First Impressions

The CME Should Buy the CBOE Soon
John Lothian – John Lothian News

The CME Group should buy the CBOE soon. I can’t believe I am writing this, but that is the conclusion I have come to. The reason why is that if they don’t act soon, the CBOE may become too expensive to justify buying.

The CBOE stock price was up 76 percent last year and its market cap is $4.3 billion. The CME’s stock was up 55 percent, still outperforming the market, but not the CBOE. CME’s market cap stands at $25 billion, just a shade above InterContinentalExchange’s (ICE) $23.7 billion.

The other reason is that the CME is the natural buyer for the CBOE and the market knows it. In fact, I think some of that 76 percent gain last year is just pure takeover speculation premium after ICE closed the deal for NYSE Euronext.

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Quote of the Day

“Three or four years ago I was thinking like a lot of people that Bernanke and the Fed had lost their mind. I’ve become convinced that Bernanke was right and I was wrong.”

Bill Hackney, senior partner at Atlanta Capital Management LLC in the story, “Parsing Bernanke’s Legacy”.

Lead Stories

Goldman Gives A Very Simple Explanation For Why The Market Could Keep Going Down
Joe Weisenthal – Business Insider
The downward bias for S&P 500 may continue based on our Sentiment Indicator, which shows institutional clients hold high net long futures positions and implies negative returns over the 4-8 week period starting late December when it initially breached 90. It now stands at 82.

**JK – Jumping ship to where? Cash? And for how long?

Parsing Bernanke’s Legacy
E.S. Browning – MoneyBeat – WSJ
Bill Hackney was horrified when Federal Reserve Chairman Ben Bernanke pumped hundreds of billions of dollars into the financial system after the 2008-2009 financial crisis. But markets stabilized, inflation stayed low and Mr. Hackney changed his mind.

**JK – Tips of the cap from the market to Ben.

Sufficient Financing to Aid Troubled Banks, European Officials Say
There will be enough money to recapitalize banks that fail a review by the European Central Bank later this year, top European leaders said on Saturday, seeking to assuage lingering doubts whether policy makers will succeed in cleaning up the financial system and restoring the flow of credit.

**JK – Just how fast can you patch up a balance sheet? We will soon find out.

Draghi Sees Progress in Euro Zone, but Puts Banks on Notice
Some banks in the euro zone could go out of business as a result of intense official scrutiny they will face this year, Mario Draghi, the president of the European Central Bank, said Friday as he presented a generally upbeat view of the European economy that was, however, laced with warnings.

Emerging-Market VIX Surges Most in Two Years on Selloff
Nikolaj Gammeltoft and Callie Bost – Bloomberg
Equity volatility from India to Brazil and Turkey jumped the most in two years as turmoil spread across global markets amid a selloff in developing-country currencies and growing concern over China’s economy.

ICAP Losing Grip on Setting U.S. Swaps Rate Amid Inquiry
Matthew Leising – Bloomberg
ICAP Plc (IAP) is about to be stripped of its function setting a U.S. benchmark for interest-rate swaps as regulators look into whether banks manipulated the measure.

Exclusive: Bank of America’s trading practices have been probed, filing shows
Karen Brettell and Aruna Viswanatha – Reuters
The U.S. Department of Justice and the Commodity Futures Trading Commission have both held investigations into whether Bank of America (BAC.N) engaged in improper trading by doing its own futures trades ahead of executing large orders for clients, according to a regulatory filing.

Argentina braced for first day under relaxed forex controls
Argentina’s sudden relaxation of currency controls, long touted by the government as essential to the country’s financial health, has left investors wondering what’s next for Latin America’s crisis-prone No. 3 economy.

Inflated worries, part 1 — an overview of US inflation pressures
Cardiff Garcia | FT Alphaville
Here’s a rough sketch of the variables influencing US inflation, which has been remarkably low for two years running:

**JK – Two parts that ask the question – are employment figures an accurate barometer for Fed policy moves?

Inflated worries, part 2 — a different look at the labour-market slack conundrum
Cardiff Garcia | FT Alphaville
As a reminder, the big unknown about the US labour market is the extent to which the demographic-adjusted decline in the labour force participation rate has been caused by cyclical vs structural trends. And in addition to the decline in the unemployment rate, a few other economic indicators suggest the potential for a near-term increase in wages.

