First Impressions

Speedy Delivery: Keith Ross on HFT, Reg NMS and Dark Pools
Today’s financial markets can be summed up in three words – global, fast, and complex. But as the market structure evolves, so must the regulatory structure that oversees it. John Lothian News has spoken with several industry experts to create this series on the evolution of financial market structure.

In Part 3, Keith Ross, CEO of PDQ ATS offers his thoughts on HFT, Regulation NMS, maker-taker arrangements, and dark pools, and voices his concerns that regulatory oversight may give way to legislative overreach.

Watch the video »

Quote of the Day

“The Fed stepping away at the end of QE doesn’t necessarily create a major hurdle in the Treasury market. We expect foreign and pension investors to take the brunt of the net Treasury supply, leaving only a small portion to other investors.”

Dominic Konstam, Deutsche Bank’s New York-based global head of interest-rate research in the story, “Can’t Find Enough 30-Year Treasuries to Buy? Here’s Why”.

Lead Stories

JPMorgan at Odds With IMF in Touting Emerging-Market Debt
Ye Xie – Bloomberg
JPMorgan Chase & Co., the biggest U.S. bank by assets, sees no signs of a bubble in emerging-market corporate debt, challenging the International Monetary Fund’s warning on rising risks in the bond market.
Bonds sold by developing-country companies account for just 3 percent of gross domestic product in these economies, compared with 35 percent in the U.S., according to Joyce Chang, global head of research at the New York-based bank.

***DA: Nothing said by JPM in the article counters that which was posited by the IMF. Credit quality always appears high during the upswing in a market. It is only afterward that those left holding the bag say, “Wow. I guess it was not different this time.”

Borrowing Cash to Buy Complex Assets Is In Vogue Again
Katy Burne –
Banks again are doling out money to hedge funds and other investors to finance purchases of complex debt securities, returning to a practice that helped fuel the debt boom ahead of the financial crisis.

***DA: I wonder what JPMorgan would say about this – bubble or non-bubble?

Can’t Find Enough 30-Year Treasuries to Buy? Here’s Why
Susanne Walker – Bloomberg
In a world awash with U.S. government bonds, buyers of the longest-term Treasuries are facing a potential shortage of supply.
Excluding those held by the Federal Reserve, Treasuries due in 10 years or more account for just 5 percent of the $12.1 trillion market for U.S. debt. New rules designed to plug shortfalls at pension funds may now triple their purchases of longer-dated Treasuries, creating $300 billion in extra demand over the next two years that would equal almost half the $642 billion outstanding, Bank of Nova Scotia estimates.

***DA: What about treasuries? Are they in a bubble?

Portugal exits bailout without safety net of credit line
Peter Wise in Lisbon –
Portugal’s prime minister has announced that the country will make a “clean” exit from its three-year bailout without the safety net of a precautionary credit line.

***DA: Like getting your parents to co-sign an auto loan.

High-yield bonds boost Europe M&A hopes
Andrew Bolger in London and Vivianne Rodrigues in New York –
European companies are increasingly using high-yield bonds to fund acquisitions, fuelling hopes that this new source of money will help boost a long-awaited recovery in European dealmaking.

***DA: How about junk bonds? Are they in a bubble?

Bond, stock investors making hay; can both be right?
With U.S. stocks near record highs and Treasury bond yields near multi-month lows, the disconnect between equity and debt investors has rarely been as stark. Over the coming months, the economy is likely to show one of the groups has bet wrong.

***DA: More to the point – can both be wrong?

Volatility vanishes in Fed taper show
James Mackintosh, Investment Editor –
The casual observer could be forgiven for thinking traders are half-asleep. Three of the most keenly awaited events in the world economy came this week, yet markets barely moved. US economic growth proved far more disappointing than expected, rising just 0.1 per cent in the first quarter; the Federal Reserve carried on tapering, cutting its bond purchases by $10bn a month; and then yesterday blowout jobs figures showed the economy bouncing back from the dismal first three months.

