First Impressions

2016 Exchange CEO Series: Nasdaq Futures’ Magnus Haglind Bullish On Energies

Nasdaq Futures (NFX) shook up the energy futures space last year with its entry into the energy exchange space in July 2015. Now the company is looking to gain some ground on its established competitors, CME Group and Intercontinental Exchange.

With gas oil and natural gas futures now attracting acceptable volumes for NFX, CEO Magnus Haglind told JLN that the exchange is thinking about offering Brent, WTI and other energy futures. Beyond that, Haglind said it plans to introduce options as well on those products. Watch the video »

Quote of the Day

“No firm yet shows itself capable of being resolved in an orderly fashion through bankruptcy. Thus, the goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal.”

FDIC Vice Chairman Thomas Hoenig, in the story, “Five Big Banks’ Living Wills Are Rejected by U.S. Regulators”

Lead Stories

Five Big Banks’ Living Wills Are Rejected by U.S. Regulators
Jesse Hamilton and Elizabeth Dexheimer – Bloomberg
JPMorgan Chase & Co., Bank of America Corp. and three other major U.S. banks failed to persuade regulators they could go bankrupt without disrupting the broader financial system and could now face a tighter leash from Washington after government agencies used one of the most significant post-crisis powers bestowed under the Dodd-Frank Act.

****SD: Citigroup, however, is in better shape if it goes kaput: Citigroup’s ‘Living Will’ Receives Passing Grade From Regulators

Complexity, not size, is the real danger in banking
John Kay – Financial Times
Poor Bernie Sanders. How can you expect to become US president if you are not familiar with the relative spheres of competence of the Federal Reserve and Treasury department in the supervision of the nation’s banks? If you are not au fait with the different roles of the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency?

****SD: “Too obscure to understand” has a decent ring to it.

IMF Survey: IMF Warns of Threats to Financial Stability
Risks have risen in advanced economies, remain high in emerging markets
Market turmoil reflected setbacks to growth, greater uncertainty, weaker confidence
More balanced, potent policy mix can expand global output by extra 2 percent
Over the last six months, global financial stability risks increased because of higher economic risks and uncertainty, falling commodity prices, and concerns about China’s economy, according to the International Monetary Fund’s latest Global Financial Stability Report.

****SD: Also, see World faces ‘lost year’ as policymakers sleepwalk towards fresh crisis, warns IMF

In defence of ‘tax havens’: offshore banking is not the same as dodgy dealing
Nigel Green -The Guardian
The leak of 11.5m confidential documents from the Panamanian firm Mossack Fonseca has brought the international financial services industry under global scrutiny as never before. The furore is hardly surprising. The Panama Papers suggest that the firm might have facilitated money laundering, sanctions busting and/or tax avoiding by its mega-wealthy clients, who include heads of state, senior politicians, business leaders and celebrities, on an unprecedented scale.

****SD: Amidst all the uproar over the Panama Papers, it’s nice to see a devil’s advocate step to the plate.

Damaged Opec has lost the power to influence a world broken by debt
Jeremy Warner – The Telegraph
Opec and non-Opec oil producers meet in Doha next Sunday to decide on what to do about the still depressed oil price. On the agenda is a proposal to freeze production at January or February levels, with a view to possibly cutting it at the following meeting in June.

JP Morgan lays bare investment banking pain
Financial News
A March recovery meant the first quarter trading drop was not as bad as feared for JP Morgan. But the top debt and equity bookrunner worldwide showed just how tough things have been for investment banks by posting its worst start to a year for capital markets revenues since the financial crisis.

Central Banks

Exclusive: Janet Yellen Talks Transforming the Fed
You don’t often hear central bankers say, “I don’t know.” That’s because monetary wizards, like brain surgeons and rocket scientists, tend to cultivate an aura of omniscience. Their vast underground computers crank out supposedly precise answers to complex questions about where the global economy will be in the next five minutes or the next five years. But Federal Reserve Board Chair Janet Yellen has never been allergic to uncertainty.

The Beginning of the End of Central Bank Easing
Luke Kawa – Bloomberg
Traders are now taking the long view on central bank easing, shifting focus to which monetary policymakers will be the first to change course and withdraw stimulus, according to Bank of America Merrill Lynch FX Strategist Athanasios Vamvakidis.

