First Impressions

Goodbye SFOA, Hello ICDA
Jim Kharouf – JLN

Adapt or die is a well understood maxim in this industry. And so that’s been embraced by Dan Day-Robinson, the chairman and change merchant for the new International Commodities and Derivatives Association. It was and probably will be better known for some time as the former Swiss Futures & Options Association.

I first started attending the SFOA’s big conference in 1998, when the SFOA Burgenstock conference was really something not to be missed. Located atop a classic resort overlooking Lake Lucerne, it was an event attended by the CEOs of every major exchange and global firm. The venue was not only breathtaking but it was, in it own way, a rather sequestered group of professionals who made the futures world turn. This was our Davos.

But much has changed since. Exchanges eventually went public, which made such a trip more of a hassle than a can’t-miss meeting. The Futures & Options Association’s London event, known as International Derivatives Expo, IDX, gained more traction in June and the Futures Industry Association added the FIA Asia conference in December. Eventually, everyone you wanted to see could be found in London in June, at FIA Chicago in October/November or in Asia in December. SFOA got squeezed. It also got some lousy advice and questionable sponsors over the years, as it struggled to remain relevant.

But this is all a short history lesson. What is relevant now is that Day-Robinson has pushed the association into a new direction – commodities. It has the backing of some major market participants from Nasdaq, ICE and SIX to Goldman Sachs, BNP Paribas and Timber Hill, among others. There is no so-called “Burgenstock Conference” which hasn’t actually be held there for years, on the calendar. Those days are history. It’s time to look at the commodities markets with a new association, under new leadership that is actively trying to address the issues of today and tomorrow. And timing doesn’t hurt either. Given the wild ride commodities have taken, particularly energies along with the growing number of commodities markets globally, ICDA may be needed now more than ever.

Quote of the Day

“An open question, which is crucial to the well-being of current and future generations, relates not to the immediate financial consequences but, rather, to the longer-term effects: Specifically, whether unconventional central bank policies can durably benefit the economy, and whether they can do so in a manner that limits the collateral damage and the unintended financial consequences of a prolonged excessive reliance on partial and experimental policies. This question takes on added importance now that the systemically important central banks are on divergent paths (at least for now).”

Mohamed A. El-Erian, chief economic adviser at Allianz in the story, “Market Swings Expose Central Banks’ Influence and Limits”

Lead Stories

Several large bank stocks could rise 20 percent by year-end: Barron’s
The stock prices of several of America’s largest banks are poised to rise up to 20 percent in 2016 as valuations recover from an overreaction to turmoil in the energy markets, Barron’s said.

Seismic’ shock awaits bond liquidity
Madison Marriage and Attracta Mooney – FT
Fund managers have made a last-ditch attempt to convince European regulators to water down proposed trading rules designed to prevent a repeat of the market turmoil encountered during the financial crisis.

Wall Street banks out to dominate European equities trade
By Tim Burke and Tim Cave – Financial News
Wall Street’s biggest investment banks are stepping up efforts to grow their European equities trading activities, having wrestled business from local rivals in 2015 to reach a record share of regional trading.

BofA: The Oil Crash Is Kicking Off One of the Largest Wealth Transfers In Human History; A $3 trillion shift.
Joe Weisenthal – Bloomberg
Economists are still hotly debating whether the oil crash has been a net positive for advanced economies. Optimists argue that cheap oil is a good thing for consumers and commodity-sensitive businesses, while pessimists point to the hit to energy-related investment and possible spillover into the financial system

Watch New Bond, Stock Sales for Signs of Life
It was a chill wind that ripped through markets in January, rattling equities, credit and commodities. But it wasn’t just traders who faced problems. Companies looking to raise finance also found conditions tricky—perhaps a bigger cause for concern.

Negative Rates Worsen Headache for Cash-Rich Japanese Banks
TOKYO—Japanese bank shares fell sharply Monday despite a rise in the overall market, reflecting how the Bank of Japan’s move to negative interest rates has put the nation’s commercial bankers in a tough spot.

Millennials Are Starting to Change the Stock Market
Sofia Horta E Costa – Bloomberg
Travel and leisure shares outperforming traditional retailers; Experiences trump stuff for generation born between 1980-2000
Alistair Owen pours most of his paycheck into what he calls a travel-and-lifestyle fund. “I’m not saving up to buy anything,” said the 28-year-old engineer, who shares a rented apartment with two flatmates in south London. “I prefer to go out for dinner at a nice place, pay a round at the pub or explore a new area of the world. I feel like I would be losing out on living if I chose to own stuff instead.”

Banks’ Cost-Cutting Efforts Crimp New Hires
When Barclays PLC hired a new chief risk officer last week, Chief Executive Jes Staley had to override a firmwide ban on adding new staff to the payroll.

Barclays and Credit Suisse to pay $154m over dark pools
Joe Rennison in New York – FT
Credit Suisse and Barclays have agreed to pay a record $154m to settle investigations by regulators into their share trading venues known as “dark pools”.

