First Impressions

MarketsWiki Education Chicago 2015
MarketsWiki Education Summer Intern Series – Day One
By Sarah Rudolph, Managing Editor, JLN

Our Chicago Summer Intern Series kicked off with a packed auditorium at IIT and five lively speakers, who all spoke about their passion for the trading industry. Scott Gordon, the CEO of Rosenthal Collins Group, was up first with some tips for interns on success and balance in work and life. These included checking out the view from 30,000 feet – looking beyond your particular job to know the major players, products, drivers and interactions in your industry; asking questions rather than knowing all the answers; pretending you are a taxi, which zigzags around and doesn’t know where it’s going next, rather than a train which has a set route and schedule; and not making assumptions.

“I was a floor clerk at the CME 44 years ago this summer,” Gordon said. “I worked on all the Chicago exchanges, and all were like a taxi ride. There was no way I could have told you what I would do next.”

His top recommended reading was Improvise: Unconventional Career Advice from an Unlikely CEO, by Fred Cook, and The Checklist Manifesto by Atul Gawande.

Read the rest of the Day 1 wrap-up at JohnLothianNews.com

Quote of the Day

“The days of survey-based indices are over. We are in the process of moving from the old days, where, if you want, these indices and these benchmarks were computed in a survey-based fashion between individuals communicating judgment-based opinion as to where they should be, to an electronic world… where everything is electronic, can be traced, can be audited.”

Xavier Rolet, chief executive of the London Stock Exchange Group, in the story “After prison sentence, is it goodbye to Libor?”

Lead Stories

Investment Banks Are Rewarded by Volume Surge in European Stocks
Blaise Robinson and Inyoung Hwang – Bloomberg
European stocks have swung this year from a central-bank-fueled rally to a Greece-induced slump and back up. The upshot for investors? A resurgence in volume.
jlne.ws/1Hq9Ugm

Debt markets: End of the bond bull run
Robin Wigglesworth and Elaine Moore – Financial Times
Martin Schroeter was a worried man. It was October 2008 and the IBM treasurer had seen Lehman Brothers go bust just a few weeks earlier, triggering a global financial crisis. The technology giant was in good shape, but with capitalism seemingly on the verge of unravelling no one could feel completely safe.
Bond markets were in turmoil, some banks were teetering and all were severing their lending lines even to their most creditworthy clients. “Everyone told us we’d be fine, but the best way to test that was to go to investors and find out,” recalls Mr Schroeter, now IBM’s chief financial officer.
jlne.ws/1MPkULl

ECB Leaves Emergency Lending to Greek Banks Unchanged
Todd Buell – WSJ
The European Central Bank on Wednesday left the ceiling on emergency lending to Greek banks unchanged, a person familiar with the matter said. The Greek central bank, the Bank of Greece, didn’t request an increase in the emergency lending program, the person said.
jlne.ws/1T3WygB

The Painful Lesson of Selling Risky, Esoteric Debt in a Downturn
Lisa Abramowicz – Bloomberg
There’s a big difference between investors who have the luxury of keeping their money in risky debt for the long haul versus those who are forced to sell.
An example: the first-loss piece of collateralized loan obligations, which bundle junk-rated loans and slice them into pieces of varying risk and return. These were popular with credit hedge funds in the past few years as one of the few debt investments offering potential returns above 10 percent in an era of historically low yields.
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After prison sentence, is it goodbye to Libor?
Katy Barnato – CNBC
Following the 14-year jail sentence of a former City of London trader convicted of rate-fixing, basing indexes on bank-supplied estimates has had its day, the chief executive of the London Stock Exchange Group told CNBC on Wednesday.
“The days of survey-based indices are over,” CEO Xavier Rolet told CNBC, after the stock exchange and financial information company posted a boost in first half earnings.
jlne.ws/1T3Vdq0

China launches Rmb1tn infrastructure bonds plan as economy fears grow
Lucy Hornby – Financial Times
China has authorised its policy banks to issue new bonds in order to plough money into infrastructure spending, state media has reported, as planners fret over slumping economic indicators.
A month-long stock market rout plus weak manufacturing performance has spooked Beijing. The aggressive move to push money into the real economy comes after the final reading of the Caixin/Markit purchasing managers’ index, published earlier this week, showed growth in China’s manufacturing sector slowed more than previously thought.
jlne.ws/1MPk8hb

