First Impressions

Steve Grob, Director, Group Strategy, Fidessa – The Finance Industry: The Case for the Defense
JohnLothianNews.com

“The truth is that you can’t actually uncouple finance from the real economy…[finance] is the heart of the real economy.”

Steve Grob, director of group strategy of Fidessa, does a bit of role-playing as a “defense attorney” for the financial industry. Grob discusses the importance of the financial industry and its relationship with the global economy, as well as how regulatory matters will affect the future of finance. He brings up the concept of “belief systems” that society has learned to accept as true without thinking about the entire process. For example, when we flick a light switch on, we immediately expect a light to turn on, and we’re not always thinking about the process of how the light is created. The same thought process applies in the financial industry, in the sense that if regulators condone a topic such as HFT, then the general public agrees and sees it in a negative light.

Watch the video »

Quote of the Day

“Three sectors improving in average covenant quality by 0.06 point is not a huge shift, but it’s a break in the trend of universal sector weakening that we saw in the 12-month periods ended Q1 and Q2 2014. Whether or not that augurs an overall trend for the market has yet to be determined.”

Moody’s analyst Kyle Goodwin in the story, ” Three Junk Sectors See Protections Improve, Moody’s Says”.

Lead Stories

Japan’s plan for further stimulus is not courageous but foolhardy
William White – Financial Times
In a world of unprecedented expansionary actions by central banks, the Bank of Japan is set to outdo them all. Its plans to expand significantly the scale of its asset purchases imply that the size of its balance sheet relative to gross domestic product will far outstrip that of others.
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Concern rises as cracks appear in Nordic model
Richard Milne, Nordic Correspondent – Financial Times
Cracks are beginning to appear in the vaunted Nordic model. The four main Nordic countries – Denmark, Finland, Norway and Sweden – still grace the top of most global rankings for happiness, competitiveness, the best place to be a woman and even the best place to be born. But among Nordic political and business leaders concerns are increasingly emerging about the model’s sustainability.
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Three Junk Sectors See Protections Improve, Moody’s Says
Katherine Chiglinsky – Bloomberg
Investor protections on North American corporate junk bonds strengthened in three industries for the third quarter, the first time this year that all sectors failed to deteriorate, according to Moody’s Investors Service.
The protections, known as covenants, “mildly” improved in the aerospace and defense, paper and packaging products, and technology sectors, Moody’s analysts Alexander Dill and Kyle Goodwin wrote in a report yesterday. The average for all 13 sectors with at least five new issues worsened, their score rising to 3.87 points from 3.62 a year earlier, while the three improving industries fell 0.06 point. The scores are on a scale of 1 to 5, with higher numbers indicating less protection.
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Hedge Funds Face Exit Tax as Iceland Central Bank Mulls Plan
Omar R. Valdimarsson – Bloomberg
Hedge funds and other creditors with claims against Iceland’s failed banks face an exit tax as the island looks for ways to unwind capital controls without hurting the economy.
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Alibaba Said to Get $57 Billion of Bond Orders in Debut
Sridhar Natarajan – Bloomberg
Alibaba Group Holding Ltd has $57 billion of orders from investors in a debut bond offering, more than seven times what the company was said to be seeking and allowing underwriters to reduce proposed yields, people with knowledge of the deal said.
The banks underwriting what probably will become the biggest dollar-denominated note offering by an Asian company lowered the premium by as much as 0.25 percentage point on its longest-dated bond, said the people, who asked not to be identified because the details are private. Alibaba, was initially planning to raise $8 billion to repay a loan, people with knowledge of the deal said last week.
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BNP Shuffles Markets Unit as Janbon Quits Fixed Income
Fabio Benedetti-Valentini – Bloomberg
BNP Paribas SA (BNP), hit by a $9 billion fine this year for violating U.S. sanctions, is reshuffling its markets activities under Yann Gerardin, with fixed-income trading chief Frederic Janbon taking a step back from his role.
BNP is combining trading activities and redefining its investment banking unit as “corporate and institutional banking,” the Paris-based company said in a statement today. Gerardin, named investment banking head in September, will add direct management of a newly created global markets business line. Janbon, previously head of fixed income, becomes a special adviser to BNP’s general management, the bank said.
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Central Banks

