First Impressions

Consider This
Doug Ashburn – JLN
Earlier this week I took on the issue of the term “considerable time” that the Federal Reserve has been using in its prepared statement in conjunction with recent meetings on interest rate policy. I called it “one of those weasel phrases that sound meaningful but are not – like ‘your call is important to us,’ or “‘this train will begin moving momentarily.'”

In the post-meeting press conference yesterday, Chair Janet Yellen essentially said the same thing, calling it a phrase that allows “flexibility” (in other words, “cover”). “Considerable time,” she says, “is not some firm promise about particular amount of time.”

Okay, then. As I said in yesterday’s commentary, those making trading decisions based on whether this language does or does not change in the Fed’s prepared statements will get exactly what they deserve.

Quote of the Day

The takeup in the first TLTRO is disappointing and will raise further doubts about the feasibility of the ECB’s intention to increase its balance sheet by around EUR1 trillion.

ING analyst Martin van Vliet, in the WSJ story “ECB First Four-Year Loan Uptake Disappoints”

Lead Stories

Still patient, but for how long?
The Economist
For those watching the Federal Reserve’s meeting which ended today, no news was good news. The Fed, as expected, said it would end its bond buying programme (also known as quantitative easing) next month. Many in the market wondered if it would then signal a relatively brisk move to raise interest rates from near zero, where they have been since 2008. It did not: it said rates would stay there for a “considerable time” after bond-buying ended, provided the economy behaves as expected. It also reiterated that “there remains significant underutilization of labor resources,” suggesting it is not inclined to hurry up the process of raising rates.

***DA: Seriously, what is their hurry? In for a penny; in for a pound, eh?

Massachusetts Goes Greener With Latest ‘Green Bond’ Sale
Mike Cherney – MoneyBeat – WSJ
Massachusetts, a pioneer in selling so-called green bonds for environmental projects, is going greener. The state this week is selling $350 million of the bonds, more than triple the size of last year’s sale, as more municipalities tap into investor demand for environmentally friendly investments.

***DA: As Gordon Gekko said in Wall Street: Money Never Sleeps (apparently a movie nobody liked but me), “Clean technology. That’s smart. It’s the next bubble.”

ECB First Four-Year Loan Uptake Disappoints
Todd Buell – WSJ
The European Central Bank said Thursday that eurozone banks borrowed EUR82.6 billion ($106.9 billion) in four-year loans from its new facility aimed at spurring lending to businesses and boosting inflation from its current ultralow levels.

***DA: 0.15 percent sounds cheap for a 4-year loan, until one considers that German 2-year notes are at -0.07 percent.

Investors buy German debt at negative rates
Fox News
Investors have bought billions of euros in German treasury notes that pay negative interest – meaning the purchasers agreed to pay a small fee for the privilege of lending the German government their money. The negative yield is a sign of the stresses in the 18-country eurozone, where the economy is struggling to maintain a weak recovery.

***DA: return on principal vs. return OF principal (all but 0.07 percent of it).

Dirty Secret of $1 Trillion Loans Is When Do You Get Money Back
Lisa Abramowicz – Bloomberg
Imagine a trillion-dollar market that runs on faxes and phone calls while routinely tying up investors’ money for months before they get any return. That’s not fiction: It’s the unregulated market for leveraged corporate loans.

***DA: Kind of like a metals warehouse.

Use of euro-renminbi options surges
Josh Noble in Hong Kong – Financial Times
Rising renminbi trade settlement and a sliding euro are fuelling a surge in hedging between the two currencies both by multinationals and investors.

Central Banks

The BOE’s Understandable Split
Alen Mattich – MoneyBeat – WSJ
It shouldn’t be surprising that the Bank of England’s Monetary Policy Committee is split on interest rates – the U.K.’s economic data are telling divergent stories.

Weber Says Litigation Bigger Investor Worry Than ECB Test
Elena Logutenkova – Bloomberg
The European Central Bank’s review of bank balance sheets may not be enough to revive investors’ confidence in financial institutions because the test does not address litigation risks, UBS AG (UBSN) Chairman Axel Weber said.

