First Impressions

Welcome to the lastest John Lothian News Special Report: Unchained: How Blockchain And Bitcoin Are Going Mainstream

Please click on the Special Report image to see the full report, which includes a full feature story, videos from Hans-Ole Jochumson on Nasdaq’s efforts in blockchain technology and Adam Honoré, CEO of the fintech consulting firm MarketsTech, as well as the best recent Top Stories on the topic.


Quote of the Day

“When you’ve had the Libor problems and you’ve had the forex problems, it’s difficult to say, ‘Gee, we’ve just got a few bad apples down there somewhere.'”

Federal Reserve Governor Daniel Tarullo in the story, “Tarullo Sees No Convincing Explanation for Liquidity Changes”

Lead Stories

Stocks Held Hostage by a Stubborn Bond Market
Michael Kahn – Barron’s
Typically, when an analyst says that “the market is unsure” it really means that the analyst cannot figure it out. However, the action so far this year really does suggest the market does not know what to do. Between the Federal Reserve’s recent relaxed views on raising short-term interest rates and the continuing soap opera that is Greece, any market moves that do get started are squelched quickly.

Tarullo Sees No Convincing Explanation for Liquidity Changes
Ian Katz – Bloomberg
Federal Reserve Governor Daniel Tarullo said regulatory changes may be one factor affecting liquidity in financial markets, but there isn’t a “very precise and convincing explanation of exactly what has happened.”

Higher policy rates to push up major sovereign bond yields: Reuters poll
Sumanta Dey – Reuters
Major government bond yields will rise over the next year on expectations of higher policy rates in the United States and possibly Britain, although a subdued inflation outlook will cap increases, a Reuters poll predicted.

Dragon Down
Paola Subacchi – Foreign Policy
What’s happened to Hong Kong? Having finished first and second in the last two editions of the Baseline Profitability Index, China’s door to the world now languishes in 11th place. It’s still a great place to invest, but doubts about Hong Kong have been building for a while. The territory’s closeness to the mainland’s economy, once its main asset, may end up being a liability.

China Could Mark the Bottom of the Commodity Bear Market Cycle
Mike Norman – TheStreet
China’s got it right. It’s focusing on fiscal policy now. China’s State Council decided last week to focus on a new fiscal plan, which includes 10 important measures to increase economic activity. Much of the new spending will go towards boosting investment in infrastructure and creating jobs.

Europe’s short term money markets are in a spin
Financial Times
Something unusual is happening in Europe’s short term money markets.
The European Central Bank, in an attempt to get money flowing around slow-growth economies, now charges banks to deposit money in its coffers – they pay the ECB up to 0.2 per cent to store their cash, Naomi Rovnick writes.

IMF Says It Still Expects Greece to Pay $1.7 Billion Due Tuesday
Andrew Mayeda – Bloomberg
The International Monetary Fund said it still expects Greece to repay $1.7 billion due Tuesday, as the lender and other creditors struggled to reach a last-minute accord with the nation to keep it from running out of cash.

Limited Progress Seen on Greek Debt Talks as Ministers’ Meeting Ends
James Kanter and Niki Kitsantonis – NY Times
The standoff between Greece and its creditors continues. Despite efforts to find a resolution to the impasse over Greece’s international bailout, eurozone finance ministers on Thursday broke up their fourth emergency meeting in a week without an agreement.

Worried About Debt-Market Liquidity? Sell Those Bank Bonds
Nabila Ahmed – Bloomberg
Call it the liquidity curse.
If rising interest rates prompt investors to flee debt markets, bank bonds could be the hardest hit among corporate securities, according to Bank of America Corp.

The world needs new tools in the fight against the next recession
Miles Kimball – Quartz
The cover of the June 13th Economist magazine trumpets “Watch out: The world is not ready for the next recession.” Within, the cover story explains:
“When central banks face their next recession, in other words, they risk having almost no room to boost their economies by cutting interest rates. That would make the next downturn even harder to escape.”
The Economist is wrong.

The Rise of the Compliance Guru—and Banker Ire
Anthony Effinger – Bloomberg
To hear Jamie Dimon tell it, regulation and the cost of compliance are becoming a threat to the American dream.

Emerging Bond Market Fed Fears Overdone, Fitch Says
Dimitra DeFotis – Barron’s
Worries about capital outflows from emerging markets may not be based in reality, Fitch writes.

Pension schemes and life insurance payouts at stake because of low interest rates
Jamie Dunkley – The Independent
Low interest rates and loose monetary policies are threatening the future of the insurance and pension industries by forcing providers to switch their investments into riskier asset classes, a damning report has warned.
The Organisation for Economic Co-operation and Development (OECD) said the current economic climate posed “serious challenges” to life insurers and final salary pension schemes, which may not be able to meet their obligations to policyholders in the future.

Dumping the Euro Isn’t a Cure-All: Easy Money Lets Governments Avoid Free-Market Reforms
Frank Hollenbeck – The Market Oracle
The Greek drama continues to unfold with the risk of “grexit” becoming increasingly likely. Yet, a large majority of the Greek people want to keep the euro. This, however, would require the Greek government to live within its means — something it has not been able to do for decades. With anti-austerity parties gaining strength continent wide, Greece may be the first, but not the last, to leave.

