First Impressions

Speed Reader: FIA Europe’s Simon Puleston Jones making his way through MiFID II
EU regulation continues to wind its way through the system. That’s keeping Simon Puleston Jones a busy man.

As chief executive of FIA Europe, he’s busy making his way through the EU’s 845-page consultation document that contains 860-plus questions, as part of a 10-week consultation process that ends on August 1 for the Markets in Financial Instruments Directive, or MiFID II.
John Lothian News spoke with him about what’s in it and what it means for the industry.
“That’s a hell of a lot of reading for the industry to do,” he said. “Part of the challenge for us is working out how we can get the feedback from the industry, package that up and put a nice bow around it and give it to regulators in a way that they are going to be able to understand in the time that is available.”

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Quote of the Day

“There is a sense of deja vu and this looks like some of the deals we saw before the financial crisis, which had the same total return swaps construct, although I may be too harsh and would have to look more closely at the structure.”

Dierk Brandenburg, a senior bank credit analyst at Fidelity in the story, “Goldman blurs lines with structured bond”.

Lead Stories

France to set up renminbi clearing system
Adam Thomson in Paris – Financial Times
France’s central bank has taken the first step towards the creation of a Paris-based renminbi clearing and settlement system. The bank said on Sunday that it had signed a memorandum of understanding (MoU) with its Chinese counterpart to set up a payments arrangement in the French capital designed to facilitate and promote cross-border renminbi transactions.

***DA: Following suit after a successful London launch of RMB.

Federal Judge Says Argentina’s $539 Million Attempt at Payment Is ‘Illegal’
Dealbook – NY Times
A federal judge on Friday delivered a stern warning to Argentina after the country deposited $539 million with the Bank of New York Mellon for the purpose of paying its main class of bondholders.

***DA: Pop some popcorn and strap yourself in; this one is getting interesting to watch.

Argentina in default as contest with holdouts enters endgame
JP Rathbone in London, Ed Stocker in Buenos Aires, Vivianne Rodrigues in New York – Financial Times
Barring a last minute deal with holdout creditors, Argentina will on Monday enter technical default for the second time in 15 years. But a 30-day grace period means it can still avoid formal default and most investors believe that, eventually, the country will settle in order to regain access to international markets.

Russian bond issuance sparks optimism
Andrew Bolger and Elaine Moore – Financial Times
The successful launch of euro-denominated bonds by two Russian banks has fuelled hopes that an easing of tensions in Ukraine will allow more Russian companies to access global capital markets.

***DA: War and Peace, economcs version.

Euro states wasted time in crisis, Commissioner Olli Rehn says
Stephen Fidler And Gabriele Steinhauser – WSJ
Euro-zone governments wasted two valuable years before creating a powerful bailout fund to fight the currency bloc’s debt crisis, forcing the European Central Bank to step in to save the euro, the European Union’s departing economics chief said.

***DA: Many say they are currently wasting time before the next round.

Europe Is Closely Studying Lessons From Japan
Marcus Walker – WSJ
If Europe is tilting toward becoming the next Japan, does that mean it needs its own version of Abenomics? Japanese Prime Minister Shinzo Abe’s announcement last week of fresh measures to improve sluggish growth coincides with an intensified debate in Europe about whether the euro zone is sliding into similar long-term lethargy.

The widowmaker doesn’t care if this is nuts
James Mackintosh – Financial Times
Japan is the home of the “widowmaker” trade: the obviously mispriced Japanese government bonds (JGBs) which keep getting more and more mispriced until all the short-sellers have gone out of business. JGBs claimed victims in 1993, 2003 and 2013, when yields plunged in the face of all the arguments presented by the bond vigilantes worried about the slow economy and government debt at levels unheard of elsewhere in the world. This year was meant to be different.

***DA: Why does my wife keep encouraging me to short JGBs?

Fed’s Balance Sheet Punctuated by a Big Question Mark
WILLIAM D. COHAN – Dealbook – NY Times
In the midst of the Federal Reserve’s creative but controversial quantitative easing program — the five-year plan of buying billions of dollars in debt securities each month and forcing down interest rates to historically low levels — the central bank’s balance sheet has ballooned to nearly $4.3 trillion in assets from $800 billion, leaving one large unanswered question hanging over the marketplace: What does the Fed intend to do with all those bonds?

***DA: A question mark – that is the same answer I got last time I tried to balance the checkbook. Maybe that’s why she wants me to short JGBs.

Goldman blurs lines with structured bond
Helene Durand and Anil Mayre – IFR
In a move some could see as a return to the bad old days of structured credit, Goldman Sachs is hoping to sell a highly complex transaction that blurs the lines between covered bonds and securitisations.

