First Impressions

John Lothian News has been pulling a double-shift this week, as FIA Expo kicks into high gear in Chicago. Comments and content will be a bit lighter than usual for a couple days as we engage with the thousands of market participants that have descended onto S. Michigan Ave. If you are in town, be sure to look us up.

Quote of the Day

“Markets need a human touch. What we’re buying in the New York Stock Exchange is the place where everyone goes in times of trouble or times when the market is wanting real certainty. That’s the one you want to own.”

– ICE CEO Jeff Sprecher, as quoted in the Bloomberg article “NYSE’s Next Owner Says Small U.S. Investors Get Ripped Off”

Lead Stories

NYSE’s Next Owner Says Small U.S. Investors Get Ripped Off
Matthew Leising – Bloomberg
The head of IntercontinentalExchange Inc. (ICE), which is about to own the New York Stock Exchange, said U.S. equity markets are flawed because sophisticated traders are taking advantage of small investors.
***DA: Most of us would like to see financial and political systems that look out for the interests of the little guy.

Derivatives industry under the gun to amend contracts
Central bankers and regulators have increased the pressure on the $630 trillion derivatives industry to alter how it operates to avoid a repeat of the mayhem seen after Lehman Brothers collapsed.
***DA: The goal, according to BaFin, is to be able to “wind down even large and highly interconnected banks without damaging the public good.” Good luck with that.

South Africa to invest in China bonds
Andrew England in Johannesburg and Delphine Strauss in London –
South Africa’s central bank on Tuesday said a portion of the country’s reserves would be invested in Chinese bonds for the first time as it looks to diversify its currency exposure and help insulate the reserves from any rise in US yields.
***DA: The decoupling myth is alive and well in S. Africa. Yields will be, what, falling in China at that point?

Germany is a weight on the world
Martin Wolf –
The criticisms that hurt are those one suspects might be fair. This might explain the outrage from Berlin last week over the criticism by the US Treasury of Germany’s huge and vaunted trade surplus. But the Treasury is to be commended for stating what Germany’s partners dare not: “Germany has maintained a large current account surplus throughout the euro area financial crisis.”

A Glimpse Into China’s Bank-Loan Shuffle
Dinny McMahon – MoneyBeat – WSJ
Anhui-based Huishang Bank Corp. is set to price its initial public offering this week, the second of China’s city commercial banks to list in Hong Kong this year, following Bank of Chongqing Co. last week. And like Bank of Chongqing, Huishang’s prospectus makes interesting reading – albeit for very different reasons. The prospectus provides insight into how China’s biggest banks are moving loans around the system to maintain lending growth while staying within regulatory constraints.

Lael Brainard to Step Down From Treasury Post
Lael Brainard, the country’s top financial diplomat, is leaving her post at the end of the week, a Treasury official said. Some have speculated that the White House might choose her for a position on the Federal Reserve’s board of governors.

U.S. Economy Slack Justifies Stimulus, Top Fed Staff Papers Show
Joshua Zumbrun – Bloomberg
The Federal Reserve’s policy of seeking to drive down the U.S. unemployment rate is effective, and the level of slack in the economy justifies an accommodative stance, according to two separate papers by top Fed officials.

Exclusive: EU to levy record fines on Libor banks: source
Foo Yun Chee – Reuters
EU antitrust regulators will levy a record fine of at least 1.5 billion euros on six financial institutions, including Barclays (BARC.L) and Royal Bank of Scotland (RBS.L), for rigging the yen Libor interest rate benchmark, a banking industry source said on Wednesday.

Central Banks

The European Central Bank’s Inflation Conundrum
Jack Ewing – The New York Times
The outcome of a meeting by the European Central Bank on Thursday is likely to turn on an issue that has deeply polarized economists and policy makers in recent days.
Is an unexpectedly sharp drop in inflation last month a sign that the euro zone is headed for years of stagnation or even depression? Or is it a sign of health, an indication that Europe’s troubled southern periphery is regaining its ability to compete on price in world markets?
***DA: All I see is slack demand for goods from the periphery, a slowdown in Asia and fiscal trepidation in the U.S. That would indicate the former.