ECB Announces New Voting Rota
Todd Buell – MoneyBeat – WSJ
Central bankers from Spain, Estonia, Ireland and Greece will give up their voting rights at the January meeting of the European Central Bank, under a new rotation system the ECB unveiled Thursday.

Swiss National Bank Reaffirms Currency Floor, Maintains Rate
Neil MacLucas – WSJ
The Swiss National Bank repeated Thursday that it will intervene in the foreign exchange market to prevent the Swiss franc from surpassing 1.20 against the euro, saying the limit remains the “key instrument” to curb upward pressure on the currency.

***DA: Well, it is at 1.2078 right now, so it is not an issue. The only thing holding the floor in place right now is confidence that it will hold.

Maths and the FOMC
James Mackintosh – Financial Times
The dot plot might include two downward pointing arrows to offset the two hawks dissenting from the Federal Reserve statement today, but there’s a growing group expecting a lot of rate hikes next year.


State Street Asks Head of FX Spot Trading to Stay Away From Office
Chiara Albanese – WSJ
U.S. bank State Street Corp. has asked its London-based head of foreign-exchange spot trading to stay out of the office following an internal review of its foreign-exchange business, people familiar with the matter said Wednesday.

***DA: I get that request all the time.

Kiwi dollar is victim of fundamentals
Jamie Chisholm – Financial Times
Last weekend it was Sweden. This time it’s New Zealand. The Land of the Long White Cloud faces an uncertain outcome from its election on Saturday.

Currency Traders Look for Yen’s Bottom
Hiroyuki Kachi – MoneyBeat – WSJ
How far can the yen fall? Some currency strategists in Tokyo think the yen’s drop against the dollar may slow down after recent sudden moves. But a widening divide between U.S. and Japanese interest rates leaves plenty of uncertainty.

Ex-Currency Trader Braves Tumultuous Market
Jenny Anderson – Dealbook – NY Times
Two weeks ago, Charles-Henri Sabet, a 52-year-old former Swiss backgammon champion and longtime foreign exchange trader, took over as executive chairman of the London Capital Group, an online trading services firm that has struggled in recent years. He quickly turned to hiring senior executives.

BitBeat: Boston Fed Sees Bitcoin Flaws But Cryptocurrency Potential – MoneyBeat
Paul Vigna and Michael J. Casey – MoneyBeat – WSJ
In a deep-dive report, researchers at the Federal Reserve of Boston laid out a mostly positive outlook for cryptocurrency technology, though not so much for bitcoin as it is currently designed.

Indexes & Index Products

Silver ETP Buyers Defy Hedge Fund Exit Amid Price Slump
Nicholas Larkin and Debarati Roy – Bloomberg
Buyers of exchange-traded products backed by silver are betting $11.9 billion that big speculators are wrong about the outlook for prices, which slumped last week to a 14-month low.

Funds and ETFs magnify EM volatility
John Authers – Financial Times
Emerging equity markets are taking another lurch. The reasons are well rehearsed: angst about the future actions of the Federal Reserve occasionally prompts western investors to pull back their money in a hurry.

Small ETFs stand to gain in first days after Alibaba IPO
Ashley Lau – Reuters
For a handful of U.S. exchange traded funds, Alibaba’s initial public offering has the potential to be a bonanza: they can make the Chinese e-commerce company available to investors in as little as a few days, unlike some of their larger rivals, which may need months.


If Scotland Splits, What Happens to the Gold?
Ese Erheriene – MoneyBeat – WSJ
If breaking up is bad, moving out is worse. Should Scotland vote to terminate its 307-year relationship with the rest of the U.K., there could well be a huge debate about how to divide an important aspect of the countries’ shared life together: their gold reserves. And the bickering has started already.

China Opens Gold Market to Foreigners Amid Price Ambition
China will give foreign investors direct access to its gold market for the first time today as the biggest-consuming nation seeks to exert more influence over prices while boosting the yuan’s global use.

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