First Impressions

Exchange CEO Series – ICE Cover: Jeff Sprecher taking on “fierce competition” and hackers
JohnLothianNews.com
Exchanges have never faced more challenges and opportunities than they do today. John Lothian News sat down with six exchange CEOs at the 2014 FIA Boca Conference to talk about their views on four main topics: competition, regulation, growth and technology. Here’s what Jeff Sprecher, CEO of the IntercontinentalExchange Group (ICE), had to say about each. “It’s interesting to me that regulators today are trying to introduce more global competition when in reality, for those of us who are in the business, we realize that competition has never been more fierce and more global,” Sprecher said. “And frankly, we are all trying to look at the same opportunity set and trying to use our current positioning like never before.”

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Quote of the Day

While price and financial stability are clearly connected, achieving both can be difficult As we saw so clearly in the run-up to the financial crisis, the credit and business cycles operate on different time horizons, with the former as much as twice as long and twice as big

Bank of England Governor Mark Carney, in a speech highlighted in the WSJ story “Think Financial Systems Are Safe? Think Again, Warns Carney”

Lead Stories

JPMorgan sells physical commodities unit to Mercuria for $3.5 billion
REUTERS
JPMorgan is selling its physical commodities business to Mercuria for $3.5 billion, the U.S. investment bank said on Wednesday, sweeping the fast-growing Swiss trading house into the top league of commodities traders.
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Think Financial Systems Are Safe? Think Again, Warns Carney
Jason Douglas – MoneyBeat – WSJ
“It doesn’t take a genius” to see risks to the smooth running of the financial system are mounting today, Bank of England Governor Mark Carney noted Tuesday.
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***DA: Safe-ish. Or maybe “safe until it matters.”

Morningstar: Pimco Still Formidable But Questions Linger
Tom Lauricella – MoneyBeat – WSJ
It’s been nearly two months since the surprising departure of Mohamed El-Erian from bond-giant Pimco. Subsequent weeks have seen much focus on the apparent friction between Bill Gross and Mr. El-Erian. Now, the folks at Morningstar are turning the focus on what it all means for Pimco’s investors, and what the management tumult means for the firm’s culture and investment process.
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***DA: After a careful due diligence review, we have determined that Pimco is really big.

EM central banks sell US government bonds
Michael Mackenzie in New York – FT.com
Central banks sold US Treasury debt at the start of the year, according to the latest official data released on Tuesday, as stress among emerging market countries intensified.
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***DA: Maybe they will buy some back as the emerging market crisis moves from page one to page 20.

Hunger for long-term debt poses US rate risk
Vivianne Rodrigues and Michael Mackenzie in New York – FT.com
Will it be all pain and no gain for investors who have piled into long-term corporate debt recently?
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U.K. to Replace 1-Pound Coin With Secure 12-Edged Design
Svenja O’Donnell – Bloomberg
The U.K. will introduce a new 1-pound coin in 2017 as part of a crackdown on counterfeiters, after the current model spawned millions of fakes.
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***DA: Why would anyone want to carry around coins that weight a pound, anyway? Oh, wait. Never mind.

Central Banks

Yellen’s Fed Will Sail Into Murkier Waters
BINYAMIN APPELBAUM – NYTimes.com
Janet L. Yellen is taking over the leadership of the Federal Reserve on the cusp of a more challenging period for the central bank.
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***DA: All Fed chairs get put to a test early in their tenures. Yellen will be no different. Will it come from the emerging markets? What if the taper turns out to be too little too late, or too much too soon? These waters are more “uncharted” than “murky.”

Congress and the Fed Need to Think Inside the Same Box
JARED BERNSTEIN – NYTimes.com
Though there are sadly many choices, one of the most troubling economic missteps in recent years has been fiscal and monetary policies working at cross-purposes. Far too often, the economic weather report has been one of monetary tailwinds met by fiscal headwinds.
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Yellen Fed poised to trim bond buying, rewrite rates guidance
Reuters
The Federal Reserve is set to trim its bond-buying stimulus for a third time in a row on Wednesday, and will probably rewrite its guidance on when it might eventually raise interest rates.
jlne.ws/1gaj2Ow

Lithuanian central bank eyes euro ambition
Lucy Fitzgeorge-Parker – Euromoney magazine
Bank of Lithuania deputy chief Ingrida Simonyte discusses the country’s euro-adoption plans, the challenges for the foreign-owned banking system, and the asset quality review in a wide-ranging interview.
jlne.ws/1gaj0pU

BOJ Kiuchi Concerned By Excessive Easing
WSJ.com
One of the Bank of Japan’s more outspoken policy board members warned on Wednesday that too much monetary stimulus could cause problems for the economy in the future, even as the head of the bank said that it should stand ready to act again if needed.
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***DA: Uh oh. Someone has not been drinking his Kool-Aid, I see.

