First Impressions

Connecting: HKEx’s Li Said It Will Help Connect To China’s Trillions

Hong Kong Exchanges and Clearing is all about connecting. HKEx’s CEO Charles Li says his exchange is the linchpin that connects mainland China’s markets with the rest of the world.

Li, who spoke with John Lothian News editor-in-chief Jim Kharouf at the FIA Boca conference, said his exchange is about strategic positioning with China and taking advantage of the explosive growth it sees, especially with the London Metal Exchange firmly integrated into its business.

“Our job is to find a way to make that connection,” Li said, of China, “the largest pool of capital that is yet to be globally deployed.”
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Quote of the Day

“There must be sufficient financial safeguards and resources to minimize the threat of failure under market stress.”

Sandie O’Connor, chief regulatory affairs officer at JPMorgan in the story, ” Fed Heeds Banks’ Warning on Where Next Crisis May Come From”.

Lead Stories

‘Once-in-3-Billion-Year’ Jump in Bonds Was a Warning Shot, Dimon Says
by Sonali Basak, Doni Bloomfield, Bloomberg
PMorgan Chase & Co. head Jamie Dimon said last year’s volatility in U.S. Treasuries is a “warning shot” to investors and that the next financial crisis could be exacerbated by a shortage of the securities.

Take Off Friday and Monday Because Most Bond Traders Already Do
Guess what? Not much happened this week in U.S. credit markets. Really.
The boredom is so bad that it looks like some traders aren’t even showing up for work on Monday morning.

You’ve Never Heard of the Bull Market’s Best Stock Pickers
by Charles Stein, Bloomberg
The Hotchkis & Wiley Small Cap Value Fund has returned 35 percent a year since the bull market began in 2009, the top-performing U.S. stock fund during the period.

Buffett Lags Behind World’s 200 Richest as Berkshire Shares Falter
The worst-performing billionaire in 2015 is U.S. investor Warren Buffett, the world’s second-richest person, who’s lost more than $3 billion since Jan. 1. Buffett has a $70.5 billion fortune, $200 million more than Mexico’s Carlos Slim and $14 billion less than Bill Gates, the world’s richest person.

Citi Economist Says It Might Be Time to Abolish Cash
The world’s central banks have a problem.
When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.

GE Capital’s Checkered Past
MoneyBeat – WSJ
The unit that General Electric Co.GE announced plans to unload on Friday was once the recipient of one of the biggest lifelines from the federal government during the financial crisis.
GE Capital Corp., the giant finance business at GE, was at the time – and remains to this day – a major funder of U.S. businesses. Leading up to the crisis, GE Capital relied heavily on a form of short-term borrowing called commercial paper. The business model worked just fine in normal times, but quickly became a major issue after Lehman Brothers Holdings Inc. declared bankruptcy in September 2008, rattling global financial markets and causing the commercial paper market to seize up.

Hong Kong Poised to Top Japan as World’s No. 3 Stock Market
by Yuji Nakamura, Toshiro Hasegawa, Bloomberg
Hong Kong is set to overtake Japan as the world’s third-largest stock market, spurred on by surging Chinese demand for shares in the former British colony.

Asia’s Richest Add $64 Billion as the Market Frenzy Rolls On
More than one-third of the $165 billion increase in the world’s 200 biggest fortunes this year has gone to the 27 richest people in Asia, where the region’s equity frenzy has pushed up Hong Kong’s Hang Seng index more than 15 percent and Shanghai’s Shenzhen composite index almost 50 percent, according to data compiled by Bloomberg. China’s top 17 billionaires are up more than $50 billion. Hong Kong’s 10 richest have increased their wealth by $20 billion.

Finra mulls new bonus disclosure rule
By Mason Braswell, InvestmentWeek
The regulator is still doing research, but expects to move forward in the “short term,” said Susan Axelrod, executive vice president of regulatory operations
Despite being relatively quiet on the issue since September last year, the Financial Industry Regulatory Authority Inc. hasn’t forgotten about a plan to require brokers to make additional disclosures to clients regarding recruitment incentives received when moving from firm to firm.