Bank of England Welcomes New Blood from Barclays
Jason Douglas – MoneyBeat – WSJ
Forecasting the British economy is a tricky and thankless task. And according to a review by one former Federal Reserve official, the Bank of England has plenty of room for improvement, both in forecasts and communication. So step forward one Simon Hayes, Barclays chief U.K. economist, whose hire the Bank of England confirmed Tuesday.

Kozicki Shows Central Bankers Only as Good as Forecasts
Paul Badertscher – Bloomberg
For Sharon Kozicki, seeing what’s missing in economic models is as important as seeing what’s there. Kozicki rose at the Bank of Canada in her native Ottawa to become an adviser to the governor after more than a decade at the Federal Reserve in Washington and Kansas City, where she built a global reputation improving the ways central bankers make forecasts to set policy.

UAE property: ‘No possibility of bubble’ Central Bank governor says
Tom Arnold | The National
The governor of the Central Bank yesterday dismissed fears of another damaging bubble in the property market. A more prudent approach by bank lenders and recently introduced mortgage caps will prevent a rerun of the 2008 housing market collapse, Sultan Al Suwaidi believes.
***JM: This is one of those emphatic statements that should cause panic.


Lloyds Reviews Its Foreign-Exchange Trading
Lloyds Banking Group PLC said Wednesday it has opened an internal review over its foreign-exchange-trading operations, following the launch of a number of investigations by global authorities over the possible manipulation of foreign-exchange rates.

Currency Funds Finally Record a Good Month
It hasn’t been a happy year so far for currency focused hedge funds. They’ve eked out their first positive monthly return in October since March, but only just.

ICAP currency trading touches six-year low
Philip Stafford –
Currency trading at ICAP, the world’s largest interdealer broker, fell to its lowest monthly level in more than six years as a drop off in volatility and uncertainty over the trajectory of US monetary policy led to a slump in foreign exchange markets.

Forex: ECB Faces Deflation Threat As Euro Soars
Dean Popplewell – Forbes
The lack of foreign exchange (forex) trading suggests that investors are not convinced by either market direction. The current predominant trade has more to do with reducing risk – paring of open decisions – rather than initiating new positions.

Russian central bank puts rouble rebranding to the vote
Russia’s central bank is rebranding the rouble, offering the public a say on a new logo to back Kremlin efforts to enhance the international appeal of a currency tarnished by the upheaval and hyperinflation of the early post-Soviet period.

Euro Rally May Test Two-Year High, BofA Says: Technical Analysis
Joseph Ciolli – Bloomberg
The euro may rise to a two-year high versus the U.S. dollar if it holds a key level of support, according to Bank of America Corp., citing technical indicators.

Lloyds Opens Internal Probe Into Potential Currency Manipulation
Gavin Finch & Ambereen Choudhury – Bloomberg
Lloyds Banking Group Plc (LLOY), Britain’s largest mortgage lender, opened an internal probe into its currency-trading operations as regulators around the world scrutinize the possible manipulation of foreign-exchange rates.

Indexes and Index Products

New Deutsche ETF taps into China’s onshore market
Foreign investors looking to access China’s onshore market will have a new avenue starting on Wednesday when Deutsche Asset & Wealth Management launches the first ETF targeting direct exposure to shares of companies incorporated in mainland China.

The Great Market of 2013
Adam Warner – Schaeffer’s Investment Research
We all know that 2013 has turned into one of the all-time great years in market history. But just how great? Well, here’s a pretty impressive stat via Joseph Quinlan, Chief Market Strategist at U.S. Trust, courtesy of Business Insider.


Gold Prices Could Drop Thursday As It Is Only A Matter Of Time Before ECB Cuts Rates
Kitco News (via Forbes)
Although the European Central Bank is not expected to cut interest rates when they meet on Thursday, some analysts believe that it is only a matter of time before rates are lowered, dragging down the euro and gold prices.

Gold body mulls working with exchange on rate benchmark
The London Bullion Market Association is considering whether to partner with an exchange to produce its gold-lending reference rate to ensure it can meet tighter rules coming on financial benchmarks, its new head said.

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