The Top Three
An article about winning, The Wall Street Journal’s Why Bank of America Won, won yesterday’s click contest. Go figure. Second place went to a DIY piece from The New York Times, How to Get Away With Insider Trading. When insider trading involves Phil Mickelson, legalese and Vegas bettors, you’re going to get some page views. Third went to the more straightforward WSJ piece on the Bank of America news, Bank of America Penalty Thrown Out in Crisis-Era ‘Hustle’ Case. What would Van McCoy think of that?
Quote of the Day
“I’m going to positively reject the idea that you’re wicked conspirators. I choose to believe you’re wholesome innocents completely unsullied by the grubby politics of this referendum matter. As you know, I just think that you’re generally wrong.”
Steve Baker, a pro-Brexit lawmaker, addressing the BOE’s Mark Carney in the story, “Carney Hits Back at Brexit Accuser as BOE Avoids Silence Vow”
This market getting comfortable with June hike
Stocks appear increasingly comfortable with the idea of a summer interest-rate rise. The major averages have held steady since the Fed minutes and key policymaker comments in the past week indicated a hike could come as soon as next month.
Triple A quality fades as companies embrace debt
The triple A rated company is nearly extinct. Just a handful of companies in the world retain the coveted rating from Standard & Poor’s after ExxonMobil was downgraded last month. In the US, the number has fallen to two — Johnson & Johnson and Microsoft. In 1992, there were 98 US companies that held the highest credit rating from S&P. The demise of triple A-rated companies reflects a dramatic rise in the use of debt to help bolster shareholder returns and fund takeover activity.
Banks Suffer Worst Start to a Year in Commodities in Decade
Commodities revenue at the largest banks had the worst start to a year in more than a decade amid a pullback in raw-materials financing. Income at Goldman Sachs Group Inc., JPMorgan Chase & Co. and 10 other top banks slid by a combined 40 percent year-on-year in the three months though March to $1.1 billion, according to analytics firm Coalition Ltd. That was the least since the third quarter and the worst start to a year since 2005.
****SD: Also see FICC revenues almost halved since 2011 from The Trade
Here’s How Likely Banks Think Brexit Is
With just under a month to go until the U.K. vote on EU membership, investors are relatively sanguine as a flurry of polls show the remain camp firmly in the lead and betting odds for the U.K. staying in the trade bloc are at their shortest yet. Analysts at Nomura see the likelihood of a Brexit at 25 percent while Societe Generale economists put the probability as high as 45 percent.
****SD: Is it unlucky that there are 13 bank outlooks included?
Rediscovering Fiscal Policy at the G7
Jeffrey Frankel – Project Syndicate
As G7 leaders convene in Ise-Shima, Japan, the global economy’s fragility is a top concern. But instead of focusing on currency wars, the leaders of the major developed economies should be discussing fiscal policy, which under current conditions would be a more powerful tool than monetary policy for boosting economic activity. After all, today, unlike in normal times, the effects of fiscal policy would not be limited by too-high interest rates, inadequate private demand, strict capacity constraints, or excessive inflation.
Europe’s Capital Markets Need a Jolt
Jes Staley – WSJ
As a banker for all of my professional life, my work has been focused in large part on how businesses finance themselves. How do they raise equity? When they need money for capital expenditures, what’s the most efficient way to get it? How do they manage their day-to-day working-capital needs? These are the critically important services that finance provides to the companies that drive economic growth, and without them that growth would grind to a halt. But what’s interesting to me, as a relatively new resident of Europe, is how differently those financial services are provided here as compared with the U.S.
****SD: Hopefully not in the form of Jolt Cola though, as that might excite the EU too much.
New US home prices just hit a record high
The US spring home selling season is roaring forward in the US, with new home sales surging 17% in April, the fastest clip since January 2008.
SWIFT CEO Reveals Customer Security Programme At Industry Conference
SWIFT CEO Gottfried Leibbrandt delivered the keynote address at the 14th annual European Financial Services Conference in Brussels today. During the speech, Leibbrandt announced SWIFT’s five-part Customer Security Programme to reinforce the security of our shared, global financial system.
****SD: From Reuters, NY lawmaker warns on U.S. financial security after SWIFT attacks, and from the FT, Banks need customers’ help to fight cyber crime
‘Massive Bailout’ Needed in China, Banking Analyst Chu Says
Charlene Chu, a banking analyst who made her name warning of the risks from China’s credit binge, said a bailout in the trillions of dollars is needed to tackle the bad-debt burden dragging down the nation’s economy.
