First Impressions

S&P Surpasses Milestone

The S&P 500, which has made a new high on dozens of occasions this year, topped the 2000 mark today. Crack out the funny hats and party favors.

Okay, the party is over. You may resume your day as scheduled, which preferably includes a deep dive into the JLN Financials newsletter.

Quote of the Day

The idea of countries and households taking on trillions of dollars of credit sounds worrying, but conversations about debt require a sort of doublethink. On one hand, debt is a symbol of the world living beyond its means, borrowing from future generations to pay for the profligacy of the present. On the other, it is a marker of prosperity, growth and confidence in the future.

From the FT commentary “The bond paradox and how it will end” by Elaine Moore

Lead Stories

South African money funds ‘break the buck’
Steve Johnson – Financial Times
At least 10 South African money market funds have “broken the buck” in the wake of a central bank-led bailout of African Bank Investments, the country’s biggest provider of unsecured loans.

***DA: I wonder if a floating NAV and redemption gates, like the new SEC rules here, would have helped stem a panic.

The bond paradox and how it will end
Elaine Moore – Financial Times
The world has never been in as much debt as it is now. If that sounds worrying, consider this: with interest rates in the US, UK, the eurozone and Japan still at record lows, individual, business and government debt levels are still rising.

***DA: When a market is priced for perfection, the slightest imperfection could set it off.

Janet Yellen: Three Reasons Wage Trends Can’t Be Trusted
Joshua M Brown – The Reformed Broker
Janet Yellen is speaking now from the Kansas City Fed’s junket in Jackson Hole. The Federal Reserve has released the full text of her address and on the surface, it appears dovish enough (which was the expectation). I thought this bit on recent trends in wages was interesting – hard to have inflation in the absence of wage growth, also hard to have a recovery that people believe in.

***DA: Maybe it is time we manipulated wage growth. We have manipulated everything else.

Jackson Hole Theme: Labor Markets Can’t Take Higher Rates
Jeff Kearns and Simon Kennedy – Bloomberg
Global central bankers led by Federal Reserve Chair Janet Yellen said labor markets still have further to heal before their economies can weather higher interest rates.
Even as they signaled international monetary policies are set to diverge as economic recoveries increasingly differ, officials meeting over the weekend in Jackson Hole, Wyoming, placed jobs at the center of their decision making by saying stronger hiring and wages are still needed to drive demand.

Argentina slams U.S. judge as ‘imperialist,’ peso halts rout
Jorge A. Otaola and Richard Lough – Reuters
Argentina on Friday accused the U.S. judge who called the country’s new debt restructuring plan illegal of making “imperialist” comments against the South American nation.

***DA: Here we go – it’s showtime!

The euro is a scapegoat for the blunders of politicians
Martin Sandbu – Financial Times
With the Brussels rentrée, the eurocrats and their political masters around Europe’s national capitals return to the task of charting the political direction the EU should pursue for the next five years. But Europe is riven, politically, but at root intellectually, between two incompatible views of what to do.

Why Can’t Wall Street Get Any Respect From Bond Market?
Liz Capo McCormick – Bloomberg
When it comes to predicting where U.S. borrowing costs are headed, the bond market isn’t taking Wall Street’s advice seriously.
After giving up on calls last month that Treasury yields will rise in 2014, forecasters are sticking to estimates those on the 10-year note will climb next year and reach 3.6 percent as the Federal Reserve increases interest rates. Yet based on the performance of long-term Treasuries, implied yields suggest investors don’t foresee yields that high for a decade or more.

Should Bond Investors Move Up In Quality?
Mike Cherney – MoneyBeat – WSJ
Should investors be buying bonds from higher-rated companies? Analysts at the Schwab Center for Financial Research, which provides guidance for individual investors, say the answer is yes.

Central Banks

Pressure builds within Fed to signal new policy course
Jonathan Spicer, Michael Flaherty and Howard Schneider – Reuters
Pressure is building within the Federal Reserve for officials to move as early as next month to more clearly acknowledge improvements in the U.S. economy and lay the groundwork for the central bank’s first interest rate hike in nearly a decade.

Podcast: No Fireworks From Yellen
Steven Russolillo – MoneyBeat – WSJ
Federal Reserve Chairwoman Janet Yellen’s noncommittal take on the economy and labor markets failed to juice the markets.

***DA: I told ya so.

Draghi Pushes ECB Closer to QE as Deflation Risks Rise
Simon Kennedy and Alessandro Speciale – Bloomberg
Mario Draghi just pushed the European Central Bank closer to quantitative easing.
With euro-area data this week likely to show the weakest inflation since 2009, the ECB president used a high-powered central-banking conference in Jackson Hole, Wyoming, to warn that investor bets on prices have “exhibited significant declines.”

