First Impressions

One Way to Pass the Time Away
Doug Ashburn – JLN

The market appears to be in thumb-twiddling mode this week as it awaits the latest word from the Federal Open Market Committee, and as we get our last whiff of economic reports before the August lull.

We at John Lothian News, however, are not idling. Today we kick off our second annual MarketsWiki World of Opportunity Summer Intern Series Chicago, where we will be hosting over 200 students interning at various financial institutions in a series of short talks featuring prominent and/or interesting people from the industry.

For more on the series, including links to registration pages, visit the MarketsWiki Education site here =>

PS: Though some of the sessions are nearing capacity, it is not too late to sign up.

World Of Opportunity Chicago 2014: Tony McCormick (Promo)
Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Tony McCormick, CEO of BOX, will be discussing the importance of internships. McCormick looks back on his years as an intern and how they helped shape his professional life. For more information on the event and how to register, click here.

Watch the video »

Quote of the Day

“The current pace of improvement in labor markets and subdued inflation suggest the Fed should be raising rates by late this year.”

John Kattar of Ardent Asset Advisors in the story, “Wall Street worries Fed’s easing will ‘end badly’”.

Lead Stories

No Bonds, No Problem as Pimco Increases Bets Using Swaps
Lisa Abramowicz – Bloomberg
If corporate bonds don’t trade frequently enough for you, one solution is to turn elsewhere. More and more investors are betting on whether the notes will go up or down in value without owning the securities, using derivatives. This has been attractive for asset managers looking to be nimble in markets or make big bets, especially as corporate-debt trading volumes wane.

***DA: Hmm. I don’t think this is what Dodd and Frank had in mind when they put together the bill.

Argentina Bond Judge Says Nation May Pay Repsol Bonds
Bob Van Voris – Bloomberg
Argentina will be permitted to make a one-time-only payment this week on some dollar-denominated bonds issued under that nation’s law, the U.S. judge overseeing a legal battle over defaulted bonds ruled.

How Argentina’s Default May Trigger $29 Billion in Claims
Katia Porzecanski and Camila Russo – Bloomberg
By defaulting tomorrow, Argentina may trigger bondholder claims of as much as $29 billion — equal to all its foreign-currency reserves. If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately.

***DA: A cross-default clause is a bit more serious than a dangling participle.

The #GrieFault trade
Felix Salmon – Medium
We’re now just days away from what is increasingly being referred to on Twitter as #GrieFault – an Argentine bond default caused by court orders by Thomas Griesa. Assuming – as seems extremely likely at this point – that the default is going to happen, you can expect an outpouring of ill-informed news and commentary in the financial press. And it’s not just because the journalists don’t really know what they’re talking about. It’s also because they place far too much faith in markets.

***DA: Nice piece of journalism from Mr. Salmon. He clearly has no love and little respect for his former colleagues and tradesmen.

Demand for U.K. Inflation-Linked Debt at Record; Pound Weakens
Eshe Nelson and Neal Armstrong – Bloomberg
Pension funds are lapping up inflation-linked U.K. government bonds and investor demand for the debt is at a record high.
The Debt Management Office sold 5 billion pounds ($8.5 billion) of index-linked gilts due in 2058 via banks today and investor demand exceeded 14 billion pounds. That’s the biggest order book on record, the London-based DMO said in a statement. The securities were priced at a real yield of minus 0.053 percent. U.K.-based investors bought 96 percent of the securities allotted, the debt office said.

***DA: I guess I should stop complaining about the 0.84 percent in my money market fund.

Leveraged Loan Funds Lag Behind Benchmark as Inflows Fade
Christine Idzelis – Bloomberg
U.S. mutual funds that focus on speculative-grade corporate loans are underperforming a benchmark as investors stage the biggest retreat from the market since 2011 and regulators warn of lax underwriting standards.
Returns of 2.1 percent this year for such funds tracked by Morningstar Inc. are falling short of the 2.5 percent gain in the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index. In all of last year, the funds rallied 5.7 percent, versus 5 percent for the gauge.