Fed eyes U.S. rate hike, but second-guesses economic gauges
Ann Saphir and Jonathan Spicer – Reuters
Federal Reserve Chair Janet Yellen has declared that the U.S. central bank’s interest-rate decisions will depend on how the economy performs. But Fed officials and their staff are already dismissing large swathes of the most recent economic data because they view it as unreliable, a twist that could make it harder for investors, businesses and households to plan for the central bank’s next interest-rate move.

****SD: Data dependent until they aren’t.

Fighting the Fed
Dan Bogler – Financial Times
Oil has been a huge swing factor for markets in recent months and China will determine the fate of us all. But if there is one thing that emerging markets investors need to watch — and try to understand — it is still the Federal Reserve. The US central bank not only sets monetary policy for the world’s biggest economy — its ostensible task; by doing so, it determines the direction of the dollar, the amount of available global liquidity and, by implication, how much will flow in and out of emerging markets.

What’s Wrong With Negative Rates?
Joseph E. Stiglitz – Project Syndicate
I wrote at the beginning of January that economic conditions this year were set to be as weak as in 2015, which was the worst year since the global financial crisis erupted in 2008. And, as has happened repeatedly over the last decade, a few months into the year, others’ more optimistic forecasts are being revised downward. The underlying problem – which has plagued the global economy since the crisis, but has worsened slightly – is lack of global aggregate demand. Now, in response, the European Central Bank (ECB) has stepped up its stimulus, joining the Bank of Japan and a couple of other central banks in showing that the “zero lower bound” – the inability of interest rates to become negative – is a boundary only in the imagination of conventional economists.

Why the threat of ‘quantitative failure’ has fund managers worried
John Shmuel – Financial Post
Fund managers around the world say that “quantitative failure” has become the biggest worry keeping them up at night. In a survey released Tuesday by Bank of America Merrill Lynch, 21 per cent of managers identified the concept as the biggest tail risk to their portfolios at the moment. “Quantitative failure” refers to the idea that the years of loose monetary policy in the years since the financial crisis has failed to produced the desired economic growth that central banks had hoped for.

5 Lessons From Japan’s Negative Rates
Mohamed A. El-Erian – Newsmax
Japan’s economic and financial malaise once was thought to have little relevance for other advanced economies. Respected Western economists and policy makers even argued that “Japan couldn’t happen here.” But developments in recent years have led to a more humble attitude that recognizes the importance of understanding Japan’s experience, past and present.

Unnaturally Negative Interest Rates
David Blitzer – Indexology: S&P Dow Jones Indices
Negative interest rates – you pay for the privilege of keeping your money in the bank – are current monetary policy in Japan and some European countries. Negative interest rates pose questions: Are they here? Why would anyone pay the bank to keep money? Do they make economic sense? Why would a central bank set negative interest rates? Most importantly, should a central bank make negative interest rates its policy? In what follows, we try to answer some of these.

BOJ’s Harada: natural to ease policy immediately if big risks materialise
Bank of Japan board member Yutaka Harada said it is ‘natural’ to ease monetary policy immediately if there are big economic risks and did not rule out cutting interest rates further into negative territory. Harada said he could not say whether or not such risks have materialised now, but the BOJ can combine its monetary policy tools in several different ways if needed.

Singapore Set to Forgo Easing to Save Tools for ‘Brexit,’ China
Netty Idayu Ismail – Bloomberg
Singapore’s central bank will probably refrain from easing policy when it meets Thursday, saving its ammunition to fight a faltering global economy and political shocks that may spark turmoil later in the year.

Negative rates do not fuel populism: IMF economist
Negative interest rates and other unconventional monetary policies do not fuel political populism, a top economist at the International Monetary Fund (IMF) told CNBC, hitting back at claims they are boosting right-wing populism in Germany.

Regulatory News

Regulators Reject ‘Living Wills’ of Five Big U.S. Banks
Ryan Tracy – WSJ
Regulators ordered five big U.S. banks to make significant revisions to their so-called living wills by Oct. 1 or face potential regulatory sanctions, a stern warning that will fuel criticism the firms are “too big to fail.” J.P. Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Bank of New York Mellon Corp., and State Street Corp. were told by the Federal Reserve and the Federal Deposit Insurance Corp. that the regulators felt their plans for a possible bankruptcy don’t meet the legal standard laid out in the 2010 Dodd-Frank law, which requires that firms have credible plans to go through bankruptcy at no cost to taxpayers

Investment banks mislead clients and suppress competition, says watchdog
Tim Wallace – The Telegraph
Investment banks routinely misbehave when floating companies on the stock market or selling bonds, in ways which benefit the bank and a select group of favoured clients but not necessarily the company which has hired the bank for the deal or the new investors buying the shares, according to the City watchdog.

