First Impressions

Gone Tomorrow, Here Again After
Jon Matte
In honor of the US holiday on Thursday (“Premature Shopping Day” – or, as it used to be called, “Thanksgiving Day”), John Lothian News will be closed, and that means no newsletters. But never fear, on Friday JLN, JLN Financials and JLN Options will be back in action. Meantime, to those of you who have a day off, our best wishes for the holiday!

Quote of the Day

It doesn’t feel entirely right.

Bank of England Governor Mark Carney on the weak investment statistics released by Britain’s Office for National Statistics, as compared to other signs of upbeat survey data and other signs of economic strength, in the WSJ article “BOE Gov. Carney Criticizes Official U.K. Data”

Lead Stories

I.M.F. Shifts Its Approach to Bailouts
The International Monetary Fund, convinced that Europe erred in forcing debtor countries like Greece and Portugal to bear nearly all the pain of recovery on their own, is pushing hard for a plan that would impose upfront losses on bondholders the next time a country in the euro area requests a bailout.

***DA: Translation: next time around, the Greeces and Portugals of the world will not be loaned a single euro, or, at minimum, at a steep risk premium.

Firms Take Advantage of China’s Murky Interbank Market
Richard Silk – MoneyBeat – WSJ
Until recently, China’s banking system remained stubbornly boring: With the industry a virtual state monopoly and lending quotas and interest rates dictated by the government, there wasn’t much room for financial innovation.

***DA: This article is an exercise in picturesque speech – “skullduggery,” “monetary dinosaur,” “Whack-a-mole” to name a few.

Madame Nouy set to take on Europe’s banks
Danièle Nouy will become the most powerful woman in European banking when she takes the helm at the industry’s new watchdog, the Single Supervisory Mechanism (SSM), due to come into force next November. She will oversee the euro zone’s 6,000-odd lenders and will have the power to order a bank closed, if necessary.

***DA: Hands up – before now, who had ever heard of the Single Supervisory Mechanism?

Analysis: Surfing central banks in a benign ‘QE trap’
The message is sinking in – economies of the rich world face super-easy money far into the future and central banks are now convinced it’s the least of all policy evils. Despite rumblings of dissent about the financial bubbles and iniquities associated with zero interest rates and money printing, 2013 is ending with a remarkable certainty among global investors that cheap money is around for the long haul.

***JM: The acceptance of the message, and the validity of it, are not necessarily the same.

Margin deposit practices in focus as clearing firms gain clout
Rules that kicked in this year now require most trades in the $668 trillion global privately negotiated derivatives markets to move to these firms, which are already a common presence in bond and repurchase agreement markets. That is concentrating more trading risks with clearinghouses than ever before, making them the new too-big-to-fail firms of global finance. It is also drawing new scrutiny on how they manage their exposures.

Bond market puts Fed anchor to test
Michael Mackenzie in New York –
A floating anchor helps an angler occupy a good fishing spot without his boat being swept downstream. It is a strategy the Federal Reserve has embraced.

***JM: …anchors don’t fl… oh, now I understand, ok.

Central Banks

BOE Gov. Carney Criticizes Official U.K. Data
Bank of England Gov. Mark Carney on Tuesday cast doubt on the quality of some economic data that officials receive from Britain’s statistics agency, including figures that feed into the central bank’s monthly decisions on interest rates.

RBI balm fails to reduce foreign banks’ headache
Business Standard
Foreign banks would not have to pay capital gains tax and stamp duty for converting their India branches into wholly-owned subsidiaries (WOS), the Reserve Bank of India (RBI) clarified on Tuesday.

RBI to recognise self-regulatory bodies for NBFC-MFIs
Business Standard
The Reserve Bank of India (RBI) has decided to recognise industry associations of non-banking financial companies engaged in microfinance (NBFC-MFIs) as self-regulatory organisations. The central bank has said this will ensure effective monitoring of NBFC-MFIs, their compliance with regulations and the code of conduct and aid the customers of NBFC-MFIs.


BSE to launch currency derivative platform on Friday
The Economic Times
Premiere stock exchange BSE will launch its platform for trading in currency derivatives from Friday, making it the fourth bourse in the country to offer such trades.

Yen favourite to fund carry trades
Jamie Chisholm –
As we have noted many times on these pages, implied volatilities in forex and sovereign bonds are low by historic standards. Meanwhile, long-dated interest rates are moving up as growth hopes build.

Scotland may pay in pounds for nationalist plan
Mure Dickie and Kiran Stacey –
The currency issue is fundamental to much of the SNP’s post-independence vision of a friction-free border and tightly entwined system of financial regulation. But while SNP leaders insist London will inevitably see currency union as in its own interest, UK ministers and leading politicians insist such a deal is highly unlikely.

FX investors should look east; China could taper before the Fed
Peter Garnham – Euromoney magazine
For all the focus on the Federal Reserve’s plans to start tapering its asset purchases, currency investors should also be looking at developments in China.

GFI Group Inc, a leading intermediary in over-the-counter derivatives markets, announced today that it had been voted best broker for currency options by FX Week, an Incisive Media publication.
(via email)

Indexes & Index Products

For First Time in 13 Years, Nasdaq Closes Above 4,000
Wall Street reached another market milestone on Tuesday when the Nasdaq composite index closed above the 4,000-point mark for the first time in 13 years.

Greece to Join MSCI Emerging-Markets Index
Erin McCarthy –
Wednesday marks Greece’s return to a widely tracked emerging-markets stock index after a 12-year absence, but some fund managers aren’t enthused.

[SIX] Exchange Traded Funds are becoming smarter
Until recently, Exchange Traded Funds (ETFs) only focussed on replicating indices. After all the most important indices had been covered, the sector went a step further: Modern Exchange Traded Products (ETPs) aim to make use of an index’s specific potential to generate outperformance while minimizing risk.

Goldman Sachs Asset Management launches first closed-end fund
Goldman Sachs Asset Management, a unit of Goldman Sachs Group Inc, launched its first-ever closed-end fund on Tuesday, raising $826.3 million from investors.


German watchdog starts probe into gold price-fixing: report
Germany’s financial watchdog BaFin has started a probe into suspected manipulation of benchmark gold and silver prices by banks, the Wall Street Journal Deutschland website reported on Tuesday.

The golden subprime swan
Izabella Kaminska | FT Alphaville
Cardiff made a nice point on Tuesday that financial innovation, much like evolution, always finds a way. We have stressed before that that’s because risky lending — i.e. lending to the most distressed who are prepared to pay for it the most — also always finds a way. So, in what form did the most recent spell of risky lending take place in?

Major Gold Player UBS Slashes Price Forecasts
Laura Clarke – MoneyBeat – WSJ
UBS bank, one of the largest traders in the gold market, slashed its price forecasts for the yellow metal Tuesday, citing a lack of supporting factors.

Gold Miners Continue to Lose Luster
Rhiannon Hoyle – MoneyBeat – WSJ
Gold equities continue to lose their shine, with many Australian-listed miners of the precious metal sliding in Sydney after a steep fall in bullion prices.

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