For Departing Nasdaq CFO Lee Shavel, Next Stop Is ITG Board
Annie Massa – Bloomberg
Latest leadership change at ITG in aftermath of dark pool fine; Shavel used to work as investment banker at Bank of America
Lee Shavel, whose plan to retire as Nasdaq Inc.’s chief financial officer was announced Thursday morning, has joined the board of Investment Technology Group Inc., a brokerage seeking to recover from a regulatory fine.

The Negative Side of Negative Rates
Lisa Abramowicz – Bloomberg Gadfly
Japan has a new plan to get its banks to lend more: Tax them for being too conservative with their cash

IEX Debate Escalates With Public Knock to NYSE’s Systems
Annie Massa – Bloomberg
IEX posts letter saying NYSE has a `speed bump’ of its own; Referencing `Seinfeld,’ NYSE pushed SEC not to approve IEX
IEX Group Inc., seeking U.S. approval to operate a new stock exchange, is dragging one of its potential competitors into the increasingly heated debate.

Central Banks

Fischer Says Fed’s Next Decision Unclear Amid Global Uncertainty
Federal Reserve Vice Chairman Stanley Fischer said it was too difficult to gauge the impact on the U.S. economy from recent turmoil in financial markets and uncertainty over China, leaving policy makers undecided about what to do next.

Market Swings Expose Central Banks’ Influence and Limits
Mohamed A. El-Erian – Bloomberg
The second half of last week provided further examples of the influence of central banks over financial asset prices, and of the way they alter historical asset class correlations while contributing to contagion.

Inside the Fed’s `D-Day’ War Games for Breach of U.S. Debt Limit
At the Federal Reserve, they called it “D-Day,” the day the U.S. hits its debt ceiling.
According to documents obtained by Republican staffers of the House Financial Services Committee, the central bank and Treasury Department held detailed calls and exchanged e-mails to discuss what they would do if the government ran out of borrowing authority to pay its bills — a scenario referred to in one instance as “doomsday.”

Central Banks Can’t Do Much More
On Friday, the Bank of Japan stunned financial observers by announcing a new negative interest rate. Governor Haruhiko Kuroda got the result he intended: The stock market rallied and the yen depreciated, making exports more competitive and giving the economy a boost.

Are global markets losing faith in central banks?
By WILLIAM WATTS – MarketWatch
There’s never been a shortage of criticism—much of it wildly misplaced—when it comes to quantitative easing and other extraordinary measures launched by central banks in the wake of the financial crisis. But recent events have market watchers worrying that central bankers are starting to lose their ability to steer markets.

ECB’s Attempt to Breathe New Life Into Securitization Market Falls Flat
A multibillion euro attempt by the European Central Bank to revive the market in securitized debt has fallen flat, highlighting the bank’s struggle to boost stubbornly low levels of lending in the euro area.


Currency War: U.S. Hedge Funds Mount New Attacks on China’s Yuan; Bets against the yuan by hedge funds come at a time of enormous sensitivity for Chinese leaders
Some of the biggest names in the hedge-fund industry are piling up bets against China’s currency, setting up a showdown between Wall Street and the leaders of the world’s second-largest economy.

Currency Wars: Central Banks Running the Asylum
I have an undergraduate degree in economics plus an MBA in finance. When I went to school monetary policies conducted today by major central banks would have been considered heresy. If I would have suggested that printing money and negative interest rates would become mainstream policies without igniting inflation I would have been thrown out of class and burned at the stake. Instead, this is the bizarro world we live in. It may be more symptomatic of desperate times or simply a case of governments ceding power to central banks to stimulate economies and avoid deflation rather than using traditional fiscal and tax policies.

Yen’s status as a haven currency will endure, despite declines
Many market strategists expect the yen to weaken against the dollar in the near term following Friday’s announcement from the Bank of Japan. But any sustained weakness won’t diminish the Japanese currency’s role as a haven.
The yen has surrendered nearly all of its gains against the dollar from the past six weeks since the BOJ revealed on Friday that it would soon begin charging an interest rate of minus 0.1% on new excess reserves held at the central bank.

When Currency Hedging Pays Off
The U.S. dollar has been on a tear the PAST YEAR and a half, and this has certainly been a factor as U.S. stocks have trounced international stocks during that period. But international funds that hedge foreign currency against U.S. dollar movements have fared much better because they were effectively immunized against the surging dollar.

Indexes & Index Products

MSCI to exclude some Hong Kong stocks with highly concentrated ownership
MSCI will exclude from its global indices Hong Kong stocks that have been warned by the local regulator over their high concentration of shareholders, the benchmark provider said on Monday, in a blow to Hong Kong’s reputation as a financial centre. The new rules come amid growing investor concerns over market manipulation of Hong Kong stocks, which are often held by a small number of shareholders, following a series of unusual price movements last year.

Inclusion in World Index : Korea in a Bid to Join MSCI World Index
The Korean government has been in pursuit of inclusion in the MSCI World Index in order to cope with a higher volatility of the global financial market to follow the Fed’s interest rate hike. Countries in the Emerging Markets Index, such as Korea, Russia and Brazil, are considered to be more vulnerable to foreign capital outflow in the event of an emergency in the international financial market.

