First Impressions

Repository Story: Jonathan Thursby Discusses CME Group’s SDR Services
The Dodd-Frank Act in the U.S. and EMIR in Europe introduced new data reporting requirements. Exchanges like CME Group have long been experts in processing and disseminating data to market participants. But regulatory reporting of swap data brings its own challenges. John Lothian News Editor-at-Large Doug Ashburn spoke with Jonathan Thursby, executive director and chief operating officer of data repository services at CME Group, about its repositories in the U.S. and Europe, and their philosophy and approach to repository services.

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Quote of the Day

“From the perspective of the banks pretty much everything is considered complementary to a financial activity.”

Saule Omarova, a law professor at the University of North Carolina in the story, “The Vampire Squid Strikes Again: The Mega Banks’ Most Devious Scam Yet”.

Lead Stories

‘Sensible’ Yellen wins praise on Capitol Hill
Robin Harding in Washington –
Members of Congress were on their best behaviour – complimenting the new Fed chairwoman and asking unusually to-the-point questions – while Ms Yellen gave smooth and straightforward replies.

Janet Yellen Doesn’t Mince Words and More on Her Testimony
Jon Hilsenrath – Real Time Economics – WSJ
JANET YELLEN DOESN’T MINCE WORDS: Ben Bernanke’s semi-annual testimony to Congress tended to range from eight to 12 pages of text. Janet Yellen clocks in with her first testimony at a little more than five pages of text. Her comments are direct in addressing pressing questions.

Tea Party Scorns Republicans as House Lifts Debt Ceiling
Michael C. Bender and Laura Litvan – Bloomberg
House Republican leaders sought to shield themselves from blame for another round of U.S. fiscal uncertainty by advancing a debt-limit increase without strings.
Small-government groups are blaming them anyway for yesterday’s vote. They’re accusing them of abandoning Republican principles and are vowing to extract a political price in this year’s congressional elections.

***JB: Because brinksmanship over the debt ceiling has worked so well for them in the past? It’s cutting off the nose to spite the face.

Fed to emerging markets: Think on your policy shortcomings
The U.S. Federal Reserve on Tuesday acknowledged it likely triggered a financial market sell-off in the developing world, but said policies in countries such as Turkey, Brazil and India made them especially vulnerable to external shocks.

***DA: He that liveth by the hot money…

A BS solution?
David Keohane | FT Alphaville
Buy equities said man owning equities. Maybe buy loans hinted man at the ECB: We think that a revitalisation of a certain type of ABS, a so-called plain vanilla ABS, capable of packaging together loans, bank loans, capable of being rated, priced and traded, would be a very important instrument for revitalising credit flows and for our own monetary policy

***DA: The problem during the crisis was that ABS was often a misnomer. There weren’t enough true assets to backstop the underlying securities.

Pimco Boosts Government Holdings as Bonds Gain Most Since 2008
Susanne Walker – Bloomberg
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., raised holdings of Treasuries and government-related debt in January as the U.S. bond market had the best start to a year since 2008.

Inflation, reported [Update]
Dan McCrum | FT Alphaville
So just how fast will the the Bank of England raise interest rates? For clues and pointers on its latest thinking now that employment has rapidly approached the thresholds (markers, thumb rules?) of forward guidance , the Inflation Report is out.

Repo netting curbs threaten government bonds, say dealers
Lukas Becker –
Banks fear it will be impossible for them to use a safe harbour designed to protect repurchase agreements from the worst impacts of the Basel Committee on Banking Supervision’s new leverage ratio. That could drive up transaction costs and hurt the liquidity of government bond markets, some claim.

Italy Sells Debt at Record Low as Investors Shrug Off Tensions
Chiara Vasarri – Bloomberg
Italian borrowing costs dropped to a record low at a sale of one-year bills today as investors shrugged off mounting tensions within Italy’s governing coalition.

***DA: What’s the worst that could happen?

Finland Drops Debt Target Amid Austerity Backlash: Nordic Credit
Kasper Viita – Bloomberg
Finland’s government is abandoning a target to halt debt growth by the end of its term next year.
Prime Minister Jyrki Katainen, who heads a six-party coalition, joined Finance Minister Jutta Urpilainen in signaling the government can no longer commit to the second of two policy targets it had previously defended against austerity critics.

***DA: All to often we see the phrase “painful austerity.” Is there another kind?

Central Banks

Euro Falls as Report Signals ECB Looks at Negative Rates
Joseph Ciolli and Eshe Nelson – Bloomberg
The euro fell for a second day against the dollar on speculation the European Central Bank may charge lenders to deposit spare cash.
The 18-nation currency slid versus most of its 16 major peers as factory output in the euro region slid more than forecast.

***DA: Maybe negative interest rates would stem the meltdown in the bitcoin market.

Bank of England to Investigate Foreign Exchange Manipulation Claims
The Bank of England is taking the allegations that it indirectly condoned foreign exchange market manipulation “very seriously” and is working with lawyers to investigate the claims, Andrew Bailey, a central bank executive, said Tuesday.

Carney Renews BOE Low-Rate Pledge to Fight Slack
Scott Hamilton – Bloomberg
Bank of England Governor Mark Carney underscored his pledge to keep interest rates at a record low in a recasting of forward guidance to combat persisting slack in the British economy.

