First Impressions

Clear Skies Ahead: Terry Duffy of CME Group Says Clearing Is Industry Driver

With the bulk of US financial reforms now in place, financial markets appear to be pulling out of their doldrums. Terry Duffy, executive chairman and president of CME Group, spoke with Jim Kharouf, editor-in-chief of John Lothian News, about his outlook for the exchange and the strong prospects for growth in the futures markets.

“The industry is really exciting right now,” Duffy said. “We’ve been going through some difficult years like all financial markets have. Now we’re getting some clarity around the rules especially here in the US and that’s very positive.”

Duffy said CME Group stands to gain from the migration of OTC trades onto exchange platforms with centralized clearing, especially in the wake of new rules and capital requirements for banks in Europe.

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Quote of the Day

“If it is the stock of QE that matters over anything but short periods, the end of the Fed’s QE purchases means that monetary stimulus is currently being maintained at a very high level. Therefore its effects on asset prices and yields on long-dated Treasuries should persist.”

Tony Yates, a consultant to Oxford Economics Ltd. and a former economist at the Bank of England in the story, “Think Central Banks Are Done? Stimulus to Accelerate in 2015”.

Lead Stories

Severe Volatility Will Plague Bonds Without Overhaul, Fink Says
Sridhar Natarajan – Bloomberg
BlackRock Inc. Chief Executive Office Laurence D. Fink said moments of severe volatility will continue to plague the corporate bond market unless regulators enforce a push toward more electronic trading.
“Regulators need to admit that we have changed the ecosystem of bonds and yet we are not seeing regulatory pressure to transform the bond market into more electronic trading,” Fink said in an interview with Bloomberg Television’s Erik Schatzker. “I am absolutely convinced we will have a day, a week, two weeks where we will have a dysfunctional market. It’s going to create some sort of panic, create uncertainty again.”

Jack Bogle: I Wouldn’t Risk Investing Outside the U.S.
By Carla Fried, Bloomberg
Michael Jordan’s statue is outside the Chicago Bulls’ United Center Stadium. Willie Mays Jr.’s statute is on the grounds of the San Francisco Giants’ AT&T Park. They are tributes to game-changing careers, both for their teams and for their leagues. Jack Bogle is another game changer. His bronze likeness is on the campus of Vanguard headquarters in Valley Forge, Pennsylvania, testament to his pioneering role in bringing low-cost investing to the masses.

Light-Speed Treasury Trading Governed by Rules Dating to 1998
By Matthew Leising, Bloomberg
The last time regulators took a hard look at how Wall Street trades Treasuries, a little company called Google Inc. was just starting out. That was 1998, and the technological leaps since then — including ones that are now transforming bond markets — have left government overseers in the dust. In particular, executives from three of the biggest market-making firms say an electronic bait-and-switch tactic known as spoofing, which is already the focus of a manipulation allegation at a futures exchange, needs to be investigated in cash Treasuries.

SEC Seeking S&P’s Suspension From Rating Commercial Mortgage Bonds
By Matt Robinson and Dave Michaels, Bloomberg
The U.S. Securities & Exchange Commission is seeking to suspend Standard & Poor’s from grading commercial-mortgage bonds in what would be the agency’s toughest action yet against a major credit rater, a person with knowledge of the matter said.
S&P parent McGraw Hill Financial Inc. (MHFI) is still in talks over a possible settlement with the SEC, which has been investigating whether the firm bent rating criteria to win business in 2011, said the person, who asked not to be named because the talks aren’t public.

Supervisory board of Eurex Clearing appoints two new members
Deutsche Boerse
Eurex Clearing: Since early December, the supervisory board of Eurex Clearing AG comprises two new members: Roselyne Renel and Clifford Lewis. The new board members replace those members – Richard Berliand, Reto Francioni and William Templer – , who stepped down earlier this year due to regulatory requirements or on own request.

ICE Announces Pricing for Placement of Residual Euronext stake; Total proceeds of EUR96.8 million
ICE press release
Intercontinental Exchange Inc. announced today the pricing of the placement of 4.2 million shares in Euronext N.V., representing approximately 6% of Euronext’s share capital, by way of an accelerated book-building to institutional investors.

Central Banks

Think Central Banks Are Done? Stimulus to Accelerate in 2015
Simon Kennedy – Bloomberg
If you expect global central banks to unwind stimulus next year, you’re probably wrong.
In fact, the world’s monetary policy makers are set to open the cash spigot by the most in four years in 2015. Major central banks will together add almost three times more liquidity next year than they did in 2014, according to Credit Suisse Group AG analysts.

SNB Threatening Negative Rate Awaits Draghi’s Next Move
Swiss National Bank officials have their eyes on one man: Mario Draghi.
The prospect of the European Central Bank intensifying stimulus by purchasing government bonds has weakened the euro, pushing the franc to within 0.2 percent of the SNB’s upper limit of 1.20 versus the single currency. More than 60 percent of economists in a Bloomberg News survey say SNB President Thomas Jordan will have to use negative interest rates to buttress the ceiling if ECB quantitative easing threatens the threshold.