Wall Street Lobbyists Decide Against Pushing Trump for Specifics — for Now
The banking industry is flummoxed on what to do about Donald Trump, even as their fears grow that his likely opponent has moved too far to the left. Last Tuesday, Trump announced plans to unveil an alternative to the 2010 Dodd-Frank Wall Street Reform Law in the coming weeks—just as Representative Jeb Hensarling, who chairs the House Financial Services Committee, is putting the finishing touches on his own proposal.
The False Promise of Negative Interest Rates
Robert Skidelsky – Project Syndicate
As a biographer and aficionado of John Maynard Keynes, I am sometimes asked: “What would Keynes think about negative interest rates?” It’s a good question, one that recalls a passage in Keynes’s General Theory in which he notes that if the government can’t think of anything more sensible to do to cure unemployment (say, building houses), burying bottles filled with bank notes and digging them up again would be better than nothing. He probably would have said the same about negative interest rates: a desperate measure by governments that can think of nothing else to do.
Carney Hits Back at Brexit Accuser as BOE Avoids Silence Vow
Mark Carney displayed flashes of anger at his chief pro-Brexit tormentor on Parliament’s Treasury Committee in his most robust defense yet of the Bank of England’s comments on the European Union vote. The governor challenged accusations from Conservative lawmaker Jacob Rees-Mogg that he was adopting the same “propaganda” as the Treasury, saying central bank officials are obliged to discuss the economic implications of a vote to leave and that it would be political to ignore the topic.
Helicopter money: The illusion of a free lunch
VOX, CEPR’s Policy Portal
Seven years on from the great financial crisis and despite central banks being seen by many as ‘the only game in town’, there has been a renewed push for monetary policy to experiment even further. One of the latest proposals is the revival of Milton Friedman’s ‘helicopter money’. But have all the implications of what many see as central banks’ ‘nuclear option’ been fully appreciated? This column argues that this is not the case. Realising the benefits that its proponents claim exist would require giving up on interest rate policy forever.
****SD: But what if the aforementioned illusory lunch tastes delicious?
****JB: There is a very interesting discussion about this (and similar proposals) in the Freakonomics episode Is the World Ready for a Guaranteed Basic Income? (before you laugh give it a look…conservatives are particularly interested in it).
Fed’s Harker Sees Two to Three Hikes in 2016 as Prices Gain
Federal Reserve Bank of Philadelphia President Patrick Harker said that he could see two to three rate hikes in 2016 and that prices will return towards the central bank’s inflation target over the medium term.
India’s Central Bank Boss Gets Trolled Trump-Style
The biggest problem facing the global economy is personified by a central banker who isn’t even at the Group of Seven festivities unfolding in Japan. Economic officials met in Sendai over the weekend. On Thursday, G-7 leaders converge on Ise-Shima to try their hand at fixing an off-kilter and increasingly unmanageable financial system. They’ll pose for photos, put out cleverly-worded communiques and make ambiguous pledges of cooperation. But they won’t come anywhere close to addressing a dangerous dynamic imperiling Indian central bank Governor Raghuram Rajan’s job – and the very nature of policy-making itself.
Billionaire Paul Singer Accuses Central Banks of Thwarting Growth
Few investors obsess more about risk management than Paul Singer, the billionaire founder of New York-based Elliott Management Corp. Since launching his flagship Elliott Associates hedge fund in 1977, Singer, 71, has been drawn to strategies like activism and distressed investing that enable him to manage the risk by influencing the outcome. One of the keys to Elliott’s success has been Singer’s ability to avoid losing money during market dislocations.
What would happen if we shut down the Federal Reserve?
It is not hard to find a book about how to make the federal government more efficient by abolishing a few cabinet agencies here and a score of agencies there.
These agencies are the usual suspects: the Departments of Education, Commerce and Energy, to name a few. These books, largely unread, are met with a collective yawn. Nothing new here. Congress tried to abolish a few of those very agencies in 1995. President Clinton vetoed the bill, the federal government shut down and the rest is history.
Along comes John Tamny with a better, or at least more provocative, idea: Shut down the Federal Reserve.