Trading rules need to work together
Cross-border fragmentation is one of the biggest concerns for ISDA and its members. A split in global liquidity pools means lower trading liquidity, regulatory arbitrage, duplicative compliance requirements and, ultimately, higher costs for end users. To avoid this happening, it’s vital that regulators develop and implement each set of rules based on a common set of principles – and ISDA has looked to help guide this process by formulating principles on central counterparty recovery, data reporting and, most recently, the centralized execution of swaps.

Hedge Fund Kamunting Street Capital Shutting Down; The fund suffered over the past nine months from junk bond bets jostled by hard-hit energy companies
The historic plunge in oil prices has helped claim another victim: a hedge fund run by a former Citigroup Inc. trading star.

HSBC’s Long List of Troubles Just Got Even Longer
HSBC Holdings Plc has had a rough time of it lately.
Since former Swiss employee Herve Falciani made off with client data in 2008 and fled to France, Europe’s biggest bank has been dealing with the fallout as investigations into money laundering and tax evasion have begun around the world.

Analysis: “Its Crazy” Banks Don’t Have Insight Into Their Derivatives Risk
By: Mark Melin, ValueWalk
The key information on the riskiest derivatives is maintained on a paper record, while a broad solution is possible with cooperation rather than confrontation
By: Mark Melin, ValueWalk
As the derivatives that underlie the world economy face unknown interconnected risk in a Greek sovereign default, behind the scenes the problem is dissected and corresponding solutions are offered. But the real issue is: will those who control the underwriting of derivatives contracts allow any degree of transparency into what is documented to be a threat to economic security?

Central Banks

Don’t Spoof $12.6 Trillion Treasury Market, Fed Group Says
by Matthew Leising, Alexandra Scaggs, Bloomberg
Wall Street executives have a recommendation for U.S. Treasury traders: Don’t manipulate the $12.6 trillion market.

Fed Heeds Banks’ Warning on Where Next Crisis May Come From
by Silla Brush, Jesse Hamilton, Bloomberg
JPMorgan Chase & Co. and BlackRock Inc. have argued for years that a key response to the last financial crisis could help fuel the next one. Global regulators are starting to heed their warnings.

Federal Reserve chief: June rate hike won’t take away the punch bowl
The US Federal Reserve is still on course to raise interest rates this summer, according to one of the central bank’s main chiefs who believes a rate hike will not take away the “punch bowl” from the economic recovery.
In a speech on Friday, Jeffery Lacker, president of the Richmond Federal Reserve, said: “Raising the funds rate target a notch or two is less like taking away the punch bowl and more like just slowing down the refills.

Minneapolis Fed’s Kocherlakota: Fed Shouldn’t Raise Rates in 2015 – Real Time Economics
The Federal Reserve should continue to support U.S. economic growth by waiting until the second half of 2016 to begin raising short-term interest rates, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Friday.
“I think what people want to hear is prospects of higher wages, higher incomes. That’s what’s going to fuel their desire to spend, and thereby boost the economy and boost employment,” Mr. Kocherlakota said following a speech in Bloomington, Minn.

Central banks pick up fewer U.S. Treasury securities-Fed data
Foreign central banks increased their ownership of U.S. Treasury securities more slowly in the latest week, but still brought their Treasuries holdings at the Federal Reserve to their highest level in three months, Fed data on Thursday showed.
Holdings of foreign central banks’ Treasuries at the Fed rose $1.08 billion to $2.964 trillion on April 8, following a record $62.9 billion increase the previous week, according to Fed data.


A cryptocurrency fit for Wall Street
Gillian Tett, FT
Rand Paul loves to present himself as a political pioneer. This week, however, the Kentucky senator and darling of the Tea Party is carving out new frontiers in finance. Announcing a 2016 presidential bid on Tuesday, he said he would collect donations via bitcoin. That makes him the first US presidential candidate to raise funds using the cryptocurrency. The move is likely to be wildly popular with his libertarian supporters, given the Republican party’s deep suspicions of fiat currency and the US Federal Reserve.

Opinion: Currency manipulation could derail Obama’s trade deals
By Darrell Delamaide, MarketWatch
Although the Obama administration is doing its best to ignore the problem, currency manipulation is not going away and threatens to torpedo the pending trade agreements not only with Asia but also with Europe.