Corporate-Bond Overload: July’s Sales Deluge Leads to Buyer Fatigue
Lisa Abramowicz – Bloomberg
Bond buyers are getting exhausted after absorbing trillions of dollars of corporate debt in the past few years.
While they still gobbled up a record-breaking $135 billion of U.S. investment-grade bond sales in July, they’re getting pickier. They’re now demanding the most extra yield to own the debt instead of government securities in two years.
jlne.ws/1T3USU5

Cost of a third Greek bail-out is likely to be too high for Europe
Andrew Lilico – The Telegraph
In mid-July, following marathon negotiations which included serious discussion of whether Greece should now leave the eurozone, it was agreed that negotiations should be opened about giving Greece a third bail-out. That bail-out was expected to be about EUR85bn (£59.6bn). That figure was based upon two important assumptions that have since been, rather dramatically, overturned.
First, it was assumed that (at least from March 2016), the Internatonal Monetary Fund (IMF) would participate. The exact amount of any further IMF loans to Greece would have to be agreed in due course, but if previous bail-outs were any guide, one might have expected the IMF involvement to be of order of 10pc to 20pc of the total. So the IMF would provide some EUR8bn to EUR15bn, with the eurozone states providing the other EUR70bn or more.
jlne.ws/1HreBGx

China to the Rescue? Struggling Emerging Markets Hope So
Enda Curran – Bloomberg
It’s not just China’s steelmakers and cement-mixers that are counting on new public spending to resuscitate growth. Emerging markets from Brazil to Malaysia may need what’s now becoming the biggest Chinese fiscal stimulus in years to avoid a descent into crisis.
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Central Banks

The Federal Reserve Is Ready for Rate Increases, but Bond Market Is Skeptical
Min Zeng – WSJ
Federal Reserve officials have signaled they think the economy is robust enough to withstand a round of interest-rate rises starting this year. But the bond market still seems skeptical.
While yields on short-term Treasury notes have started moving higher in anticipation of an interest-rate increase as early as September, yields on longer-term debt have remained stubbornly low. That is a sign that many investors are still doubtful about the health of the economy, and the ability of the Fed to keep raising rates without jeopardizing growth.
jlne.ws/1MPlcSh

Costs for BoE of raising rates before Fed might be prohibitive
Patrick Graham – Reuters
Although David Miles has hinted the Bank of England could raise interest rates before its U.S. counterparts, market pricing suggests some old truths about the rate of sterling will continue to tie its hands.
Outgoing BoE Monetary Policy Committee member Miles said last month it would be daft to think the Bank had to wait for the Federal Reserve before moving. Earlier this week, money markets were close to betting outright the BoE might move first.
jlne.ws/1MPjzUE

Global monetary policies increasingly divergent
Christopher Menon – Every Investor
Diverging monetary policies in developed countries are affecting exchange rates and prospects for foreign capital flows to emerging markets, say Standard & Poor’s economists today in the report: ‘European Monetary And Financial Roundup: Divergence Dominates Global Monetary Policies.’
jlne.ws/1MPiDje

Why you shouldn’t worry about a rate rise
Matt Clinch – CNBC
“Rate rage” or a “hike huff”? There are a few phrases to describe the wobbles that investors could experience while global central banks look to normalize their monetary policy.
But it doesn’t have to be that way, according to a former policy member at the Bank of England (BoE).
Andrew Sentance, now a senior economic adviser at PWC, told CNBC Wednesday that “intrinsically” there’s no reason why markets should react negatively to a rise in interest rates.
jlne.ws/1MPjUH7

Super Thursday: U.K. Needs to Kick ‘Monetary Medicine’ Habit, ex-BOE Official Says
Deborah Hyde and Alex Brittain – Bloomberg
The Bank of England is preparing a huge presentation of data this week — dubbed Super Thursday – as well as getting ready for an increase in interest rates.
Sushil Wadhwani, a former external member of the Bank of England’s Monetary Policy Committee, told Bloomberg Brief’s Alex Brittain and Bloomberg First Word’s Deborah Hyde he predicts the bank will begin tightening in the autumn. “I think we’ll know a lot more about China in three months’ time. I don’t think the costs of waiting three months are that great. November is an obvious time to look at this because we’ll know a lot more.”
jlne.ws/1MPiZGz