Chair Janet L. Yellen, At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming: Labor Market Dynamics and Monetary Policy

Draghi’s speech at Jackson Hole
FT Alphaville
Read it here, and see also the slide deck. As with all things ECB-related, we recommend following Lorcan’s twitter feed. An excerpt from the speech below:

The ECB’s Mario Draghi Should Be Talking About Monetary Policy, Not Fiscal
Tim Worstall Contributor – Forbes
After all, it is actually monetary policy in the eurozone that Mario Draghi is in charge of as the head of the European Central Bank. It would probably behove him to concentrate his energies and remarks upon the subject that he’s thus responsible for rather than chatting on about policy for which he has no responsibility.

***DA: No so. Why waste words on monetary policy when he can use actions, which we all know speak much louder.

Bank of England admits mistake over labour market growth
Sarah O’Connor, Economics Correspondent – Financial Times
Ben Broadbent, deputy governor of the Bank of England, has said the central bank’s recent focus on unemployment and wages has made it “harder to communicate publicly what matters for policy” and admitted “we were wrong” last year about the labour market.

***DA: Wrong? Central bankers are never wrong, it is just that their timing is off sometimes.

Central banks at the crossroads
Financial Times
The world’s central bankers gathered at Jackson Hole last week in the great annual gathering of the monetary policy clan. Yet while tribal loyalty among central banks is eternal, the varied performance of the big economies is taking them in different directions.

Bank of Israel Unexpectedly Cuts Interest Rate to Record
Amy Teibel, Yaacov Benmeleh and Calev Ben-David – Bloomberg
The Bank of Israel unexpectedly cut its benchmark interest rate for a second straight month to a record, in an attempt to boost an economy hit by slowing exports and the seven-week war in Gaza.
The shekel weakened and stocks in Tel Aviv climbed after the Monetary Policy Committee, led by Governor Karnit Flug, reduced the rate by a quarter of a percentage point to 0.25 percent. All 21 economists in a Bloomberg survey had expected the panel to keep the rate unchanged after last month’s surprise reduction.


The euro is a scapegoat for the blunders of politicians
With the Brussels rentrée, the eurocrats and their political masters around Europe’s national capitals return to the task of charting the political direction the EU should pursue for the next five years.
But Europe is riven, politically, but at root intellectually, between two incompatible views of what to do.

Yen in focus with heavy week of data
IG Market Insight
It’s going to be a busy week for Japan on the macro data front. The release of a slew of indicators ranging from inflation to jobs will make USD/JPY one to watch.

Thailand allows foreign currency structured product issuance
Justin Lee –
Thailand’s Securities and Exchange Commission (SEC) is poised to allow foreign currency structured notes to be offered onshore in Thailand as part of a package of rule revisions that are expected to increase participation from foreign investors and allow for more product innovation, say structured product issuers.

BlackRock Places Sterling Bet Ahead of Scotland Vote
Chiara Albanese – MoneyBeat – WSJ
Major investors say they’re stumped as to how to play Scotland’s vote on independence from the U.K. on Sept. 18. But among those taking bets on currency volatility is BlackRock Inc.

Indexes & Index Products

U.S. S&P 500 stock index hits 2,000 milestone
Orlando Sentinel
The U.S. S&P 500 stock index broke through the landmark 2,000 level on Monday, marking a six year rally which has benefitted many Americans from Wall Street to Main Street.
During that time the unemployment rate has fallen from a high of 10 percent in December 2009 to a low of 6.1 percent in June this year, but the rally is still seen has largely benefiting wealthier Americans, as paltry wage rises have left most Americans with little money to invest in retirement accounts.


China gold exchange gains traction as yuan reforms stir interest
A. Ananthalakshmi – Reuters
China’s planned global gold exchange has signed up more members than targeted, as foreign banks and trading houses seek direct access to the world’s top physical gold consumer and to test out reforms allowing them to trade commodities in the yuan currency.

Why this mammoth mining fund is nervous over gold price outlook
Nick Paler – Investment Week
The team running J.P. Morgan Asset Management’s natural resources fund has said the gold price is unlikely to surge ahead from current levels, as US monetary policy and a strengthening dollar continue to weigh on sentiment.

Dangerous Economy Thrives in South Africa’s Abandoned Gold Mines
Devon Maylie – WSJ
In broad daylight, he is a thin, soft-spoken 23-year-old who stays immaculately clean in Converse All-Stars and khaki pants. But to make ends meet, Mduduzi Matjila has taken on another life, one that takes him deep into the darkness of the earth and leaves his skin coated with a yellow tint. It is dangerous and illegal work, wandering through the labyrinth of tunnels of mines closed years before, in search of gold.

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