***DA: No fear.

Entrusted Lending Raises Risks In Chinese Finance
With credit tight in China, companies in industries beset by overcapacity are turning to an unconventional source for cash—other companies—in a new rising risk for the country’s financial system. These company-to-company loans, known as entrusted lending, have emerged as the fastest-growing part of China’s shadow-banking system, which provides credit outside of formal banking channels.

***DA: That doesn’t feel right.

Russian Corporate Bond Sales Plummet
Bond sales from Russian firms have all but dried up this year, according to Dealogic. Amid the crisis in Ukraine, Russian companies have raised just under $2 billion from international bond issues so far in 2014, less than a tenth of what was sold at this stage last year.

Smaller China banks step up shadow lending activity
Simon Rabinovitch in Shanghai –
Smaller Chinese banks have ramped up their shadow lending activity, adding to the financial risks that threaten to trip up the world’s second-biggest economy.

Central Banks

Central bank comments likely to provide direction for investors
Keith Fray –
Central bankers’ communication with the markets may be the dominant theme of the week, with a monthly policy meeting of the European Central Bank and US Federal Reserve chairwoman Janet Yellen appearing before Congress.

***DA: Central bankers are telling us the direction of the market now? Talk about a new era of transparency.

ECB the focus in light week for data
Euro zone policymakers get their main monthly chance this week to adjust their rhetoric about further monetary stimulus, although with inflation creeping a bit higher there, talk is more likely than action.

***DA: Remember when fundamentals drove the market? Yeah; me neither.

Fed’s Fisher Says Economy Strengthening as Payrolls Rise
Greg Giroux and Lorraine Woellert – Bloomberg
The U.S. economy is “moving in the right direction” and “getting stronger” as private-sector payrolls increase, said Richard Fisher, president of the Federal Reserve Bank of Dallas.
“The private sector is beginning to hire,” said Fisher, a voting member of the central bank’s policy committee, said today on the Fox News program ’’Sunday Morning Futures.’’ “We’d like to see that continue and, in fact, increase.”

Australia central bank seen on hold even as tough budget looms
Australia’s central bank is almost certain to maintain a neutral policy bias this week with a batch of data likely to point to an economy that is picking up speed, uncomfortable reading for a government preparing voters for a tough federal budget.

The Fed’s future management of short rates
Cardiff Garcia | FT Alphaville
As expected, this week’s FOMC statement was mostly a snoozer, but the notification of a closed-door meeting on Tuesday to discuss “medium-term monetary policy issues” at least gave Fed-watchers something to ponder.


High-speed traders find bumps in road as they drive into FX
Joel Clark – Financial News
In the recent ruckus kicked up by the Michael Lewis book Flash Boys, high-frequency trading firms found themselves accused of rigging equity markets by front-running investor orders.

Through train’s exclusive use of yuan a hurdle for Hong Kong investors
Enoch Yiu | South China Morning Post
Beijing obviously wants to use the through-train cross-border trading scheme to encourage investors to use the yuan to trade stocks. To succeed, however, it has to do more to make it easier for international investors to obtain the yuan they need.

China unleashes yuan bears, but can it cage them again?
Beijing’s attack on yuan speculators has proven extraordinarily successful, so much so that traders no longer see it as a short-term intervention but a deeper market shift that has now gained a self-reinforcing momentum.

Morgan Stanley Sees Yuan Selloff as SinoPac Barred: China Credit
Lilian Karunungan and Justina Lee – Bloomberg
Options traders are the most pessimistic on the offshore yuan in almost 10 months as the currency slides and Taiwan cracks down on derivative products.
The premium that investors pay for one-year contracts giving them the right to sell the yuan over options to buy advanced to 2.5 percentage point on April 25, the highest close since July 5, data compiled by Bloomberg show.

Japan PRDCs stage a comeback on yen depreciation
Viren Vaghela –
The PRDC market has been reborn after a five-year hiatus since the financial crisis. What is driving the market this time and have dealers devised a way to hedge some of the risk that proved so toxic in 2008?

Currency Code for Client Orders Warrants Debate, U.S. Panel Says
Neal Armstrong – Bloomberg
Guidelines on how banks handle currency orders from clients should be reviewed, according to minutes from the latest meeting of the Federal Reserve Bank of New York-sponsored Foreign Exchange Committee.