After RBI monetary policy meet, all eyes on monsoon, US Federal Reserve
Jaideep Khanna – Economic Times
Governor Rajan’s decision to hold back on a repo rate cut is exactly what the majority of the street was expecting. Given the bunch of variables expected to play out over the course of the next couple of months, it should come as no surprise that the central bank has decided not to hike rate for now. In leaving rates unchanged, the RBI is maintaining a cautious policy stance. Nevertheless, the governor was categorical that monetary policy is biased to maintain an accommodative stance, which supports expectation of further measured easing in the coming months.
jlne.ws/1MPihJi

Currencies

I.M.F. Report Recommends Delay in Elevating China’s Currency
NY Times
The International Monetary Fund should put off any move to elevate the renminbi to its benchmark category of major currencies until after September 2016, an I.M.F. staff report said, citing a mixed performance of the renminbi in meeting important financial norms.
The report, published on Tuesday, followed a major diplomatic push by Beijing for the renminbi to be added to the I.M.F.’s special drawing rights basket of currencies as part of its long-term strategic goal of reducing dependence on the dollar.
jlne.ws/1Hrbpec

Currency wars enter truce as Fed weighs rate liftoff
Netty Ismail and Anooja Debnath – Financial Review
Central bankers across the Asia Pacific region are laying down arms in the global currency war as they prepare for the US Federal Reserve to raise interest rates.
By dropping a call for a weaker exchange rate in his monetary-policy statement on Tuesday, Reserve Bank of Australia Governor Glenn Stevens followed the lead of New Zealand’s Graeme Wheeler, who toned down concern the kiwi dollar was too strong two weeks earlier. In Japan, Haruhiko Kuroda said last month he had no plans to expand the record monetary stimulus the central bank is pumping into the economy.
jlne.ws/1MPlt7X

‘Few options’ as traders bet against ringgit
Free Malaysia Today
Malaysia has few attractive options as currency traders across the world drive pressure against the ringgit because of the faltering economy and controversies surrounding 1Malaysia Development Bhd and Najib Razak, says the Hong Kong-based online publication Asia Sentinel.
It said Swiss and other European traders were believed to be shorting the ringgit (forward selling at a lower price) “in the expectation that the downward pressure would pick up speed”.
jlne.ws/1T3UoNO

Rand at 2001 Low Risks Forcing Kganyago’s Hand to Raise Rates
Xola Potelwa – Bloomberg
The rand’s tumble to the lowest level in more than 13 1/2 years risks forcing South Africa’s central bank into a steeper interest-rate increase to ward off inflation and entice investors to buy the nation’s assets.
jlne.ws/1T3UIMF

Thai Currency Falls to 6-Year Low as Foreigners Dump Stocks
AP – ABC
Thailand’s currency fell to a six-year low against the dollar Wednesday, as foreign investors continue to dump stocks while waiting for the country’s economy to pick up.
jlne.ws/1MPksMU

Indexes & Index Products

July Boomlet Saw Most ETF Debuts In 3 1/2 Years
Chris Dieterich – Barron’s
July was a boom for new exchange-traded funds.
Fully 39 ETFs hit the market in July, more than in any single month since February 2012, when a record 48 new launches began trading, according to data from research firm XTF.
jlne.ws/17WaCS6

S&P Dow Jones Indices Launches Spin-Off, IPO and Activist Interest Indices
PRNewswire
In an effort to meet the evolving needs of the investment community, S&P Dow Jones Indices (S&P DJI) has announced the launch of the S&P U.S. Spin-Off index, the S&P U.S IPO and Spin-Off index and the S&P U.S. Activist Interest index. These three new indices broaden S&P DJI’s event driven index family which includes merger arbitrage indices.
jlne.ws/1SZXAdi