***DA: Financial engineering requires a degree in structural engineering.

Central Bankers, Worried About Bubbles, Rebuke Markets
NY Times
Recovery from the financial crisis that began in 2007 could take several more years, Jaime Caruana, the general manager of the B.I.S., said at the organization’s annual meeting in Basel on Sunday. The recovery could be especially slow in Europe, he said, because debt levels remain high.

Brokers hunt for liquidity in bond trading desert
Anna Irrera – Financial News
It’s a thirsty time for bond markets. Trading has dried up due to regulation. But many are hoping new technology platforms can help match buyers and sellers and restore liquidity.

How Memphis Firm Decoded Bond Secrets Mystifying Wall Street
Daniel Kruger – Bloomberg
Working for a firm based about 1,000 miles (1,600 kilometers) from Wall Street with roots that date back to the Civil War, FTN’s Jim Vogel and Chris Low were among the few who correctly urged investors to ignore the consensus calling for an inevitable selloff in bonds this year.

Central Banks

Decoding Draghi: Banks Still Puzzle Over ECB Grand Plan
Jana Randow – Bloomberg
Mario Draghi’s latest stimulus tool contains a hidden message: If you think interest rates will rise before 2018, take the money now.

***DA: I would opt for the bird in the hand rather than hold out for the two allegedly in the bush.

ECB’s Uncomfortable Waiting Game
Alen Mattich – MoneyBeat – WSJ
The European Central Bank has an uncomfortable wait ahead. The central bank launched a raft of new monetary measures earlier this month, designed to end the single currency region’s deflation risk and get the region growing. But monetary policy works with a lag. It would seem rash if the ECB was to do yet more before seeing whether these most recent policies work.

RBI’s forex reserves rise $1.39 bn
Business Standard


Thomson Reuters revising FX trading standards
Thomson Reuters is revising its foreign exchange trading rules, the company said on Monday, following consultations with market participants.

China’s weak yuan disappoints carry trade hunters
Economic Times
Investors who bet on an appreciating yuan this year, especially carry trade enthusiasts, have met with dismal returns. The first half of 2014 has been a forgettable one for the Chinese currency, so far Asia’s worst performer.

U.S. auctions some 30,000 bitcoins from Silk Road raid
The U.S. Marshals Service on Friday auctioned off about 30,000 bitcoins seized during a raid on Silk Road, an Internet black-market bazaar where authorities say illegal drugs and other goods could be bought.

Integral Expands Product and Sales Organizations; Makes Key Executive Appointments
In anticipation of significant product roll-outs in the coming months, Integral Development Corp., a leading platform for FX market participants, announced today the appointments of Jon Barker as Managing Director, Products, and Richard K. Farrell, as Managing Director, Global Head of Sales.

Indexes & Index Products

Creator of ‘Fear Gauge’ Sounds Alarm Over Volatility-Linked ETFs
Chris Dieterich – MoneyBeat – WSJ
The man who created a widely watched measure of stock-market volatility is sounding the alarm over exchange-traded products that try to track his index.

***DA: Caveat emptor. Not easy to duplicate the VIX in an ETN, especially in today’s ultra-contango term structure. You are better off opening a futures account and trading VIX outright, or maybe buying SPX straddles and hedging the gamma.

The top ten ETFs of 2014 at the halfway point
The Reformed Broker

SG launches six-year at-risk product based on FTSE 100
Suzi Hampson –
Societe Generale has created a six-year income product that relies on the credit quality of four financial institutions as counterparties and links to the FTSE 100 for its quarterly returns

Healthcare Expenditures for Commercial Plans up 3.2% in the Year to February 2014
S&P Dow Jones Indices, a leading global provider of financial market indices, announced today the results of the S&P Healthcare Claims Indices showing healthcare costs rose 3.5% in the 12 months ended February 2014 compared to the 4.9% rise for the 12 months ended February 2013. Medical costs – inpatient and outpatient hospitalization plus professional services – rose 3.1% and prescription drugs rose 3.5% over the same period. All but prescription drugs rose at a slower pace than a year earlier.


Singapore seizes on soaring Asia gold demand
Jeremy Grant in Singapore – Financial Times
Singapore is embarking on an ambitious plan to build itself up as an Asian hub for the refining and trading of gold, having abolished the tax in 2012. The refinery, operated by Metalor of Switzerland, opened last week a day after Singapore’s exchange announced plans for a futures contract based on a kilobar, or 25kg, of gold.

Gold Imports by India Slump in First Half on Curbs
Swansy Afonso – Bloomberg
Gold shipments into India, the biggest user after China, probably plunged 77 percent in the first half as government restrictions to contain a record current-account deficit increased costs and deterred buyers.

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