Fed focused on sunny side, downplayed global woes in October
Howard Schneider – Reuters
The U.S. Federal Reserve wrestled with whether to nod to financial market volatility and a weakening global economy in its policy statement last month, but opted not to out of worry it could send an unwarranted signal of pessimism.
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With Wary Eye on Global Tumult, Fed Opted to Stay on Policy Path for Now
Jon Hilsenrath – WSJ
Federal Reserve officials meeting last month said they felt the U.S. recovery was on strong enough footing to withstand gathering external threats to growth and stuck to their plan to gradually unwind nearly six years of easy-money policies.
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CORRECTED-Outgoing Dallas Fed chair to help in search for new chief
Reuters
Mike Ullman, the outgoing chairman of the Dallas Federal Reserve Bank, will help with the search for the regional Fed bank’s next president even after Ullman’s term expires on Dec. 31, a Dallas Fed spokesman said on Wednesday.
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Currencies

As Yen Slides, Investors Shun Other Asian Currencies
Anjani Trivedi – WSJ
Investors are shedding holdings of Korean won, Singapore dollars and other Asian currencies, in a bet the yen’s fall against the dollar will reverberate through the region’s foreign-exchange markets.
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Traders getting wary over Swiss franc
Jamie Chisholm – Financial Times
In parts of the market, the cost of insurance as measured by the price of volatility (vol) has been getting steadily cheaper of late.
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Gilts Rise as Goldman Sees Rates at Record Low for Another Year
Anchalee Worrachate – Bloomberg
U.K. government bonds advanced as Goldman Sachs Group Inc. pushed back its forecast for the Bank of England’s first interest-rate increase since 2007, citing worsening growth and the outlook for inflation.
A gauge of inflation expectations fell as a report showed euro-area manufacturing and services expanded at the slowest pace in 16 months, adding to concern the economic slump in Britain’s biggest trading partner is deepening. The pound climbed from near a 14-month low versus the dollar as U.K. retail sales rose at the fastest pace in six months. Goldman predicted the BOE will raise rates in the fourth quarter of next year, compared with the first quarter in a previous forecast.
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Currency Volatility Climbs to 9-Month High on Policy Divergence
Rachel Evans – Bloomberg
Foreign-exchange volatility rose to its highest in more than nine months as forecasts for economic growth and less-stimulative monetary policy in the U.S. diverge from overseas counterparts
The dollar traded at almost a five-year high as a report showed faster-than-forecast U.S. inflation. The yen reached a seven-year low versus the greenback as Japanese lawmakers prepare for early elections in which Prime Minister Shinzo Abe will seek a new mandate for economic stimulus. UBS AG said the Swiss National Bank “might have started” buying euros to defend its currency. South Africa’s rand rallied.
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Indexes & Index Products

Exclusive – Citigroup considers sale of index business: sources
Mike Stone and Jessica Toonkel – Reuters
Citigroup Inc is considering a sale of its index business, two sources familiar with the situation said on Wednesday, making it the latest bank to think about jettisoning benchmarking amid increased regulatory scrutiny.
The value the Citi Fixed Income Indices business could not be learned. About $174 billion in exchange traded fund and mutual fund assets track Citigroup indexes, according to Morningstar. There are even more institutional assets that track these indexes, although the firm does not disclose that number. Offerings include the World Government Bond Index, which the Citi website calls its flagship.
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Gold

LME has not given up on gold
Perrine Faye – www.bulliondesk.com
The London Metal Exchange (LME) still has ambitions to get into the gold market despite recently losing out in the race to adminster the new London gold fix, chief executive Garry Jones said.
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Unusual gold moves in Asian hours puzzle jittery traders
A. Ananthalakshmi – Reuters
Some of the biggest price moves in gold since late October have, unusually, occurred in Asian hours and traders more accustomed to following the lead of their Western counterparts suspect a big increase in algorithmic trading may be to blame.
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Support for Swiss Gold Initiative Falls
Andrew Morse – WSJ
Support for a Swiss initiative that would force the country’s central bank to increase its holdings of gold fell, according to a new poll released on Wednesday, dimming the prospects it will pass in a vote later this month.
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Gold: It’s Time to Buy
Michael Kahn – Barron’s
Over the years, I have made some bold calls on gold and often the pushback from those not sharing my views has been rather vigorous, to put it mildly. It’s time to once again risk the wrath of the haters and say that gold finally looks ready for a recovery.
No, I am not saying it is heading back up to its 2011 peak above $1,900 an ounce, at least not for the foreseeable future (it traded at $1,195 Wednesday afternoon). However, I do think in the long term we will see an important bull market return.
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