London Stock Exchange Group profit soars on integration of Russell Investments
Jessica Morris – City A.M.
In December last year LSEG bought the Russell business – and in May it launched FTSE Russell, the new integrated name for the combined businesses of the FTSE Group and Russell indexes. Today is said it was making “good progress with integration and development” with this.
jlne.ws/1MMzKTz

ETF assets at large securities firms surge
Daisy Maxey – WSJ
Individual investors’ holdings of exchange-traded funds grew by more than their mutual-fund investments over the past year, and the largest securities firms were responsible for a large chunk of that growth, according to an analysis by Broadridge Financial Solutions.
jlne.ws/1W1gipf

Emerging market investors dominated by indices
Jonathan Wheatley – Financial Times
International investors are slaves to indices. Most of the time, they limit themselves to buying only stocks and bonds that are included in indices put together by index providers such as MSCI and JPMorgan.
This severely narrows their investable universe. According to the Institute of International Finance, only about $2.8tn out of $12.6tn in emerging market bonds and about $7.5tn out of $24.7tn in EM equities are bought or sold by foreign investors. The rest, they simply ignore.
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Rising Dispersion and the Value of Stock Picking
Craig Lazzara – Indexology: S&P Dow Jones Indices
We’ve long argued that the market’s low dispersion in 2014 was a major contributor to the failure of most active managers to outperform their index benchmarks. So if dispersion remains high, other things equal, active stock pickers might benefit. But there are at least three cautions to offer before concluding that the long-sought “stock-picker’s market” has finally arrived.
jlne.ws/1MMzvrO

TSX is the worst-performing developed market this year
David Pett – Financial Post
Canada’s equity market woes continued in July with the S&P/TSX composite index falling 4.2 per cent during the month. The country’s premier benchmark is now down 12.2 per cent for the year, representing the worst performance of any developed market in the world.
jlne.ws/1MMzGn1

Gold

If History Repeats, Gold Could Soon Get Very Boring
Lorcan Roche Kelly – Bloomberg
Gold has pretty much been in a $200 range, between $1,050 and $1,250, for the past two years.
This period of relative calm is a big change from what the precious metal did from 2005 to mid-2013 when it rallied by $1,200 before dropping back to recent levels.
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Gold won’t have been tested until the crap really hits the fan
Matthew Lynn – MarketWatch
The euro is about to fall apart. The Chinese stock market is crashing, taking the economy down with it. The emerging markets are disappearing down a plug hole as commodity prices collapse. And what happens to gold? The ultimate safe haven, the one asset that is meant to provide a refuge in even the worst of storms, enters a bear market as well.
Plenty of people have concluded that gold is finished. Use it to make some nice jewelry, but don’t expect it to have any place in a well-managed portfolio. If it doesn’t show so much as a flicker of life during that kind of turmoil, then you might as well forget about it.
But hold on. There is a flaw in that view.
jlne.ws/1Hrfz5N

Miscellaneous

Lloyds Bans All-Male Shortlists for Top Jobs
Lucy Burton – WSJ
Lloyds Banking Group LLOY.LN +0.58% PLC has told recruiters that shortlists for candidates applying for jobs from assistant vice-president level upwards will no longer be considered unless one-third of the names on the list are women.
In an email seen by MoneyBeat, sent on July 27 by Resource Solutions, the firm Lloyds uses to outsource recruitment, headhunters were told that “a minimum of one third of your total submissions must be made up of suitably qualified female candidates. No short list of candidates will be progressed until this objective is received without exception.”
jlne.ws/1MPqVaG

LSE says sale of Russell investment unit is on track
Philip Stafford – Financial Times
The London Stock Exchange Group on Wednesday waved away concerns that the sale of an investment management subsidiary was stalling as it reported interim earnings towards the top end of market expectations.
jlne.ws/1T3VlFO

S.E.C. Approves Rule on C.E.O. Pay Ratio
Peter Eavis – NY Times
After a long delay and plenty of pushback from corporate America, the Securities and Exchange Commission approved on Wednesday a rule that would require most public companies to regularly reveal the gap between the compensation of the chief executive and the pay of the rest of their employees.
jlne.ws/1HreMlk

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