****SD: Some Telegraph commentary: Why is the financial watchdog kicking investment banking when it’s already down?

Financial deregulation and income inequality
VOX, CEPR’s Policy Portal
Financial deregulation in the US has been shown to be associated with rising income inequality over the past four decades. This column looks at the income effects of financial deregulation in the UK and Japan during the 1980s and 1990s. As in the US, deregulation substantially increased the shares of income going to the very top of the distribution. These findings highlight the importance of financial markets in the evolution of income inequality in society.

HSBC risks losing US banking licence as pressure mounts over Panama Papers probe
This is Money
HSBC risks losing its US banking licence if US authorities decide to investigate and find it has acted improperly over the Panama Papers tax leaks, experts warned.


Currency Market Crafts Code After Banks Pay $9 Billion in Fines
Lananh Nguyen – Bloomberg
In about six weeks, currency traders will get a handbook designed to root out bad behavior and price manipulation that led to $9 billion in bank fines and penalties. A group of foreign exchange market participants, under the auspices of the world’s biggest central banks, is drafting a code of conduct that will guide behavior across the $5.3 trillion-a-day industry. The first set of principles is expected to be finalized by the end of May, according to David Puth, an industry executive leading the process.

EM FX rally: what next?
Financial Times
The post-January emerging market currency rally has been robust, to say the least, but what happens next is anyone’s guess. After a rather rough 2015, and an even more brutal start to 2016, the tides have turned suddenly for emerging market currencies. The Fed took a dovish turn, the dollar dived, commodities bounced, oil prices rebounded 60 per cent and China’s economy perked up, writes Joel Lewin.

PBOC Seen Averting Cash Shortage as $155 Billion Leaves Market
China’s central bank will probably roll over medium-term loans to avoid a shortage of cash as maturing contracts, tax payments and bank reserve requirements drain more than 1 trillion yuan ($155 billion) from the financial system this month, according to a survey of traders and analysts.

Robust yen spooks investors and baffles BoJ
Leo Lewis and Roger Blitz – Financial Times
In a recent episode of Japan’s best-watched daytime television show, celebrity guests were asked to admire a stack of banknotes worth Y1m and guess how much interest they would earn after a year in the bank. Smiles turned to frowns when, by way of answer, the host pushed a single Y10 coin across the table.

Currency crash adds to Syrians’ woes
Al Monitor
An unprecedented plummet in the Syrian pound’s value against foreign currencies is contributing to skyrocketing food prices and compounding Syrians’ already-dire economic situation as the war here enters its fifth year.


Court Opens Way for Argentina to End Battle With Hedge Funds
Alexandra Stevenson – NY Times
The United States Court of Appeals paved the way on Wednesday for Argentina to raise billions of dollars to pay a group of New York hedge funds, bringing it one step closer to re-entering international markets for the first time in 15 years. In a ruling from the bench, three judges on the court of appeals in New York upheld a ruling by Judge Thomas P. Griesa of the United States District Court in Manhattan to lift an injunction that had barred Argentina from paying its creditors and eventually led the country to default in 2014.

‘Junk’ defaults tell only half the story
Katie Martin – Financial Times
Depending who you speak to, junk bonds are either doomed or pretty much fine. Societe Generale’s permabear Albert Edwards growls that the US economy is about to be “swept away by a tidal wave of corporate default”, caused by high debt levels and a “gut-wrenching” drop in profits.

Where 14% Yield in a World of Negative Rates Isn’t Enough
Ahmed A Namatalla and Ahmed Feteha – Bloomberg
In a world of negative rates and meager returns, Egypt is finding beggars are still choosers when it comes to its bond market. After devaluing the Egyptian pound and catapulting interest rates by the most in at least a decade, the average yield on 12-month Treasury bills sold in Cairo jumped 181 basis points and was at 13.9 percent at an auction last week. Yet they are still yielding the same or less than Brazilian or Zambian debt with a higher credit rating.

