First Impressions

Canada prepares for derivatives transparency overhaul
Marisol Collazo, CEO of the DTCC Data Repository – John Lothian News Exclusive

Following the September 2009 commitment by G20 leaders to improve the integrity of the markets, reporting of derivatives trades to trade repositories has become critical to regulatory efforts to monitor and detect the build-up of risk in the financial system.
To date, a number of jurisdictions around the world have developed rules and regulations requiring mandatory reporting of derivatives to trade repositories. Derivatives trades are being reported to trade repositories in the United States (since 2012), Japan, Hong Kong, Singapore and Australia (since 2013), the European Union (since 2014), and will soon be followed by Canada which is the latest jurisdiction to transpose G20 requirements on derivatives trade reporting into law.

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Quote of the Day

“Renewed ECB activism offers hope that the euro area will not follow the path Japan embarked on in the 1990s. Low growth leads to low income growth. Combine that with persistently high unemployment and you’ve got a lack of confidence.”

Nikolaos Panigirtzoglou, London-based global market strategist at JPMorgan Chase & Co. in the story, “Europe Ticking All the Wrong Boxes Starts Mirroring Japan”.

Lead Stories

Judge Holds Argentina in Contempt of Court in Bond Payment Case
Alexandra Stevenson – Dealbook – NY Times
For more than a year, Judge Thomas P. Griesa of Federal District Court in Manhattan has warned that Argentina would suffer repercussions if it defied his orders regarding payments to bondholders.

Argentina Deposits $161 Million in Local Bank for Debt Payment
Katia Porzecanski – Bloomberg
Argentina deposited $161 million in a local bank for bond payments, seeking to get around a U.S. court ruling that bans the country from servicing its overseas debt.
The payment was made in a new trustee account at Nacion Fideicomisos SA, a unit of state-run Banco de la Nacion Argentina, the economy Ministry said in an e-mailed statement. Lawmakers in the South American country approved a bill earlier this month to allow for the local payment of foreign debt.

Pimco Total Return Fund Morningstar Rating Cut on Gross Exit
Bei Hu – Bloomberg
Morningstar Inc. cut the rating of Pacific Investment Management Co.’s Total Return Fund, the world’s largest bond fund, to bronze from gold after co-founder Bill Gross’s exit.
The research firm remains “positive overall” on the $222 billion fund, Eric Jacobson, an analyst at the Chicago-based research firm, said in a report dated yesterday. The downgrade was prompted by uncertainty regarding potential capital outflows and the reshuffling of management responsibilities at the Newport Beach, California-based company, Morningstar said.

Pimco ETF Outflows Slow After Biggest One-Day Withdrawal
Lisa Abramowicz and Jody Shenn – Bloomberg
Withdrawals from a Pacific Investment Management Co. exchange-traded fund that was run by Bill Grossslowed yesterday after record redemptions the day the star trader left.
Investors pulled about $98 million from the Pimco Total Return ETF (BOND), according to data available on Pimco’s website that shows adjusted shares outstanding. That followed a record $446.5 million withdrawal on Sept. 26 as Gross announced his sudden departure from the firm he co-founded to join Janus Capital Group Inc.

Who likes European bonds?
Matthew C Klein – Financial Times
The self-described data geeks at Citi have a new note on who buys euro-denominated bonds, and we want to share some highlights.

Emerging markets eye renminbi trading alternative to dollar
James Kynge – Financial Times
With some effort, it is possible to discern the outline of a future “renminbi zone” emerging as a rival to the “dollar zone” that has dominated the world’s financial system since the end of the second world war. Though still indistinct, the contours of this new currency contingency are nowhere clearer than among the Brics countries (Brazil, Russia, India, China and South Africa), following a decision to create a Brics bank in July.

Grand global ambitions for renminbi sow domestic risks
Josh Noble – Financial Times
Most people from outside China have never used the renminbi for much more than buying trinkets at the Great Wall or steamed buns in a Shanghai eatery. But that is changing fast.

Central Banks

Negative rates, in context
Izabella Kaminska – Financial Times
Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund, who now heads his own consulting company, is — as ever — on a mission to explain central bank actions for what they really are.

Europe Ticking All the Wrong Boxes Starts Mirroring Japan
Anchalee Worrachate – Bloomberg
Similarities between the euro region and Japan are intensifying, heaping pressure on Mario Draghi while offering good news for bond holders.
Sluggish credit growth? Check. Slowing economy? Check. Falling market expectations for inflation? Check. Aging population? Yes, it has that too, placing Europe in a similar situation to what was encountered by the world’s third-largest economy after the bubble burst on its postwar Economic Miracle.

Options-Based Expectations of Future Policy Rates
Michael Bauer – Federal Reserve Bank San Francisco
Forecasts of short-term interest rates that are based on futures rates in financial markets can be very misleading when the policy rate is near the zero lower bound. By contrast, options on future short-term interest rates can provide more accurate projections. Currently these options suggest that the federal funds rate—the Federal Reserve’s key monetary policy interest rate—is most likely to lift off from zero around mid-2015 and rise only slowly afterwards at a pace of about 1 percentage point per year.