TRLPC: U.S. loan market makes hay while the sun shines
Leela Parker Deo – Reuters
The U.S. leveraged loan market is showing no signs of a seasonal slowdown. A flurry of opportunistic leveraged loans from issuers backed by strong demand from institutional investors suggests that the market may have recovered from a bout of weakness earlier this year just as geopolitical risk is increasing.

***DA: Some institutional investors have short memories.

Default settings in China
David Keohane – Financial Times
Or, how far is market pricing of credit risk catching on in China, after all? Here’s your default-risk adjusted corporate bond yields in China from Nomura

Deutsche Bank, UBS See Fee Jump on Share Sales and Deals
Ambereen Choudhury – Bloomberg
Deutsche Bank AG (DBK) and UBS AG (UBSN) are benefiting from surging global share sales and a recovery in mergers and acquisitions after a jump in second-quarter investment-banking revenue.
Deutsche Bank’s revenue from share sales and mergers advice climbed 23 percent to 395 million euros ($529 million) in the second quarter, Europe’s largest lender said in a statement today. UBS said revenue at its advisory and equity capital-markets business rose 30 percent to 514 million Swiss francs in the second-quarter from the same period a year ago.

Tullett Sees ‘Difficult’ Market Ahead After Profit Falls 31%
Richard Partington – Bloomberg
Tullett Prebon Plc (TLPR), a London-based inter-dealer broker, forecast market conditions to remain difficult in the second half after profit slumped 31 percent.
Underlying pretax profit dropped to 43.2 million pounds ($73.3 million) in the six months to June 30 from 62.8 million pounds a year earlier, the company said in a statement today. Revenue fell 18 percent to 360.3 million, with reported pretax profit down 83 percent to 8.9 million pounds.

Central Banks

Rate Hike Debate to Dominate Fed Meeting
Dunstan Prial – Fox Business
The Federal Reserve meets this week amid an increasingly noisy debate – both inside and outside the central bank — over the timing and pace of interest rate hikes.
Signs inflation is creeping higher as the rest of the economy slowly stabilizes have raised calls for the Fed to lift rates sooner than the central bank previously anticipated. Liftoff for rates is generally forecast for mid-2015.

Wall Street worries Fed’s easing will ‘end badly’
Steve Liesman – CNBC
Wall Street isn’t all that confident the Federal Reserve can end its easy money polices without a market crash, a recession or high inflation.
In its July Fed Survey, CNBC asked Wall Street pros how the Fed’s current policies will end and found market participants surprisingly divided.

***DA: The stock market is the ultimate survey, and it sure looks confident to me. Unless, of course, people are just riding the momentum and assuming they can get out before the big one hits.

Irish Central Bank Upbeat About Ireland’s Economy
Eamon Quinn – WSJ
In its most upbeat economic bulletin for over six years, Ireland’s central bank Monday increased its growth outlook for the country and said the coalition led by Prime Minister Enda Kenny may now have the fiscal room to lessen the worst effects of austerity.

***DA: They tightened their belts and now can move forward a bit leaner. I like it.

Euro stamina challenged by Draghi’s mettle
Thomas Hale in London – Financial Times
Over the past year, the euro has stubbornly refused to give way. Despite concerns about the weakness of the eurozone recovery and worries about deflation, the currency has remained doggedly high, supported by investment inflows into European equities and the higher-yielding bonds of governments on the region’s southern periphery.


Ex-Citi Currencies Head Said to Prepare Macro-Hedge Fund Launch
Lindsay Fortado – Bloomberg
Anil Prasad, former currencies trading head at Citigroup Inc., and Farhang Mehregani, previously the chief investment officer of Sciens Capital Management LLC, are preparing to set up a macro hedge fund, according to a person with knowledge of the matter.

