First Impressions

Watching the Paint Dry
Doug Ashburn – John Lothian Newsletter

Today’s newsletter is being published in the middle of “Fed Watch” – that period near the end of the two day meeting of the FOMC where the markets have settled into a lull and we wait for the policy announcement, or, in the case of today’s meeting, the non-announcement.

In other words, today is not about the policy, it is about the clues, hidden messages and, most importantly, how others may interpret the statement.

Last time, in her first post-meeting press conference as Fed Chair, Janet Yellen made a slight blunder when she put a six-month timetable on possible rate hikes. The sent markets into a brief tizzy, and she spent the next week walking the comment back.

I expect that she has since learned not to think out loud. She has likely taken a crash course in “Greenspanese” and will use more words to say less. I hope I am wrong.

Quote of the Day

The interest rate risk has been transferred from the private sector to the central bank.

Takahiro Sekido, Japan strategist at Bank of Tokyo-Mitsubishi UFJ, in the WSJ story, “BOJ Becomes Biggest Japan Government Bondholder”

Lead Stories

Shadow banks step into the lending void
Tom Braithwaite, Martin Arnold and Tracy Alloway – Financial Times
In an extended hangover from the 2008 crisis, banks are reluctant to lend because their balance sheets are too fragile or because regulators have constrained them. Into this void have stepped a variety of “shadow banks”, less affected by the new regulations and free to grab business.

***DA: Headed right back to where we started, with billions of man-hours and mountains of paper gone to waste.

IFC issues renminbi green bond in London
Thomas Hale – Financial Times
The first renminbi-denominated “green bond” has been issued in London, marking a further step forward in the internationalisation of China’s currency.

***DA: Starting small, but it wasn’t too long ago that we said, eurodollar? What the heck is a eurodollar?

BOJ Becomes Biggest Japan Government Bondholder
The Bank of Japan has become the biggest holder of the country’s sovereign debt for the first time ever, putting the central bank in a tough situation where the closer it gets to achieving its goals, the harder it is to exit its aggressive easing strategy. The BOJ held a 20.1% share worth JPY201 trillion ($1.97 trillion) in the Japanese market as of the end of March, data released by the BOJ Wednesday showed.

Gavyn Davies: No Bubbles, But Internet Stocks Are Frothy
MoneyBeat – WSJ
Bubble? What bubble? The trillions of dollars pumped into the financial system by central banks in recent years have helped push up the prices of financial assets to very high levels, most investors would agree.

***DA: Bubble is a relative term, and no bubble is really identified until after it pops.

Bond star Michael Hasenstab warns on US debt
Ralph Atkins in London – Financial Times
Ukraine’s clash with Russia, which intensified suddenly at the end of February, frightened many global investors. But for Michael Hasenstab, star global bond portfolio manager at Franklin Templeton, it was an opportunity.

***DA: One man’s trash is another’s treasure.

“The essence of shadow banking is giving people a liquid claim on illiquid assets.”
Joshua M Brown – The Reformed Broker
Today’s terrifying thought – the Fed is worried enough about a big disruption in the bond market that they’re actually considering a bond fund exit fee, which, in theory, might help slow down a race for the door should rates rise too rapidly. Yeah, okay.

***DA: Where were they in 2009? In the dash for cash, very few were thinking about barriers to exit, rather, “how much cash can I get for this?” You don’t haggle with the pawnbroker; you take what he offers.

Ecuador launches US$2bn 10-year bond at 7.95%
The Republic of Ecuador is set to raise USD2bn through its upcoming 10-year bond issue, the Andean nation’s first since it voluntarily defaulted on USD3.2bn of foreign debt in 2008.

Cyprus Eyes First Public Post-Bailout Bond
Cyprus is set to push ahead with its first public post-bailout bond Wednesday, bankers working on the deal said. The euro-denominated bond is likely to carry a five-year maturity and a yield of around 5%.

***DA: Another happy customer.

Argentina Defiant Against Supreme Court on Bond Payments
The Argentine government said on Tuesday that it had started to take steps to circumvent a United States court order to avoid a technical default.