Russia Weighs Capital Controls in Case Net Outflows Intensify
Evgenia Pismennaya – Bloomberg
Russia’s central bank is weighing the introduction of temporary capital controls if the flow of money out of the country intensifies, according to two officials with direct knowledge of the discussions.
Such measures would be preventative and used only if net outflows rise significantly, the people said, who asked not to be identified because no decision has been made. They didn’t give a timeline or a level that may force such a move, saying they are looking at all possible scenarios.

Financial firms don’t need an inside job to get favorable Fed treatment
Kindred Winecoff – The Washington Post
Last week “This American Life” and ProPublica reported on the close relationship between the U.S. Federal Reserve (Fed) and major Wall Street banks, particularly Goldman Sachs. These reports suggest that the Fed is “captured” by the firms it is tasked with regulating, meaning that banks strongly influence the Fed’s application of the rules governing the banking sector. While the claim itself is certainly not new, these reports approach the topic in a fairly unique manner. Unlike most regulatory capture arguments that emphasize the “revolving door” between regulators and the private sector or even outright corruption, the TAF/ProPublica story focuses instead on the organizational culture within the Fed, which appears to be deferential to major banks. The Fed is not so much corrupted as “wimpy,” as Justin Fox wrote in the Harvard Business Review blog.


Even Beijing balks at price to pay for renminbi to become a reserve currency
Martin Wolf – Financial Times
For the first time since industrialisation began two centuries ago, the world’s largest economy seems certain to be that of a non-western developing country run by the communist party. This raises many questions. Among them is the potential role of its currency, the renminbi. Will it displace the dollar? Should the Chinese authorities want it to? Should the rest of the world want this? My tentative answer to all three is: no.

Euro’s Worst Quarter Since 2010 Leaves It at Two-Year Low
Andrea Wong – Bloomberg
The euro fell to a two-year low against the dollar as slowing inflation in the 18 nations that share the currency boosts the case for extra monetary stimulus from the European Central Bank to avert deflation.
The shared currency headed for its worst quarter since 2010 as the ECB moved to swell its balance sheet and cut borrowing costs to spur growth. The Russian ruble slumped after Bloomberg News reported the central bank is weighing capital controls, and Canada’s dollar weakened as the nation’s economy stalled. The U.S. dollar has climbed this quarter as the Federal Reserve considers raising interest rates.

FSB Calls For Wider Window to Set Exchange-Rate Benchmarks
Katie Martin – WSJ
The way currency benchmarks are calculated and foreign-exchange traders behave looks set for a revamp under a new set of recommendations by global regulators.

Global Regulator Backs FX Revamp After Rigging Scandals
Jim Brunsden and Ben Moshinsky – Bloomberg
A panel of global regulators, responding to a manipulation scandal that’s shaken the financial industry, backed measures to make it harder for traders to exploit key benchmarks in the $5.3 trillion-a-day currency market.
The Financial Stability Board said it supports extending the width of the trading window used to calculate foreign-exchange rates to five minutes in a rule overhaul that also includes measures to address potential conflicts of interest between banks and their clients.

It all makes sense when you realise there are TWO US dollar currencies
Izabella Kaminska – Financial Times
Most people know that China’s currency is classified according to trading conditions. There is, for example, CNY, which refers to onshore yuan. There’s CNH, which refers to Hong Kong (offshore) yuan. And then there’s NDF, the non-deliverable forward market.

Cryptocurrencies have ‘some way to go’
Anna Irrera in Boston – Financial News
The technology behind cryptocurrencies such as Bitcoin has the potential to transform financial infrastructure, but significant adoption may still be years in the making, according to the chief executive of Swift.

Indexes & Index Products

New emerging market real estate ETF brings exposure to China, South Africa
Ashley Lau – Reuters
A new exchange-traded fund tracking the real estate industry in emerging market countries debuted on Monday, offering investors a novel entry into a growth sector that also carries risks from markets like China in the midst of downturn.

Strategic indexes regain popularity in Asia
Yakob Peterseil –
Demand for proprietary indexes in Asia dried up after the financial crisis revealed flaws in their construction, but banks are once again rolling out hedge fund-like strategies by the hundreds. Can they avoid making the same mistakes?

Nasdaq Index Head Jacobs Announces Retirement
Max Bowie – WatersTechnology
John Jacobs, executive vice president of global information services at Nasdaq OMX and head of the exchange’s index business, has announced he will retire from his current role effective Jan. 2, 2015.

Holdings of South African palladium ETFs top 1 mln oz
Combined holdings of the two South African palladium exchange-traded funds launched in March reached more than 1 million ounces last week, accounting for more than 40 percent of global palladium ETF reserves.

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