Currencies

Australia regulators to probe forex price-rigging
Jamie Smyth in Sydney – FT.com
Australian regulators are launching a probe into the country’s US$168bn foreign exchange market, as the net widens in the sprawling international investigations into allegations of price-rigging by banks and currency traders.
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***DA: This scandal refuses to die.

Renminbi rate hits ‘red line’ level for losses
Josh Noble and Patrick McGee in Hong Kong – FT.com
The renminbi on Wednesday breached a closely watched level considered a “red line” that could cause losses on billions of dollars worth of derivative products.
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***DA: The story is a fancy way of saying USD/CNH may hit a bunch of stops at 6.20.

Swiss Franc gains currency with Indian companies
The Economic Times
Indian firms are looking at borrowing in Swiss francs after a gap of about two years as they look beyond the three major global currencies or G-3 – the US dollar, euro and Japanese yen.
jlne.ws/1gaj0G9

Exclusive: EU legal opinion opens door to Tobin tax on forex
Reuters
Deals from the multi-trillion euro a day foreign exchange market could in principle be included in a tax on financial transactions, a legal opinion from European Union lawyers seen by Reuters said.
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***DA: To be effective would require serious international coordination.

SNB to keep franc cap, may never need to exit it at all
Reuters
The Swiss National Bank is not expected to lift its lid on the Swiss franc until at least 2015, a Reuters poll showed on Tuesday, with some economists suggesting the central bank may never need to officially exit the currency cap at all.
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***DA: Best of both worlds – all the good aspects of eurozone membership without the baggage.

Fortress, Benchmark and Ribbit Buy Stake in Pantera Bitcoin
NATHANIEL POPPER – NYTimes.com
Several prominent investment firms are joining forces to buy stakes in one of the biggest Bitcoin operations in the world. The publicly traded New York private equity and hedge fund firm Fortress Investment Group and two other investors are buying a stake in Pantera Bitcoin Partners, a San Francisco-based hedge fund operator that buys and sells virtual currencies.
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China’s yuan slides to near one-year low as economic risks mount
Reuters
China’s yuan fell beyond 6.20 to the dollar on Wednesday for the first time since April last year amid market speculation the central bank will keep the currency weak as economic growth slows.
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Indexes & Index Products

Options Show More Bullish Bets on Bond ETFs As Rate Fears Ease
Chris Dieterich – MoneyBeat – WSJ
About those bond worries… With Ukraine in turmoil and China showing signs of a potential slowdown, the options market is showing a renewed bullishness for U.S. Treasury bonds. That marks a sharp change from the consensus view last year, when most market watchers warned that rising interest rates would inflict losses on bonds.
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Gold

Gold-Mining ETF Outshines Bullion Fund as Haven Bet: Commodities
Debarati Roy – Bloomberg
Investors seeking a hedge against a waning U.S. economic recovery and escalating conflict in Ukraine made twice as much money buying gold-mining shares rather than the metal the companies produce.
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***DA: But when it unwinds, it unwinds in a hurry. As of press time, gold is down over $50 in two sessions.

Gold performs the Cossack sabre dance
Jamie Chisholm – FT.com
Sabre-rattling: good for gold. Swords sheathed: not so much.
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Gold Smugglers defy India’s Import curbs
Times of Oman
Returning home to the southern Indian state of Kerala from Dubai last month, 27-year-old welder Mohammed Ahmed Jaffer was arrested after customs agents said they discovered gold in the lining of his brass flower pot. Jaffer allegedly was offered 30,000 rupees ($491) from an importer seeking to bring in 1 kilogram of bullion valued at about $50,000 without paying the 10 percent customs tax, case documents made available to Bloomberg show. Such stories have become commonplace in India, where the government raised duties on gold three times last year and illegal imports almost doubled to about 200 metric tons, the World Gold Council estimates.
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