First Impressions

Exchange CEO Series – Big Crowd: ISE’s Gary Katz says crowded options field to get larger
JohnLothianNews.com

In the derivatives space, there has been a consolidation or a proliferation of exchanges, depending on how you see it.

While the number of futures exchanges in the US has shrunk to two major players, International Securities Exchange president and CEO Gary Katz has seen the opposite happen in the US options marketplace. And there is good reason for it.

Watch the video »

Quote of the Day

The problems of trying to normalise monetary policy after the long period of aggressive and unconventional expansion will be difficult to solve. Look out for bumps ahead.

Charles Goodhart of the London School of Economics, in his FT commentary “Rate rise pattern is different this time.”

Lead Stories

Gross Worst as Volatility Spikes in Fund: Riskless Return
Charles Stein and Alexis Leondis – Bloomberg
Bill Gross is taking investors in his $232 billion Pimco Total Return Fund for a rough ride.
The world’s largest bond fund produced the worst risk-adjusted return over the past year among 16 U.S. intermediate-term funds with at least $5 billion in assets, according to the BLOOMBERG RISKLESS RETURN RANKING.
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***DA: Was it Bill’s call? Since Mohamed El-Erian paid the price, one must assume he had something to do with the duration play gone bad.

Rate rise pattern is different this time
Charles Goodhart – Financial Times
The US Federal Reserve’s forward guidance last May that it would soon begin to “taper” its asset purchases marked the start of a new phase of global monetary normalisation.
The prolonged period of bond market volatility that followed surprised many by its intensity. Yields on US Treasuries rose, and have remained well above the exceptionally low levels of early 2013. But the Federal funds rate, and indeed the policy rate in all large advanced economies, was held close to zero.
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Bank ETFs Whipsawed by Investors as Yellen Comments on Rates
Elizabeth Dexheimer and Christopher Condon – BloombergBusinessweek
Exchange-traded funds that target financial firms were whipsawed as Federal Reserve Chair Janet Yellen’s remarks on interest rates left investors struggling to gauge how soon future increases will help U.S. bank profits.
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***DA: Typically we buy the rumor and sell the fact, but there are precious few facts here and lots of rumors (and speculation).

Markets may be underestimating threats to the global economy
Nouriel Roubini – The Guardian
The risk of a hard landing in China, fears over tapering in the US and the ongoing tensions in Crimea show that there is no room for complacency.
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***DA: Ya think?

Libor Declines Accelerate to Lows Amid Cash Glut: Credit Markets
Liz Capo McCormick – Bloomberg
The unprecedented amount of cash the Federal Reserve has pumped into the financial system is proving more powerful for money-market rates than Chair Janet Yellen’s signals she will start turning off the spigot.
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***DA: So much for getting the cash into the hands of consumers – banks would rather reverse repo their cash out to the Fed for 5 bps.

Bank Risk Management Scrutinized
Stephanie Armour – The Wall Street Journal
Bank regulators are turning their focus from balance sheets to boardrooms as they try to forestall the chance of another financial crisis by forcing banks to better understand and manage their own risks.
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***JB: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” ~Upton Sinclair

Xuzhou Zhongsen Said to Avert Default on Guarantor Help
Bloomberg
A Chinese building materials producer will avert what would have been the second default in the nation’s onshore bond market as its guarantor said it would step in to help, two people familiar with the matter said.
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Bonds and Higher Rates
Morningstar
So where is the big, long-anticipated yield hike in the benchmark 10-year Treasury? It has yet to materialize. The outlook for bonds is that huge swings in their value are unlikely, regardless of what happens to interest rates.
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Brazil likely to raise interest rates again, signals more hikes
Alonso Soto – Reuters
Brazil will likely raise interest rates for the ninth straight time on Wednesday, aiming to tame a surge in food prices that threatens to push inflation through the official target ceiling in an electoral year.
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Banks Not Business to Gain From French Bond Plans: Euro Credit
Alastair Marsh – Bloomberg
Bank of France Governor Christian Noyer’s plan for packaging business loans into bonds to boost financing for small- and medium-sized enterprises will begin this month. The real beneficiaries will be the banks.
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Central Banks

Global Central Banking in 2014, A First Quarter Update For 23 Economies
The Wall Street Journal
The world’s central banks have navigated different currents in the first quarter of 2014 and are preparing themselves for a variety of challenges in the months ahead. Developed economies such as the U.S., Europe and Japan are still struggling with slow growth and uncomfortably low inflation. The Bank of England is holding interest rates low even as the U.K. recovery picks up steam. Emerging markets are bracing themselves for the Federal Reserve’s gradual winding down of its extraordinary stimulus measures. China’s central bank has engineered a depreciation of its currency, the yuan, amid signs of rising economic stress. Everybody is watching to see if the conflict between Russia and the West over Ukraine spills over to hurt the global economy.
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***DA: This is a long read but an excellent global snapshot.

