or $1.20. Or maybe a lot less. That range of potential underlying valuations for the currency reflects the disparity of performance in underlying economies.
LCH.Clearnet Launches Buy-side Clearing of FX Derivatives
LCH.Clearnet Ltd’s ForexClear has expanded its market-leading FX derivatives clearing service with the launch of a new offering for buy-side clients. ForexClear is now available to buy-side clients through one of three Futures Commission Merchants (FCMs) connected to the service. The new offering also provides enhanced asset protection based on the proven LSOC (legally segregated, operationally commingled) model.
Judge Orders CoinLab to Give Bitcoin to Bitvestment
Robin Sidel – MoneyBeat – WSJ
A well-known bitcoin company has been ordered by a judge to produce and deliver the virtual currency to a New York investment firm that accused it of reneging on their contractual agreement.
Indexes and Index Products
What’s Good For You is Bad for Wall Street: Indexes, Gold Fall After Strong Jobs Report
Brendan Conway – Barron’s
U.S. payrolls’ advance of 204,000 jobs last month is good news for American workers — but bad news on Wall Street. Traders simply see a sign central bankers’ ultra-loose monetary policy will end sooner.
Index-based longevity solutions continue to face challenges, experts say
Louie Woodall – Risk.net
Basis risk continues to worry pension funds, consultants say, despite the latest attempt by Deutsche Bank to create a flexible index-based longevity hedge.
MSCI reclassifies stocks in emerging, frontier market indexes
Daniel Bases – Reuters
Equity index provider MSCI on Thursday reclassified equities across a broad spectrum of emerging, developed and frontier markets as part of its November semiannual index review.
The changes will be made effective as of the close of business on November 26, MSCI said in a statement.
New Japan index vaunts return on equity and investor friendliness
Ben McLannahan in Tokyo – FT.com
Farewell Panasonic, Mazda Motor and Tokyo Electric Power. All are stalwarts of the Nikkei 225 stock average and the Topix, both decades-old benchmarks for investors in the world’s second-biggest equity market. But none will be included in a rival index to be launched in January, designed to steer more capital towards 400 of the most capital-efficient companies in Japan.
Improving the accuracy of leveraged ETFs
Yakob Peterseil – Risk.net
Elliot Noma, a commodity trading adviser (CTA) at Garrett Asset Management in New York, believes he has solved a persistent problem with certain exchange-traded funds (ETFs). Noma was awarded a patent for his solution last year and is now seeking a partner to help launch it, he says.
Bonds And Gold Are Getting Wrecked
Matthew Boesler – Business Insider
A better-than-expected result from the October jobs report out at 8:30 AM has markets moving around a lot this morning.
Initially, stocks, bonds, and gold all tanked on the news.
Gold could find a floor with China’s economic reforms
Matt Clinch – CNBC
With China expected to unveil some of its biggest economic reforms for 35 years following a meeting of its ruling Communist Party, many analysts have speculated that the price of gold could benefit from this weekend’s summit.
Gold expected to take at least a year to recover
Tim Grant / Pittsburgh Post-Gazette
“If you’re an average investor who bought high in the market, you’re going to have to wait a few more years to get your money back,” Mr. Morgan said.
***JM: I’ve never met a market that re-posted highs as a matter of obligation. If you bought the high in Gold, it’s just as possible that you won’t get your money back at all.
Ex-ICAP Brokers Said to Face U.K. Prosecutors in Libor Probe
Suzi Ring – Bloomberg
Three former ICAP Plc (IAP) brokers charged in the U.S. over their involvement in Libor-rigging will be interviewed by U.K. prosecutors within weeks, two people with knowledge of the probe said.