***DA: What an original idea!

HKMA Buys $1.6 Billion in Currency Defense on Merger Demand
Fion Li – Bloomberg
Hong Kong’s de facto central bank bought $1.63 billion this week to maintain the city’s 31-year-old currency peg to the greenback as merger activity boosted demand for the local dollar.

Krugman Joined by Exporters in Criticizing Riksbank
Niclas Rolander – Bloomberg
A growing number of Sweden’s biggest industrial companies are joining critics of the central bank in saying policy makers have done too little to weaken the krona to help boost exports and eradicate deflation.
Three months after Nobel laureate Paul Krugman faulted the Riksbank for failing to prop up consumer prices, companies from Svenska Cellulosa AB (SCAB), Europe’s largest paper-tissue producer, to steelmaker SSAB say the economy would be in better shape had it cut interest rates sooner. The krona remains 18 percent overvalued versus the euro based on the Organization for Economic Cooperation and Development’s purchasing-power parity gauge, after falling the most this year among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes.

***DA: Devaluing the krona would help boost tissue paper sales? Devalue it enough and Swedes will start using the krona as tissue paper.

Currency Trading Falls Into Torpor
James Ramage, Katie Martin and Josie Cox – WSJ
Currency-trading volume is shrinking at the fastest pace since the financial crisis, the latest sign of the placid conditions that have frustrated traders in markets around the globe this year. The amount of money changing hands daily in foreign-exchange markets on average fell about 8% in April compared with the same period a year earlier, to $4.1 trillion, according to a survey by six central banks released Monday.
***DA: I know what I am going to do – look up the word “torpor” in the dictionary.

Bitcoin catches on in tech-savvy Romania
Luiza Ilie – Reuters
In a well-lit office with red window frames in downtown Bucharest, Romania’s first bitcoin ATM attracts many who until it opened in May had to buy or sell the digital currency face-to-face or through wire transfers.

Proposed bitcoin regulations ‘unworkable’ in current form
Jessica Meek –
Bitcoin-friendly New York State proposes regulation for the crypto-currency world that commentators fear are too onerous and compliance heavy for the young industry to work with

Indexes & Index Products

Exclusive: Goldman moves executive to new role building ETFs
Lauren Tara LaCapra – Reuters
Goldman Sachs Group Inc has moved an executive from its trading division to its investment-management division to launch a business that will sponsor exchange-traded funds and sell them to retail clients through third parties, according to a memo and people familiar with the matter.

Vietnam to list first domestic ETF as it liberalises market
Justin Lee –
ETFs seen as the first step in Vietnamese government’s plan to launch a domestic derivatives market in 2016 with the sale of warrants and option contracts

USD 29 Billion In Net New Assets Gathered In First 6 Months By ETFs Based On MSCI Indexes
MSCI Inc., a leading index provider to the ETF industry worldwide for nearly 20 years, released data today that highlights the continuing strength and popularity of ETFs based on MSCI indexes.


Gold may soon break out of its bear market
If ever there was a time to own gold as a safe haven alternative to other financial assets during tumultuous times, there’s no time like the present.

***DA: If I had an ounce of gold for every time I heard that, I would own Fort Knox.

Gold exchange service launched
Bangkok Post
The Thailand Futures Exchange (TFEX) said it had joined hands with the seven operators to offer the physical gold exchange service. They are Globlex Holding Management, Classic Gold Futures, GT Gold Bullion Co Ltd, YLG Gold, Ausiris, MTS Gold and Hua Seng Heng Commoditrust, said TFEX managing director Kesara Manchusree in a statement on Tuesday.

Dubai pays kids — in gold — to lose weight
CBS MoneyWatch
Dubai has some of the heaviest citizens in the world, and last year found a pretty effective way to motivate them to lose weight: gold. This summer, the emirate is at it again, and this time it wants to also give gold to children who shed pounds. But some health professionals are worried the program might lead to crash dieting and other health problems for kids.

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