***JB: Surprised he didn’t argue for a return to the gold standard too. As they say: In for a penny, in for a pound.
Nigeria’s Central Bank Governor Warns of ‘Imminent’ Recession
The governor of Nigeria’s central bank on Tuesday said Africa’s largest economy is headed into an imminent recession, adding that he would partially loosen the local currency’s peg to the dollar, a policy he said had helped bring about the hardship
Bangladesh Bank heist trail goes cold in Manila as probes falter
More than three months have passed since $81 million was stolen in a brazen cyber-heist from Bangladesh’s central bank and sent to Manila – yet authorities in the Philippines appear no closer to nabbing those who laundered most of the money through a bank and casinos here.
U.S. ability to police ‘shadow banking’ under threat: senator
Recent moves in the U.S. Congress and courts could defang the country’s overarching financial regulatory council when it comes to policing “shadow banking,” the most powerful Democrat on the Senate Banking Committee said on Monday.
This Libor Case Is Important, It Could Bankrupt The World’s 16 Biggest Banks
I’m not one normally for bloodcurdling predictions of imminent doom for most economic decisions and actions are going to have only marginal effects at that margin. A higher minimum wage is going to mean that some people just won’t be able to get jobs but probably not enough people will be affected for it to be really visible. Rent control will mean some people not being able to find somewhere to live in their favoured place and many people living in slightly worse accommodation than could be possible. But they’re not going to cause outright disaster. However, there’s one part of the ongoing Libor saga which really is important: when even the judges of the case are stating that a possible result is the bankruptcy of the world’s 16 largest banks we really ought to sit up and pay attention
Yuan Watchers See Decline, No Disorder as PBOC Learns Lesson
Investors are about to find out whether global markets can cope with a sliding yuan. China’s currency is down 1.2 percent this month amid rising odds of a Federal Reserve interest-rate increase in June, a sustained retreat that hasn’t been seen since a January slide spurred a worldwide rout in equities. Natixis Asia Ltd. and Roy Teo at ABN Amro Bank NV, the yuan’s top forecaster, see further declines for the currency without a repeat of the chaos.
Hong Kong bourse to roll out yuan futures
Nikkei Asian Review
Hong Kong Exchanges & Clearing is set to launch four yuan-related currency futures on May 30, providing additional risk-management options for traders. The cash-settled futures will track the yuan’s movement against the U.S. dollar, euro, Japanese yen and the Australian dollar. They will be traded in offshore yuan except for the yuan-U.S. dollar futures, which will be priced in dollars and act as a complement to the existing physically-delivered U.S. dollar-yuan futures.
Ethereum, explained: why Bitcoin’s stranger cousin is now worth $1 billion
Bitcoin has struggled to live up to the hype that surrounded its emergence into the mainstream three years ago. Despite more than a billion dollars of venture capital funding, Bitcoin startups have failed to develop applications that appeal to mainstream customers. And over the past year, the Bitcoin community has become paralyzed by a bitter feud over how — and whether — to expand the network’s capacity.
IPC Systems Now Providing Connectivity to Hotspot
Hotspot, a leading institutional foreign exchange (FX) market owned and operated by Bats Global Markets (Bats: BATS), and IPC Systems, Inc., a leading global provider of specialized communications and managed network-as-a-service solutions for the financial trading community, today announced that IPC is now a connectivity provider to Hotspot, enabling IPC’s diverse ecosystem of buy-side and sell-side clients to gain access to the Hotspot market.
Yen Bulls Target Euro After Hawkish Fed Speakers Buoy the Dollar
Yen bulls are shifting their focus to the euro as speculation that the Federal Reserve will increase interest rates as early as next month buoys the dollar. Deutsche Bank AG, Nomura Holdings Inc. and Societe Generale SA all recommended buying the yen against the euro in notes to clients toward the end of last week, as the Japanese currency hovered near a three-year high.
Nigeria adopts new forex policy as economy faces “imminent recession”
To begin to reverse what its governor, Godwin Emefiele, called “imminent recession” in the Nigerian economy, the Central Bank of Nigeria on Tuesday announced a new policy that would guarantee more flexibility in the management of the foreign exchange market.