2 Lawmakers Urge Fed to Change Its Enforcement Procedures
Two prominent members of Congress, troubled by an enforcement action that the Federal Reserve imposed on large banks last year, are pressing for a big change in the way that Fed approves its crackdowns.

BOJ’s Kuroda: will not hesitate to adjust policy if risks appear
Bank of Japan Governor Haruhiko Kuroda said on Wednesday he will not hesitate to adjust the central bank’s quantitative easing if upside or downside risks to the economy and prices appear.

IMF says no need for further BOJ easing now
The Bank of Japan does not need to ease monetary policy further now with inflation heading toward the bank’s 2 percent price target, a senior International Monetary Fund official said.

Recap: BOE’s Carney Says Forward Guidance Is Working
MoneyBeat – WSJ
Welcome to the recap of our coverage of the Bank of England’s quarterly inflation report.

Fed’s Lacker calls for new laws to end too-big-to-fail threat
Calling too-big-to-fail banks “the most critical issue facing our financial system,” a top Federal Reserve official on Tuesday urged new laws to address the problem, including ending Fed emergency lending powers.


Currency Devaluations: Good, Bad or Plain Ugly?
Alen Mattich – MoneyBeat – WSJ
There’s something Wild West about currency devaluations. Not just because they’re the mainstay of frontier economies, but there can be a pretty big element of unpredictability about how they pan out.

***DA: You can say that again. Sometimes a central bank devalues its currency, then the market keeps devaluing it after the central bank stops. Exhibit A for Argentina.

Darryl Hooker Joins EBS Executive Management Team
EBS, ICAP’s market-leading electronic FX business, announces today that Darryl Hooker has joined the EBS Executive Management Team, effective immediately. Darryl is appointed Head of Strategic Currency Initiatives and will report to Gil Mandelzis, EBS’s Chief Executive Officer.

Ghana capital controls underscore FX fallout; won’t tackle structural problem
Kanika Saigal – Euromoney magazine
The west African republic’s recent interest-rate hikes and foreign-exchange regulation changes are only short-term measures to halt the free-falling cedi. Structural changes will be needed for meaningful change.

Everything you wanted to know about FX volatility but were too afraid to ask
Simon Watkins – Euromoney magazine
Given monetary interventions since the financial crisis, FX volatilities have erred on the low side and should remain depressed, challenging easy FX profits. However, the risk premium in emerging market (EM) FX is now trading back in line with equities rather than G10 FX, presenting trading opportunities.

J.P. Morgan Weighs In on Bitcoin
Neelabh Chaturvedi – MoneyBeat – WSJ
There’s been some scary talk about Bitcoin so far this week. Now J.P. Morgan’s head of foreign exchange strategy, John Normand, has written a research note outlining his thoughts on the virtual currency, and they’re not altogether supportive.

Bitcoin hit by denial of service attacks as regulators prepare clampdown
Bitcoin is being hit by attacks from unknown computer hackers who are sending “mutated” lines of code into the program that runs the virtual currency, a spokeswoman from its main trade organization said in a statement on Tuesday.

Israel Aims to Become Bitcoin Hotspot
IB Times
Israel could well be the next big bitcoin hotspot. At least two dozen startups, including the recently inaugurated Bitcoin Embassy, have surfaced in Israel over the past year.

Indexes & Index Products

Leveraged ETFs not just for day traders anymore
Leveraged exchange-traded funds, originally viewed as tools for fast-moving day traders, are showing up more frequently as buy-and-hold investments in Mom and Pop portfolios, thanks to the advisers who are putting them there.

EMs are paying the price of ETF liquidity
John Authers –
Are exchange traded funds the best way to invest in emerging market equities? Last week, I wrote a column arguing that the structure of ETFs, which allows trading through the day, had contributed significantly to the scale of the recent sell-off in emerging markets, and was helping to make the sector more volatile. This prompted some scathing responses.

ETFs based on China benchmarks take advantage of new liquidity rules
Vita Millers, Richard Jory –
The renminbi is becoming an increasingly attractive investment opportunity, with exchange-traded funds (ETFs) on offer in Europe delivering the kind of daily liquidity that means they at least resemble open-ended funds.

STOXX Limited Voted “Most Innovative Index Provider In Europe” By Structuredretailproducts.Com


Advisers See Renewed Promise in Gold & Oil
Murray Coleman – MoneyBeat – WSJ
Investors remain cautious about commodity funds, which have badly lagged the broader market since 2008’s global financial crisis. But many financial advisers say they aren’t ready to give up on the asset class, noting some select segments offer growth opportunities as the global economy improves.

Peru says crackdown on illegally mined gold may cut exports 25 pct
A crackdown on illegally mined gold in Peru has nearly frozen shipments from shell companies and will likely cut overall exports of the precious metal by 25 percent this year, officials said on Tuesday.


The Vampire Squid Strikes Again: The Mega Banks’ Most Devious Scam Yet
Matt Taibbi – Rolling Stone
Call it the loophole that destroyed the world. It’s 1999, the tail end of the Clinton years. While the rest of America obsesses over Monica Lewinsky, Columbine and Mark McGwire’s biceps, Congress is feverishly crafting what could yet prove to be one of the most transformative laws in the history of our economy – a law that would make possible a broader concentration of financial and industrial power than we’ve seen in more than a century.

***DA: By 1999, Glass-Steagall had to go, since the Citi-Travelers merger was essentially illegal.

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