Grand Central: Central Banks Show Great Divergence
The Wall Street Journal
Central banks have talked a fair amount in the past year about the merits of coordinating their policy responses more carefully. But look at the Wall Street Journal’s second quarter outlook for central banking, highlighted below, which shows that central banks around the world are truly going in their own directions.
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IMF’s Lagarde calls on ECB to ease monetary policy
Reuters (via Euronews)
The European Central Bank should ease monetary policy to combat the risk of “low-flation” that could crimp euro zone output and consumer spending, the head of the International Monetary Fund said on Wednesday.
IMF Managing Director Christine Lagarde said the world’s economy should pick up pace above 3 percent this year and next. She warned, however, that the recovery from the global financial crisis remained weak and that a prolonged period of sluggish growth was a risk.
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ECB’s Constancio Says No Deflation Seen as Recovery Gains
Jeff Black and Rebecca Christie – Bloomberg
The euro area will probably avoid outright deflation as a “soft” economic recovery gradually reduces spare capacity in the economy, European Central Bank Vice President Vitor Constancio said.
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***DA: Only three things matter to the ECB: lowflation, lowflation, and lowflation.

Fed to consider final bank leverage rules on April 8
Emily Stephenson – Reuters
U.S. bank regulators will meet next week to vote on final rules that would force the biggest U.S. banks to rely less on debt to fund their businesses, the Federal Reserve said on Tuesday.
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***DA: And beginning April 9, the biggest U.S. banks will push for implementation delays.

Currencies

Honey, They Shrunk the Dollar
Axel Merk – Forbes
A gold bar does not pay interest. Some conclude that it must be more lucrative to hold the greenback, especially in a rising rate environment. We have a closer look at the link between gold and interest rates to gauge how investors may want to deal with the Fed’s tapering.
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High-Frequency Traders Chase Currencies as Stock Volume Recedes
John Detrixhe, Nikolaj Gammeltoft and Sam Mamudi – Bloomberg
Forget the equity market. For high-frequency traders, the place to be is foreign exchange.
Firms using the ultra-fast strategies getting scrutiny thanks to Michael Lewis’s book “Flash Boys” account for more than 35 percent of spot currency volume in October 2013, up from 9 percent in October 2008, according to consultant Aite Group LLC. It’s the opposite of equities, where their proportion shrank to 50 percent in 2012 from 66 percent four years ago, according to Rosenblatt Securities Inc.
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Federal Reserve Bank of St. Louis Really Gets Bitcoin
Cathy Reisenwitz – Bitcoin Magazine
The Federal Reserve Bank of St. Louis recently held a “Dialog with the Fed” on bitcoin basics. The events are “designed to address the key economic and financial issues of the day and to provide the opportunity to ask questions of Fed experts.”
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Indexes & Index Products

ICE Said Close to Start of Credit-Swap Futures That Mimic Index
Matthew Leising – Bloomberg
IntercontinentalExchange Group Inc. (ICE), owner of the world’s largest credit-default swap clearinghouse, is close to offering futures on the most-active derivative indexes.
The new contracts will replicate the lineup of companies included in the investment-grade and high-yield swap indexes owned by Markit Group Ltd., according to a person with knowledge of the plan. ICE, as the company is known, failed in an earlier effort at credit-swaps futures that sought to give investors a way to bet on improving or deteriorating credit markets.
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Rising rates: Which index will outperform as the Fed tapers?
Marc Wiersum – Market Realist
The below graph reflects the strong outperformance of the S&P 400 Mid Cap index on a total return basis, to include dividends and other corporate actions. While growth has been the leader versus value since the 2008 economic crisis, the below graph would suggest that the growth and earnings of the mid cap sector relative to the larger cap holdings of the S&P 500 have been nearly twice as strong. This article considers overall exposure to major indices, and later considers whether an investor might prefer to allocate more or less to value versus growth shares, and to large versus small companies.
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BRICs Casualty Seen in ETFs New Confidence Without China
Ye Xie and Alexandria Baca – Bloomberg
Investors flocking to exchange-traded funds to chase the longest emerging-market stock rally since January 2013 are bypassing China.
Investors withdrew a net $42 million from ETFs focused on Chinese equities and bonds since the MSCI Emerging Markets Index began rallying on March 20, data compiled by Bloomberg show.
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Gold

Gold Rises on Speculation Seven-Week Low to Spur Demand
Debarati Roy and Nicholas Larkin – Bloomberg
Gold gained for the first time in six sessions in New York on speculation that prices near a seven-week low will spur purchases of bars and jewelry in China.
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Weaker U.S. Dollar Following ECB Meeting Won’t Push Gold Higher – Analysts
Kitco News (via Forbes)
The euro could find some decent momentum against the U.S. dollar on Thursday as the European Central Bank is not expected to loosen its monetary policy, said analysts; however, a weaker green back might not have a significant impact on gold prices.
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India’s gold imports likely jumped in March – trade body GJF
Siddesh Mayenkar and Jan Harvey – Reuters
Indian gold imports likely jumped in March from around 25 tonnes in February after the Reserve Bank of India (RBI) allowed more private banks to ship the metal, triggering a correction in premiums, the head of the country’s biggest jewellery trade body said on Wednesday.
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Investors scoop up new U.S. platinum coins as gold slumps
Frank Tang – Reuters
U.S. retail investors have raced to scoop up the government’s newly launched platinum coins, data shows, as industrial metals prices outperformed bullion, a long-time favorite among collectors.
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Miscellaneous

Mt. Gox Principal Ordered to Dallas to Meet Creditors
Andrew Harris – Bloomberg
Mark Karpeles, principal of the bankrupt Mt. Gox bitcoin exchange, was ordered to travel to Dallas from Tokyo for limited questioning about the company’s assets and eligibility for U.S. court protection.
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