Global bonds: 5 ideas for the next 12 months
With a record number of government bond yields in negative territory, fixed income investors might be forgiven for thinking their options are limited. But Nick Gartside, Portfolio Manager and International CIO of Global Fixed Income, believes this is a sweet spot for bond markets, with plenty of good opportunities to find decent returns for investors who can take a flexible, unconstrained approach. Here, he talks us through five ideas he and his team think look particularly attractive over the next 12 months.
Banks Keep Cutting Bond Traders as One-Third Gone Since 2011
The world’s biggest banks have shed about one in three bond traders since 2011 as rules making some businesses less profitable dovetail with volatile markets that are spooking investors, according to research from Coalition Development Ltd.
Indexes & Index Products
Smart-Beta ETFs are in Vogue, But Not in Asia
Asia’s wealthy clients have little access to one of the hottest investing strategies. Smart-beta exchange-traded funds – passive index trackers with an active streak – are flying off the shelf in the U.S. and, to some extent, Europe, but private banks and financial advisors in Asia find the fees on these low-cost products aren’t lucrative enough to justify selling them.
HKEx Plans Indexes Tracking Yuan Against Currency Baskets
The operator of Hong Kong’s stock exchange is preparing to publish a gauge tracking the yuan’s moves against currency baskets, as well as index futures and options in the Chinese currency.
****SD: Press release here
STOXX Unveils EURO STOXX 50 Multi-Asset Indices Blending Equities and Bonds
STOXX, the operator of Deutsche Borse Group’s index business and a provider of tradable index concepts, has launched the EURO STOXX 50 Multi-Asset Indices, combining the core asset classes, equity and fixed income.
Index IDEA: US microcap stocks have lost ground in open presidential elections
The Russell Microcap Index, which measures the 1,000 smallest companies in the US small-cap Russell 2000 Index plus 1,000 smaller US-listed stocks, has recorded an index return of 6.8% on an annualized basis in the last 15 years while generally displaying a wider variation of returns than indexes measuring larger US cap tiers.
Industrial Metals On Pace For Worst Month In 4 Years
S&P Dow Jones Indices
While most of the markets have calmed as investors wait for Brexit and the Fed rate decision, industrial metals are crashing. The S&P GSCI Industrial Metals Total Return is down 8.7% month-to date (through May 23, 2016,) and on pace to record its worst month since May 2012, when it lost 9.7%. At this rate, the sector is having not only its worst month in four years but its 7th worst May since 1978, when the index history started.
Following Strong First Quarter The Nasdaq Stock Market Secures 18 New ETP Listings And Switches In April
Nasdaq (Nasdaq:NDAQ), the single largest U.S. equity exchange by market share, announced six new exchange-traded product (ETP) listings and 12 switches in April, growing Nasdaq’s total ETP listings to 259. The 18 new ETP listings include 12 First Trust ETP and Index switches of the AlphaDEX family representing approximately $6 billion in assets under management.
Deutsche Asset Management To Switch Three ETFs To The Bats ETF Marketplace From NYSE Arca
Bats Global Markets, Inc. (Bats: BATS), the #1 U.S. market for the trading of exchange-traded funds (ETFs), today announced that Deutsche Asset Management is switching the primary listing of three funds to the Bats ETF Marketplace from NYSE Arca on or about June 9, 2016.
Why the Fed might not be able to put a stop to gold’s run
Gold has enjoyed a great start to 2016, but now finds itself in retreat, with the yellow metal hitting the lowest level since April in intraday trading Monday. But while the greater perceived potential for a Federal Reserve rate hike this summer appears to be sending the commodity lower, some say such speculation is not a good reason to sell gold.
Exclusive: CME bids to boost its metal storage network, challenge LME
The CME Group is talking to several warehouse companies to expand its metal storage network globally, three metal industry sources told Reuters, a move that could further challenge the London Metal Exchange’s (LME) dominance. In recent years the CME, the world’s largest futures market operator, has been steadily building its storage network – partly as a result of controversy surrounding the LME warehouse system.
Top banks gain from discontent over hefty LME fee increases
Core industrial clients of the London Metal Exchange (LME), unhappy with a steep rise in trading fees, are taking some of their business to top-tier investment banks and rival exchanges, industry sources said. Business moving to banks and in some cases, the CME group (CME.O), is reflected by a 4 percent drop in volumes on the 139-year old exchange last year, the first annual fall since 2009. Turnover in the first four months of 2016 has dropped more than 9 percent from the same period last year.