Your guide to EM compartmentalisation
Izabella Kaminska | FT Alphaville
It’s been a tough day for EM. But just in case you were tempted to bundle the whole region together to make a sweeping generalisation about future performance, it’s worth reading through the following note from Capital Economics on Friday.

NASDAQ OMX today launches the new First North Bond Market in Finland. First North Bond Market Finland is an alternative marketplace offering companies the same services as the Main market but with lower listing requirements.

Delays to derivative contract changes thwart Italy’s dollar bond plans
Italy’s plans to return to the dollar market after a near four-year hiatus are being hampered by delays to crucial changes to its derivatives contracts, jeopardising its chances of broadening its international investor base.

JBIC to expand bond backstop programme
Ben McLannahan in Tokyo –
The Japan Bank for International Co-operation is set to expand its bond backstop programme, which has allowed lowly-rated issuers from Panama, Tunisia and Mongolia to tap yield-hungry investors in the world’s third-largest economy.

The case for working less
David Spencer – Pieria
The focus of conventional employment policy is on creating ‘more work’. People without work and in receipt of benefits are viewed as a drain on the state and in need of assistance or direct coercion to get them into work. There is the belief that work is the best form of welfare and that those who are able to work ought to work.

Investors go long with long-dated bonds
Edward Russell-Walling – Financial News
When a French utility offered investors 100-year bonds this month, it got its hand bitten off. The alacrity of the response might prompt some other corporates to take a closer look at this market.

Central Banks

BoJ’s easing may not compensate for Federal Reserve’s taper
Ben McLannahan – Financial Times
Axa runs a tight ship in Tokyo. The Japanese arm of the giant French company tries to make so much money from selling insurance and other services that it doesn’t have to worry about margins on its Y5tn ($48bn) portfolio of investments, more than half in government bonds.

RBI reform of monetary policy a hard sell to India’s politicians
Amy Kazmin in New Delhi –
Soon after taking the helm of India’s central bank in September, Raghuram Rajan made clear that controlling India’s persistently high inflation – which has eroded macroeconomic stability in the past six years – was among his priorities.

Rehn Urges ECB to Act on Inflation
European Union economics chief Olli Rehn on Friday called on the European Central Bank to act on its 2% inflation target, warning that very low inflation in the euro area doesn’t support the bloc’s nascent economic recovery.

BOE Carney: Regulators Must Fix Mechanics of Libor, Forex Benchmarks
Bank of England Gov. Mark Carney said Friday that regulators must “fix the mechanics” of interest-rate and foreign-exchange benchmarks, but that those changes won’t work unless banks and traders reform their behavior.

RBI policy, Q3 results, FOMC meet to dictate market trend
Business Standard
RBI’s monetary policy review, quarterly earnings and outcome of the Federal Open Market Committee (FOMC) meet will dictate the stock markets trend this week, say experts.


FX Trading is Set to Shift to Futures
FX futures have been around for more than 40 years. Their introduction in the form of the International Monetary Market changed the way foreign exchange was valued and traded. Since that time, several sectors of market participants – mostly financial users – have focused on swaps, non-deliverable forwards and options products to trade foreign exchange. But according to a new study from Greenwich Associates, we may be seeing a heavy shift toward FX futures sometime soon.

Don’t Call it Contagion, But…the Global Currency Selloff in Five Charts
Paul Vigna – MoneyBeat – WSJ
Currency markets from Turkey to Argentina to South Africa, and even Japan are being upended as the “hot money” carry trade unwinds. Seemingly all at once, currency markets have turned noisy and volatile, and that’s spilling over into other asset classes, producing two consecutive days where the DJIA, for instance, has seen 200-point intraday losses.

