First Impressions

“Gimme Some Money”: Money Market Gets Another Regulatory Look
Doug Ashburn – JLN

Tomorrow, traders, fund managers and other big buy-siders will be tuning in to an announcement from a Federal agency that may have far-reaching effects on how money is allocated in the U.S.

This time it is not the FOMC that has their attention, but rather the Securities and Exchange Commission, which will be voting on money market reform. At issue is whether the commission will require institutional money market funds to adopt a floating net asset value and/or institute liquidity fees or so-called “redemption gates” during times of extreme market stress.

At the height the financial crisis of 2008, a large money market fund, the Reserve Primary fund, “broke the buck,” meaning the value of its investment income failed to cover expenses, usually due to a loss or default on investments in the fund’s portfolio. In the case of Reserve Primary, the fund’s exposure to securities held by Lehman Brothers, the investment bank that filed for bankruptcy in September 2008, caused the fund’s NAV to fall to 94 cents (generally, money market funds hold the NAV constant at $1.00).

Since money market funds were large purchasers of the commercial paper corporate America uses to finance its operations, that market ground to a halt as well, creating serious problems for the real economy. It took an emergency action by the Federal Reserve – an unlimited guarantee on deposits – to avoid a catastrophe.

Read the entire commentary =>

Quote of the Day

Money will be in motion. If clients find whatever the outcome is to be very restrictive, they’ll move money elsewhere.

BlackRock CEO Larry Fink on money market reform, in the FT article “Fund managers on alert over money market shake-up.”

Lead Stories

Fund managers on alert over money market shake-up
Stephen Foley in New York and Gina Chon in Washington – Financial Times
Fund managers are jostling to keep hold of $900bn of assets that could be shaken loose by new US rules on money markets funds due to be unveiled this week.

***DA: SEC money market reform rules failed to pass the first time around. The big fund firms are lobbying for a softer approach, as it is unclear if, for example, a floating NAV would really be safer.

Wall Street Cut From Guest List for Jackson Hole Fed Meeting
Simon Kennedy – Bloomberg
Wall Street (SPX) doesn’t lead to Jackson Hole this year.
As the Federal Reserve Bank of Kansas City prepares to host next month’s annual gathering of central bankers in Wyoming, seasoned Fed watchers from the financial markets, including the chief U.S. economists of the biggest American banks, aren’t being invited, according to past participants.

***JK – At last, Wall Street joins the 99.99 percent.  Come hang with the rest of us at the Great New York State Fair, August 21st – September 1 and eat chocolate covered bacon.

China and Switzerland sign bilateral currency swap line
James Shotter in Zürich and Gabriel Wildau in London – Financial Times
The central banks of China and Switzerland have struck a bilateral currency swap agreement, a move that advances the international use of the renminbi and boosts Switzerland’s hopes of becoming a trading hub for the Chinese currency.

***DA: Get in line, guys, behind London, Singapore and New York.

What Switzerland’s Yuan Deal Means – The Short Answer
The Swiss have joined the increasingly competitive race to step up trade and investment flows with China. How? Well the Swiss National Bank said Monday it had agreed a currency swap agreement with People’s Bank of China as well as a deal to buy up to 2 billion francs worth of Chinese bonds.

China treasury operations face location conundrum
Paul Golden – Euromoney Magazine
Treasurers and banks are divided on the extent to which financial-system liberalization in China has made it possible, or desirable, for multinationals to manage China treasury functions from elsewhere in Asia.

For Banks Near Cutoff, Bigger Isn’t Necessarily Better
Saabira Chaudhuri – WSJ
Most chief executives want their companies to grow. Joseph Ficalora isn’t so sure. Mr. Ficalora is CEO of New York Community Bancorp, a lender in Westbury, N.Y., with $47.6 billion in assets as of the end of the first quarter. The bank is projected to reach the $50 billion mark by the end of the year if it continues to expand at its current rate. But with that milestone will come myriad headaches.

Argentina asks U.S. judge to put debt payment order on hold
Nate Raymond – Reuters
Argentina asked a U.S. judge on Monday to put on hold an order requiring it to pay bondholders who did not participate in debt restructurings following the country’s 2002 default, while it seeks a “global resolution.”

***DA: It’s not a default, we would just like to not pay right now. But, I repeat, this is not a default.

Does the World Still Need the World Bank?
There will always be a need for a World Bank, which celebrates a birthday of sorts Tuesday. There is no need for a World Bank with more than 10,000 employees.

***DA: To paraphrase Helmut Schlesinger, “I have no problem with the prospect of a World Bank, except the name. I would call it the Bundesbank.”

Puerto Rico seeks dismissal of bond funds’ lawsuit
The U.S. commonwealth of Puerto Rico asked a federal court to dismiss as premature a lawsuit filed by U.S. mutual funds that sought to strike down a recently enacted Puerto Rican law that the funds said posed a threat to American investors.

Cote d’Ivoire’s return to Eurobond market prices within Kenya
Kanika Saigal – Euromoney Magazine
Cote d’Ivoire’s return to the Eurobond market with a $750 million deal, three years after default, saw huge demand and priced within Kenya’s debut issue just a month ago.

SIX Swiss Exchange: Q2 2014: Bonds Quarterly Statistics
Today, SIX Swiss Exchange published the latest edition of its Bonds Quarterly Statistics report[pdf]. In the second quarter 2014, turnover in the CHF bonds segment amounted to CHF 41.4 billion. This corresponds to an increase of 0.8% over the previous quarter. Compared to the same quarter in the previous year, the increase even amounts to 6.6%, despite a decline of transactions by -8.4% (to 124’614).