No new blockbuster device: Are Apple’s days as growth stock coming to an end?
ET Retail
Apple has been reclassified as a value stock before. FTSE Russell, which makes several closely followed stock indexes, found in 2013 that Apple no longer met its criteria to be treated purely as a growth stock. Some of the company’s enormous market capitalization was reallocated to the Russell Value Index, as well as being in the Russell Growth Index. A year later, when the company’s sales had risen strongly with the introduction of the iPhone 6, FTSE Russell placed Apple solely back in the growth index.

S&P Dow Jones Indices Market Attributes: Correlation & Dispersion
Press Release
Our January dashboard reports above-average dispersion and high or exceedingly high correlations in the majority of equity indices, globally. The historical chart of S&P 500 dispersion is suggestive of a more permanent change in regime from the compressed market performances that characterized the U.S. Federal Reserve’s zero-interest rate era. January’s 7.5% reading is the highest in four years. Cross-asset correlations remain slightly below average; cross-asset dispersions slightly above average.

Why January’s Commodity Performance Is Promising
Jodie Gunzberg – Indexology – S&P Dow Jones Indices
Considering commodities were on pace to set the worst January since 1975 at one point, down 14.3% by Jan. 20, the final monthly loss of just 5.2% is impressive. The S&P GSCI Total Return rebounded 10.6% with nine of the twenty four commodities posting gains for the month.
Does this mean commodities hit the bottom or that this is just a bounce in a much darker scenario? That probably depends on the oil supply decisions from Saudi Arabia, Russia and Iran, in addition to Chinese demand growth, the strength of the dollar and the weather. However, an examination of the historical annual performance of the S&P GSCI based on the direction of returns in January for single commodities and sectors gives hope that 2016 may be a positive year.


Gold futures book best settlement in 3 months
Gold futures on Monday register their highest settlement in about three months, as a slide in oil and the U.S. stock market highlighted continued demand for assets perceived as havens amid jitters about the global economy.

Gold And Silver Outperforming Attracting Hedge Funds, Money Managers – CFTC
After taking a bit of a break, hedge funds and money managers are starting to wade deeper into gold waters, according to the latest data from the U.S. Commodity Futures Trading Commission.
During the week through January 26, which is the period covered in the latest CFTC report, Comex February gold futures rose by nearly more than 3%, pushing back above $1,100 an ounce on the back of short covering and some modest new buying. Currently, April gold futures last traded at $1,126.20 an ounce, up $9.8 on the day.

Peak Supply Won’t Really Help Gold Price – Gabelli
With more talks of peak production being reached in the gold mining sector, the consensus seems to be that declined supply should support gold prices; but, one manager of a major gold fund says that might not be the case.
“Unlike oil and corn, most of the gold that’s made is kept. So small changes in mine production don’t really impact the total stock of gold that’s out there,” Caesar Bryan, portfolio manager for the Gabelli Gold Fund, told Kitco News in a phone interview Friday.

LAWRIE WILLIAMS: World’s Top 10 Gold producers – Peak Gold already here?
According to the latest estimates from major precious metals consultancy GFMS, global gold output in 2015 grew by an almost infinitesimal 0.2%, but is now seen as turning down in 2016 as the almost wholesale cancellations and deferments of major new projects due mostly to financing difficulties, and big cutbacks in exploration expenditure, are at last beginning to make an impact. Indeed GFMS analysts were already seeing the start of a downturn by Q4 2015.

Time For a Good Gold-to-Silver Ratio Play For Traders? – Peter Hug
Is a major upside number for gold in the cards? Or is the choppy action making investors wary?
In the first trading day of February, gold has once again topped the $1,122 chart point. The metal is currently trading near a 3-month high. It has been a good start to the year for gold, with the market up nearly 6% in the past month.
‘You want to express a major upside number for gold but the choppy action makes investors wary,’ said Kitco Metals’ Global Trading Director, Peter Hug.

DGCX Welcomes Zee Gold DMCC As Broker Member
The Dubai Gold & Commodities Exchange (DGCX) is pleased to welcome Zee Gold DMCC as a Broker Member of the Exchange. Zee Gold DMCC is a subsidiary of Shirpur Gold Refinery Limited and part of Essel Group, a leading global conglomerate.


Wall Street’s Donor Role Expands as Money Flows Into 2016 Election; Financial-services industry emerging as particularly key funding source for Republicans and Democrats, FEC reports show
Wall Street is emerging as a particularly dominant funding source for Republicans and Democrats in the presidential election, early campaign-finance reports filed with the Federal Election Commission show. The trend comes even as candidates seek to cast themselves as uniquely able to take on the bankers and investors who contributed to the economy’s collapse almost a decade ago.

Trader exposes sexist horrors of the Wall Street ‘frat house’
By Maureen Callahan – NY Post
When Maureen Sherry resigned from Bear Stearns after 10 years, she was given a going-away party, a sizable check — and a nondisclosure agreement.

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