Emerging Markets: And On The Selloff Goes
Serena Ruffoni and Chiara Albanese – MoneyBeat – WSJ
Thursday’s shakeout in emerging-market currencies (and some developed ones too) “left many traders shaken,” according to Citigroup. Well, Friday hasn’t offered much let-up

Market is bullish on renminbi internationalization amid China wobbles
Simon Watkins – Euromoney magazine
Concrete advances towards the full tradability of the Chinese currency are at last seemingly being made, helping to rebalance the country’s growth model but heaping on short-term risks to China’s economic and financial stability.

Polish Zloty Secure, Economy Safe and Sound Says Central Bank
Poland’s currency is safeguarded from market turbulence despite its current weakness because the country’s economy is viewed as stable and it will grow robustly again this year, while monetary policy is conservative, a central banker said in an interview.

Bitcoin’s Three Key Challenges in 2014
Paul Vigna – MoneyBeat – WSJ
Bitcoin had it easy in 2013. The crypto-currency came out of seemingly nowhere, and before anybody knew it, it was the talk of the digital town.

Bitcoin Is Not Yet Ready for the Real World
It is understandable why some in the venture capital sector are over the moon about Bitcoin and its endless possibilities. Marc Andreessen of Andreessen Horowitz, has about 50 million reasons why he wants Bitcoin to succeed. The only problem is that Bitcoin is a concept dreamed up in the virtual world and is not yet ready for the real world.

Indexes & Index Products

China money manager applies for new quota for yuan product in London
Chinese asset management firm CSOP said it has started applying for new quotas for its newly-listed renminbi exchange-traded fund (ETF) in London due to strong demand, signaling international investors’ growing appetite for yuan assets.

VIX Traders Gear Up for More Fear Ahead
Kaitlyn Kiernan – MoneyBeat – WSJ
With stocks suffering a second straight day of declines amid growing emerging market turmoil, options traders are increasingly betting that the months of calm in the stock-markets fear gauge won’t last much longer.

NYSE Liffe To Launch Futures On MSCI Factor Indices: Smart Beta Indices
IntercontinentalExchange Group, the leading global network of exchanges and clearing houses, today announced that NYSE Liffe will expand its index derivatives franchise with the launch of futures based on MSCI Factor Indices.

ETF providers face squeeze in 2014
Joe McGrath – Financial News
There is an increased risk of exchange-traded fund companies exiting the sector this year, compared with 2013, according to an EY survey published this week.

Taper fears sway ETP league tables for 2013
Sarah Krouse – Financial News
Exchange-traded product providers enjoyed the second year in a row during which net inflows topped $200 billion, but market jitters over the future of the US Federal Reserve’s bond-buying programme led to a bumpy ride in the second half of the year.

Taking the plunge into the ETP pool
Sarah Krouse – Financial News
Asset managers and product providers in the exchange-traded product industry are increasingly deciding that two heads are better than one as they seek a competitive edge.

[SIX] ETFs and Sponsored Funds at FONDS’14
On 5 and 6 February 2014, the FONDS’14 will be held at the Kongresshaus Zurich. Once again, is one of the exhibitors. Our team at stand K.20 is looking forward to presenting you the benefits of ETFs in terms of the impressive choice of products which can help you to achieve your investment goals – simply, securely and at low cost. You will also gain an insight into the new Sponsored Funds segment, which allows you to trade conventional funds in real time, just like shares.


Deutsche bank starts talks to sell gold fixing seat – sources
Deutsche Bank is talking with prospective buyers about selling its place in the global gold and silver price setting process, known as the “fix”, sources familiar with the situation said on Friday.


Pimco Beats 99% of Peers With Ivascyn as Market Beast: Mortgages
Charles Stein and John Gittelsohn – Bloomberg
Daniel Ivascyn is a beast.
That’s a compliment coming from Scott Simon, who worked with Ivascyn for 13 years at Pacific Investment Management Co. Rather than relaxing on weekends, Ivascyn likes to spend his days buried in prospectuses.

ICBC Offers Clients Option to Recoup Funds From Trust
Industrial & Commercial Bank of China Ltd. (601398) said investors in a troubled high-yield trust can recoup their funds, averting a threatened default that underscored concern over the shadow-banking system and helped spur a selloff in emerging-market currencies and stocks.

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