Euro’s reserve status jeopardised as central banks dump holdings
Business Standard News
Quantitative easing may be helping Europe achieve its economic targets, but it’s also undermining the long-term viability of the euro by tarnishing its allure as a global reserve currency.
Central banks cut their euro holdings by the most on record last year in anticipation of losses tied to unprecedented stimulus. The euro now accounts for just 22 per cent of worldwide reserves, down from 28 per cent before the region’s debt crisis five years ago, while dollar and yen holdings have both climbed, the latest data from the International Monetary Fund show.

Deutsche Bank faces Libor fine of more than $1.5bn
Gina Chon in Washington, FT
Deutsche Bank could face a more than $1.5bn penalty for allegedly manipulating Libor, which would be the biggest fine imposed so far on a bank accused of rigging the benchmark borrowing rate, according to people familiar with the case.

Role of HFTs Questioned in Swiss FX Move
Regulators and central bankers have been busy focusing on the inner workings of the bond markets, signaling concerns over deteriorating liquidity. Now they are turning their gaze towards currencies.

Indexes & Index Products

Citadel plots ETF block trades
By Sarah Krouse, Financial News
Citadel Securities plans to start executing exchange-traded fund block trades by the end of the year, ramping up its capabilities in the products as assets in ETFs globally swell.

A-shares inclusion in MSCI indexes likely: analys
Morgan Stanley Capital International (MSCI) has kicked off a second round of surveys among global institutional investors concerning listing A-shares in the MSCI All Country World Index and will make a final decision in June, according to Shanghai-based China Business News.

Interview: Cathal Hardiman about options on iShares ETFs, how they fit into your business and more
The first quarter of 2015 saw a remarkable rise in volume and open interest in our options on iShares ETFs based on EURO STOXX50® and DAX®. Open interest stood at 5,400 contracts by the end of March. In total almost 8,300 contracts have been traded so far in 2015. We talked with Cathal Hardiman who works as an options sales trader for Susquehanna International Securities Limited, one of the most active global trading firms, about what is special with these contracts.

Exchange traded fund assets approach $3tn
Joel Lewin, FT
Investors have continued pumping money into exchange traded funds and products this year, propelling the global market towards $3tn of assets, highlighting a pronounced change in trading across markets.

The unlikely company behind the Nikkei’s dramatic rise
CNN Money
It’s easy to find reasons for the index’s performance: The central bank is pumping money into the economy at a torrid pace, and Prime Minister Shinzo Abe has pledged to reform the way Japan Inc. does business. But a closer look at the Nikkei reveals that one company in particular has played a starring role in its dramatic rise.

China Bond Defaults and Indexing the China Bond Market
ETF Trends
The globalization of the Chinese bond markets is important for China, and doing so allows more free-flowing information, while bringing transparency of the bond markets toward global standards will be be critical. Independent and transparent bond indices play an important role as well. Indices that use independent data sources and global indexing standards also help raise the level of information about the characteristics of opaque bond markets.


What happened to the dollar/gold correlation?
One of the basic tenets of inter-market analysis suggests that one invest based upon various “correlations” between different markets. The understanding is that when one market moves in one direction, we “should” see a correspondingly opposite move in an inversely “correlated” market. Many have used the bond market in such a manner in relation to the equity market, and many have used the U.S. dollar (USD) relative to the gold market.

Temples like Shree Siddhivinayak may open gold vaults for PM Narendra Modi
The two-century-old Shree Siddhivinayak temple in Mumbai devoted to Lord Ganesha bristles with close circuit cameras and is guarded by 65 security officers.
It is one of country’s richest temples, having amassed 158 kg of gold offerings, worth some $67 million, and its heavily guarded vaults are strictly off limits.

Gold bugs might have their day in 2016
Judging by the gloomy commentary and headlines, there isn’t much cause to recommend gold as an investment option in the near term–a far cry from 2013 when some analysts had boldly predicted that gold would trade at $2,000.

Many gold miners in dire straits despite costs cuts
While gold mining costs have seen large reductions as miners try to glean profits in a lower gold price environment, the figures, in reality, are not what they seem.

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