Colombia Shows How Not to Wage Peso War With Rates: Currencies
Andrea Jaramillo and Ye Xie – Bloomberg
Colombia is showing the world how not to wage a currency war.
While the authorities stepped up their purchases of dollars last month to stem the peso’s rally, the central bank followed up days later by unexpectedly raising interest rates, boosting the currency’s appeal. That contributed to the peso’s 5.9 percent rally in the past two months, the biggest gain among 24 emerging-market currencies tracked by Bloomberg.

BitBeat: Inconclusive Vote for Bitcoin Foundation Board Seats
MoneyBeat – WSJ
A tightly fought election for two vacated seats on the Bitcoin Foundation board has come down to three people, with no one obtaining the minimum 52 votes to assume one of the new positions.

Indexes & Index Products

Why the Stock Market Is So Confusing Right Now
The Street
Every week we see stock market benchmarks the Dow Jones Industrial Average and the S&P 500 index near highs. We read and hear that we “are due for a correction,” that there are bearish divergences based on endless indicators and that we are in a bubble that can’t sustain itself. Yet we look at the indices and nothing looks ominous. Yes, the PowerShares (QQQ), which tracks the Nasdaq 100 index, and the iShares Russell 2000 (IWM) have had a bit of a correction recently, but nothing to really cry about. Everything seems just merry on the surface.

***DA: Merry indeed.

ETFGI: Assets Of ETFs And ETPs Listed In The United States Reached $1.73 Trillion, A New Record High, At The End Of Q1 2014
Flows into ETFs and ETPs listed in the United States rebounded in March gathering net inflows of $10.9 billion which, when combined with a small positive market performance in the month, pushed assets in the global ETF/ETP industry to a new record high of $1.73 trillion, according to ETFGI’s Q1 2014 Global ETF and ETP industry insights report.

Taiwan launches Formosa Stock Index
Focus Taiwan
The Taiwan Stock Exchange (TWSE) launched the Formosa Stock Index on Monday, in collaboration with the GreTai Securities Market (GTSM), to track the performance of both the main board and the over-the-counter market.


Shipwreck Hunter Recovers Gold From Atlantic Site
Liezel Hill – Bloomberg
Odyssey Marine Exploration Inc. (OMEX), a marine salvager specializing in extracting cargoes from sunken ships, recovered its first gold from a 19th-century vessel lying more than a mile beneath the Atlantic Ocean.
Odyssey recovered almost 1,000 ounces (28 kilograms) on April 15 during its first reconnaissance dive to the wreck of the SS Central America. The precious metals included five gold ingots and two $20 Double Eagle coins, Tampa, Florida-based Odyssey said today in a statement.

Technical Trading: Gold Bulls Power Through Trendline Resistance
Kitco News (Forbes)
Gold bulls are powering the market higher early Monday, following Friday’s large range bullish outside day. The yellow metal has smashed through declining bear trendline resistance and has climbed back above the 20-day moving average. The short-term technical bias is improving.

Gold Industry Shifts East As Dubai Plans Huge Refinery, Spot Contract
In the desert on the outskirts of Dubai, one of the world’s biggest gold refineries is under construction. When completed next year, it will help to alter the balance of power in the global gold industry.
Growth in demand for the precious metal is shifting east, to Asia’s fast-growing economies. But key industry activities such as refining and clearing – matching investors’ buy and sell orders – remain dominated by Europe and the United States.

End price-fixing in gold market
South China Morning Post
Gold retailers in Hong Kong and elsewhere have had a great run during the decade-long bull market for the precious metal. Now, not only have gold prices been declining, the retailers are about to be told the way they have fixed spot prices for the trade may be illegal.


Peer-to-Peer Lender Prosper Marketplace to Get $70 Million in Funding
Ianthe Jeanne Dugan – MoneyBeat – WSJ
Prosper Marketplace Inc., a leading peer-to-peer platform based in San Francisco, is to announce Monday $70 million in additional funding to help drive its growth.

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