The Federal Reserve may start sending a new message on rates
Jeff Cox – CNBC
Just when market participants started to adjust to the Federal Reserve being on hold even longer than originally expected comes a potential twist.
When the central bank’s Open Market Committee meets in a week, it may change a key piece of language in the public statement it releases afterward, according to reports, including one Tuesday in The Wall Street Journal.

Central Banks and the Wrinkle With Falling Oil Prices – Washington Wire
David Wessel – WSJ
Despite all the headlines recently about central banks, the most important development in the world economy these days is the sharp – and apparently persistent – drop in the price of oil. It’s down nearly 40% since June.

Central Banks Create Deflation, Not Inflation
Charles Hugh Smith –
If there’s one absolute truism we hear again and again, it’s that central banks are desperately trying to create inflation. Perversely, their easy-money policies actually generation the exact opposite: deflation.

ECB’s Praet says would have cut interest rates at last meeting if possible
Krista Hughes and Howard Schneider – Reuters
The European Central Bank would probably have cut interest rates at its last meeting if they had not already been at the zero limit, European Central Bank chief economist Peter Praet said on Tuesday.
“If we would have had (an) interest rate margin at that time, I am convinced personally that the Governing Council would have decided to cut rates,” Praet said at a forum in Washington. He declined to say how large a cut would have been appropriate.


The Head Of Russia’s Second-Largest Bank Has Threatened To Punch Anyone Who Accuses His Firm Of Currency Speculation
By Tomas Hirst, Business Insider
The head of Russia’s second-largest bank on Friday threatened to “fist fight” anyone who accused his firm of speculation against the rouble. Andrei Kostin, the head of state-owned VTB bank, told TV channel Russia-24 that he rejected the “completely unfounded allegations” that his company was involved in betting against the currency.

FX Traders Said to Plan Challenge to U.K. Regulator’s Settlement
Suzi Ring – Bloomberg
A group of foreign-exchange traders plan to challenge findings by Britain’s financial regulator in the currency-rigging probe because they weren’t given a right to respond, two people with knowledge of the matter said.
The group has until tomorrow to submit a challenge against the U.K. Financial Conduct Authority to the Upper Tribunal, the U.K. court with jurisdiction for complaints against the agency, according to the people, who asked not to be identified because the move hasn’t been made public yet.

How Currency Risk Affects You
Gregg Wolper – Morningstar
If you take the time to leaf through one of those big, densely written fund prospectuses that arrive in your mailbox every now and then, you’ll see a long section called “Risks” that attempts to lay out every possible way the fund could end up disappointing you. A fund that invests in foreign securities might include “currency risk” on that list. Sometimes that idea lands under a broader discussion of “foreign investment risk.”
But what is currency risk? How important is it? What steps do fund managers take to address it, and how should individual investors think about it?

Indexes & Index Products

VIX Spike Sends Shot Across the Bow
Chris Dieterich – Barron’s
Keep an eye on the VIX or it just may bite you.
While the S&P 500 fell a modest 0.7% on Monday, the CBOE Volatility Index is jumping, up 20% to 14.18 in recent trading. Earlier, the VIX was flirted with its highest close in a month. That’s a big jump in volatility on a day when stocks are only edging lower.

Five Charts That Show China’s Stock Boom Is Unprecedented
Richard Frost and Billy Chan – Bloomberg
China’s Shanghai Composite Index surpassed 3,000 for the first time since 2011 yesterday, extending a 25 percent advance during the past month that has topped every other benchmark equity index worldwide.
While the Chinese gauge is still 50 percent below its 2007 peak, the stock market’s boom during the past month has been unprecedented by several measures. The following charts show how the nation’s share-price momentum, trading volumes, margin debt, market capitalization and financial-industry outperformance have all reached record highs:


India should allow banks to hold gold as reserves: World Gold Council
India should allow banks to use gold as part of their liquidity reserves, which would let them make more use of gold inside the country and reduce the need for imports, an industry body said on Tuesday, seeing that as an alternative to import curbs.

Gold surges past $1,200 on global equities rout
Shawn Langlois – MarketWatch
Gold rallied Tuesday to reclaim the $1,200 level in response to a global equities selloff.
Gold for February delivery GCG5, +3.00% jumped $37.10, or 3.1%, to settle at $1,232 an ounce, its highest close since the end of October. March silver SIH5, +4.88% added 86 cents, or 5.3%, to $17.13 an ounce.

Allied Nevada Gold Slumps After Stock Sale
Simon Casey – Bloomberg
Allied Nevada Gold Corp. (ANV), the operator of the Hycroft mine in Nevada, slumped the most since its initial public offering seven years ago after a heavily discounted sale of shares and stock warrants raised $21.5 million.
The stock tumbled 33 percent to close at 93 cents in New York.

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