Central Banks

The Federal Reserve talks too much – Irwin Kellner
Irwin Kellner – MarketWatch
The Fed is puzzled by the lack of volatility in the financial markets, but its open-mouth policy is the chief reason for it.
In my view, a calm market is a good thing. Instability and fireworks may be good for traders, but if you want the proverbial man or woman on the street to invest, you need a peaceful environment.
This kind of backdrop instills confidence in economic policy, and thus, in the economy itself. In turn, it leads to higher stock prices and more spending by investors, business and consumers.
Volatile markets can lead to the reverse. The experience of 1987 is a case in point.

***DA: You want the proverbial man and woman in the street to invest in treasuries, a rate higher than zero would help.

Fed’s Junk Loan Bubble-Busting Faces Trouble as Sales Jump
Craig Torres and Kristen Haunss – Bloomberg
One of the Federal Reserve’s first post-crisis tests of its ability to quash excessive risk-taking using regulatory tools is so far looking like a failure.
The Fed’s Board of Governors told Congress last week that it’s engaged in “strong supervisory follow-up” to guidance given to banks in 2013 to improve their underwriting standards for high-yield loans. Despite those efforts, Chair Janet Yellen said she’s still seeing a “marked deterioration” in quality.

Draghi Cedes Euro Control to Yellen on Fed Rate Wagers
Andrea Wong – Bloomberg
Mario Draghi’s ambitions to weaken the euro are at the mercy of Federal Reserve Chair Janet Yellen.

Chinese moves trump Fed’s effect on US bonds
Diana Choyleva – Financial Times
All eyes are on the future path of US Federal Reserve policy and what it means for the economy and asset prices. But growth trouble across the Pacific may have a much bigger impact on US yields in 2015 and 2016 than the expected pace of US central bank tightening.

PBOC Refrains From Selling Repos as Money Rates Climb Amid IPOs
Lilian Karunungan – Bloomberg
China’s central bank refrained from draining funds using repurchase agreements for the second time in a month as cash demand tightened before share sales.
Benchmark money-market rates climbed by the most in at least a week. The seven-day repurchase rate, a gauge of funding availability between banks, increased 16 basis points, or 0.16 percentage point, to 3.83 percent in Shanghai, according to a daily fixing by the National Interbank Funding Center. The overnight rate rose nine basis points to 3.40 percent.

Central banks can only do so much to spur recovery, RBA warns
The Australian
MONETARY policy can’t do it all. That’s the message from Reserve Bank governor Glenn Stevens. There was a “global panic” in 2008, but the world economy avoided a repeat of the 1930s depression, he said in a speech in Sydney on today.


Soros Chart Shows Euro-Yen Reaching 2008 High: Chart of the Day
Mariko Ishikawa and Kazumi Miura – Bloomberg
The euro will surge to a six-year high against the yen by the end of 2014 as the European Central Bank isn’t printing money as fast as the Bank of Japan, according to Daiwa Securities Co.
The CHART OF THE DAY shows the ratio of Japan’s monetary base to Europe’s jumping to a record. Japanese traders and investors refer to this gauge as a “Soros Chart,” after billionaire investor George Soros correctly predicted in the 1990s that the yen would weaken because of Japan’s burgeoning money supply. Also tracked are the euro, which recently traded at 137 yen, up 46 percent since July 2012, and the slowing inflation rate in the 18 nations sharing the common currency.

FSB’s fix proposals come under fire
Farah Khalique – Euromoney Magazine
Global regulator the Financial Stability Board (FSB) has published its proposals on how to restore the integrity of foreign-exchange rate benchmarks in the wake of alleged market malpractice, but market participants argue these simply mask deeper structural problems in the industry.

BitBeat: Lawsky’s ‘Bitlicense’ Drawing Public Comments, Before the Public Comments
MoneyBeat – WSJ
Even before the public-comment period opens up for Benjamin Lawsky‘s bitlicense proposal, public comments are indeed being made.

Indexes & Index Products

S&P Dow Jones Indices and the Mexican Stock Exchange Announce Agreement for Index Licensing, Distribution, and Management of BMV Indices
S&P Dow Jones Indices (S&P DJI), one of the world’s leading providers of financial market indices, today announced that it has reached an agreement in principle with the Mexican Stock Exchange (Bolsa Mexicana de Valores, BMV) to license all of the BMV indices including their flagship index, IPC (Indice de Precios y Cotizaciones) – the broadest indicator of the BMV’s overall performance.


Precious metals dealers search for better benchmarks
Gillian Carr –
Amid pressure from regulators, a new system for determining benchmark silver prices will be put in place from mid-August, while reforms are also under discussion in the gold market. Industry observers say increasing participation will be crucial to restoring confidence in the benchmarks

Gold faces ‘punishment’ if US data print strongly
Sri Jegarajah – CNBC
Risks of an escalation in conflicts in Ukraine and the Middle East will continue to feed demand for safe-haven assets such as gold, helping support prices above $1,300, according to CNBC’s latest sentiment survey of strategists and traders.
But downside risks remain pervasive and gold bears warned bullion may suffer this week if U.S. economic data – which include consumer prices, durable goods orders and existing home sales – prints on the higher side of the range, building expectations that the Federal Reserve may raise interest rates sooner than expected.

The worst for gold may be over: Bank of America Merrill Lynch – The Tell
Barbara Kollmeyer – MarketWatch
On the heels of a 2.1% loss for gold last week and news that hedge funds have gone way short, gold bugs could perhaps use some cheer. Enter analysts at Bank of America Merrill Lynch who say the worst days for the precious metal may be over.

More Sunken Treasure Recovered; 13,500 Gold, Silver Coins Found At 1857 Shipwreck
Kitco News (via Forbes)
More than 13,500 gold and silver coins and “significant items of cultural heritage” have been recovered off the coast of South Carolina as Odyssey Marine Exploration (NYSE: OMEX) continues its search of the SS Central America shipwreck site.

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