Keep eye on US bond trading, says Finra’s Rick Ketchum
Robin Wigglesworth – Financial Times
One of the longest-serving market regulators is retiring this year and has some advice for officials picking up the baton: the US bond market needs closer monitoring in the coming years. Rick Ketchum, chief executive and chairman of Finra, the US finance industry’s self-regulatory body since March 2009, predicts a watershed moment for supervision of the vast but opaque US bond market,

Latecomer to 250-Year-Old Market, Poland Embraces Covered Bonds
Konrad Krasuski – Bloomberg
Polish banks getting squeezed by a new wave of taxes are turning to Europe’s oldest bond market for help. The nation’s biggest lender, PKO Bank Polski SA, is planning a 500 million-zloty ($133 million) sale next week of covered bonds backed by mortgages, the largest such offering since a law was enacted this year to remove bottlenecks that previously stunted the industry’s growth.

Bond refugees stuck in stocks send all the wrong signals to CEOs
Financial Times
For monetary policymakers, the instinctive response to falling growth and inflation has been to double-up. The Bank of Japan has moved to negative rates. The ECB announced it would cut further, start buying corporate bonds and increase incentives for banks to lend. The Fed signalled that rate rises would be slower than previously expected. But markets are becoming increasingly suspicious. They clearly suspect that the returns from monetary policy are diminishing.

Indexes & Index Products

Nikkei Battered By Rising Yen
Finance Magnates
In the case of Japan, a rising tide does not necessarily lift all boats. Back when the narrative was focused more on the United States in the wake of the last financial crisis, the idea was that central bank balance sheet expansion would help everyone with exposure to financial assets, namely stocks. While working in theory, in practice the results are markedly different.

BlackRock: Why It Will Stay Ahead of the Pack
Steven Russolillo – WSJ
Professional stock pickers have done a pretty poor job in this market. Shares of companies that employ them haven’t done much better. A rare exception: industry stalwart BlackRock Inc. And it looks poised to continue bucking the trend. With $4.65 trillion in assets under management, BlackRock is by far the world’s largest money manager amid growth and canny acquisitions. As many publicly traded asset managers have struggled with low interest rates, rising competition and a broad shift to cheaper, passively managed investing options, BlackRock has fared better than most.

Pimco ‘BOND’ ETF flows stagnating as asset class grows
Jennifer Ablan – Reuters
One of the most popular actively managed ETFs, the Pimco Total Return Active Exchange-Traded Fund, has seen its assets stagnate as investors have gravitated toward rival funds and lower-cost passive bond ETFs, Morningstar data show. In the first quarter the fund, also known as BOND, posted net withdrawals of $37.6 million while the overall bond ETF sector attracted over $33 billion, including $7 billion for the intermediate-term bond category, Morningstar said.

Assets Invested In ETFs/ETPs Listed In The United States Reached A New Record High Of 2.17 Trillion US Dollars At The End Of Q1 2016, According To ETFGI
Press Release
Assets invested in ETFs/ETPs listed in the United States reached a new record of US$2.17 trillion at the end of Q1 surpassing the prior record of US$2.15 trillion set at the end of May 2015 (click here to view a chart showing asset growth)

Hedge fund indices set for April decline
Julie Aelbrecht – Futures & Options World
Hedge funds have seen their performance drop this month, bucking the trend of steady increases in February and March, according to a new report from fund administrator SS&C. The firm said that its Capital Movement Index saw hedge fund’s performance decline in the early part of April by 0.95%.


AngloGold Says Illegal Miners Control Richest Deposits at Obuasi
Ekow Dontoh – Bloomberg
AngloGold Ashanti Ltd. said illegal miners have taken control of areas at its Obuasi mine in Ghana that hold the richest deposits of gold, slowing efforts to redevelop the facility. The Johannesburg-based company may consider its options as an investor if the illegal takeover continues , Eric Asubonteng, general manager of the facility, told reporters in the capital, Accra, on Wednesday.

Gold resurgence: who’s buying gold and why
The Telegraph
After four years of sharp falls, a sudden revival has been taking place in the gold market. In the first three months of 2016 the price of the yellow metal soared by 20pc – its best quarterly performance since the financial crisis erupted in the final three months of 2008.

China’s big four banks, StanChart, ANZ to join yuan gold benchmark
Top Chinese banks, alongside Standard Chartered and ANZ, will be among 18 members to join a new yuan-denominated gold benchmark that signals China’s biggest step towards becoming a price-setter for the metal.

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