***DA: Come and get it.

They shall not pass (but let’s try and reroute our bonds around them anyway)
Joseph Cotterill – Financial Times
“We cannot allow that we are prevented from honouring our commitments to 93 per cent of bondholders. We are going to initiate a debt swap to pay the bonds in Argentina, under local legislation…” That would be Axel Kicillof, Argentina’s economy minister.

Central Banks

5 Things to Watch For at the Fed Meeting Wednesday
The Federal Reserve’s policy committee concludes a two-day meeting Wednesday with a flurry of messages on growth, inflation, interest rates and more. At 2 p.m. EDT it will release a policy statement and publish new economic projections. At 2:30 p.m. EDT, Chairwoman Janet Yellen holds a press conference. Here are five things to watch

Fed’s Brainard and the Case of the Missing Dot
Min Zeng and Pedro Nicolaci da Costa- MoneyBeat – WSJ
Hawk-eyed watchers of the Federal Reserve’s “dot” charts, which indicate individual policy makers’ predictions for the likely path of interest rates, will notice Wednesday that, despite having an additional member on its board, the Fed’s newly updated projections won’t have an extra dot.

Yellen, future tightening in spotlight as Fed meets
The U.S. Federal Reserve is widely expected to chop another $10 billion from its monthly bond purchases at a meeting on Tuesday and Wednesday but make few, if any, other concrete policy moves.


A Top Currency Executive at Citigroup Is Leaving
CHAD BRAY – Dealbook – NY Times
A top executive is leaving Citigroup’s currency business, the second prominent departure this year. Jeff Feig, who is based in New York and spent the last decade as head of Citigroup’s foreign exchange business, is leaving the bank after 25 years, the bank confirmed on Tuesday.

London holds its own in battle for renminbi trade
Delphine Strauss – Financial Times
London is holding its own in the global race to secure a share of the fast-growing trade in the renminbi, but despite a surge in issuance of so-called dim sum bonds, it is proving unable to capitalise on its strength in bond trading, a report shows.

BitBeat: Bitcoins and the Beautiful Game
MoneyBeat – WSJ
If you love bitcoins and the Beautiful Game, you have a way to combine them this month. SnapCard, a web service that allows users to shop online using bitcoin, has dreamed up a World Cup contest that is similar to Warren Buffett’s NCAA promotion. SnapCard is offering 50 BTC to anybody who can complete a perfect bracket in the 2014 World Cup.

Indexes & Index Products

J.P. Morgan launching its first exchange-traded fund
J.P. Morgan Chase & Co is launching its first exchange-traded fund on Tuesday as the Wall Street bank’s asset management business makes its debut in the $1.8 trillion U.S. exchange-traded fund arena.

ETF strategy waits to gain in currency
Peter Davy – Financial News
While investors have been ploughing money into exchange-traded products over the past few years, niche exchange-traded funds that specialise in currency strategies have proved an exception to the rule.


World Gold Council to explore gold fix reform
Xan Rice – Financial Times
The World Gold Council is to hold an industry forum “to explore reform of the London Gold Fix” in a move that could hasten the end of the 95-year-old bullion benchmark.

Gold Near Steady Ahead of FOMC Statement, Yellen Press Conference
Kitco News (via Forbes)
Gold prices are not straying too far from unchanged in early U.S. trading Wednesday, as the market place is on hold ahead of what is arguably the most important economic event of the week, if not the month: the FOMC statement and Fed Chair Janet Yellen’s press conference Wednesday afternoon. August Comex gold was last down $0.50 at $1,271.50 an ounce. Spot gold was last quoted down $0.90 at $1,271.50. July Comex silver last traded up $0.003 at $19.735 an ounce.

China’s largest gold miner looks to partner with Barrick, Newmont
Rachelle Younglai – The Globe and Mail
China’s state-owned gold mining company is working on potential partnerships with both Barrick Gold Corp. and Newmont Mining Corp., its president said on Tuesday.
If the Asian company is successful, the alliances would bring one or both of the Western miners closer to China, a country that is now the world’s largest consumer and producer of the yellow metal.

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