India’s Plan To Inject $3 billion Into Banks Is Just The Start
Shuli Ren – Barron’s
India plans to inject $3 billion into its state-owned banks, in a push to meet the global Basel III regulations.
The $3 billion is more than double an earlier estimate of $1.25 billion.
But this is only a start. Morgan Stanley earlier this month estimates that the state-owned banks need at least $14 billion capital boost.

Central Banks

How Federal Reserve Quantitative Easing Expanded Wealth Inequality
Jon Hartley – Forbes
The Brookings Institution earlier this month held a conference entitled, “Did the Fed’s quantitative easing making inequality worse?,” examining whether central bank long-term asset purchases (commonly known as quantitative easing) expanded wealth inequality through boosting prices of financial assets that are disproportionately owned by wealthier households.

Belgian Central Bank: ECB Governing Council Supports Emergency Lending to Greece
Natalia Drozdiak – WSJ
The European Central Bank’s governing council’s continued approval of emergency loans to Greek banks is justified because the banks are solvent with adequate collateral, Belgium’s Central Bank Governor Jan Smets said Thursday.
The ECB kept its lending to Greek banks unchanged Thursday under the emergency lending program known as ELA, according to a person familiar with the matter.
Lending under the program had been rising steadily in recent days, and now stands at nearly 89 billion euros ($99.58 billion), as uncertainty over Greece’s future in the eurozone had sparked an outflow of deposits from its banks. The program is run by Athens’ central bank – the Bank of Greece – but the ECB must approve increases in the ELA program’s size.

For system financial risk, use regulation not monetary policy
Paul Jenkins and David Longworth – Financial Post
High and rising household debt is raising red flags. In its June Financial System Review, the Bank of Canada evaluated risks to financial stability associated with household financial stress and a sharp correction in housing prices, and came to the conclusion that the impact of these risks stood at the highest level among those it assesses.

‘Monetary policy accommodation is now reaching its limits’ – ECB’s Knot
Dhwani Mehta – FXStreet
Speaking at a conference at the Organisation for Economic Cooperation and Development (OECD) in Paris, the European Central Bank’s (ECB) Governing Council member Klaas Knot said on Wednesday that the bank’s monetary policy easing is reaching its limits as it went as far as possible without running the risk of creating financial market bubbles.

Indebted firms constraining bank lending – RBI report
Suvashree Choudhury – Reuters
The ability of India’s debt-burdened firms to repay their debts has worsened as leverage has increased, straining a banking sector burdened by bad loans, according to a report released by the Reserve Bank of India on Thursday.

Taiwan Stands Pat on Interest Rates But Warns of Uncertain Outlook
Fanny Liu – WSJ
Taiwan’s central bank on Thursday left its benchmark interest rates unchanged, as expected, as low fuel prices kept inflation well below the official target.
Still, the bank warned of an uncertain global outlook, brought about by diverging monetary policies in the world’s major economies. While the U.S. is embarking on interest-rate normalization, Europe, Japan and China are freeing up more funds to spur growth, it said, adding that more volatile fund flows could disrupt a recovering global economy.

Bank of Canada takes aim at Dodd-Frank on bank failures
Claire Cameron – Reuters
The Bank of Canada, frustrated by unilateral U.S. moves which regulate Canadian banks with U.S. subsidiaries, called on Thursday for the two countries to work out a bilateral agreement to clarify responsibilities in winding up failed banks.


Tiny Greece’s Threat to Currency Credibility Is Why It Matters
Lukanyo Mnyanda – Bloomberg
To understand why Europe is investing so much time and effort on keeping Greece in the euro area, look no further than Mario Draghi’s celebrated speech three years ago.
At the height of the euro area’s sovereign-debt crisis in July 2012, the central bank president’s pledge to do whatever was needed to keep the region together underscored the principal at the heart of the currency bloc — that membership is irreversible.

The Myth of Currency Manipulation
Koichi Hamada – Project Syndicate
This month, the Japanese yen’s exchange rate against the US dollar fell below ¥125, a 13-year low, before rebounding to nearly ¥122 following a statement by Bank of Japan Governor Haruhiko Kuroda that he did not expect further depreciation. But, as Kuroda later clarified, Japan’s monetary policymakers do not seek to predict, much less control, exchange-rate movements. Instead, the BOJ’s goal – like that of any effective central bank – is to ensure the right combination of employment and inflation.

Swiss central bank braced for ructions if Greece exits euro
Tom Miles – Reuters
The Swiss National Bank anticipates considerable market turbulence if Greece quits the euro bloc and would fight a rush to buy already overvalued Swiss francs, the central bank’s chairman said on Thursday.

Curse of Swiss Franc’s Rally Seen Extending Beyond Greek Endgame
Lukanyo Mnyanda – Bloomberg
It’s going to take more than a resolution of the Greek crisis to free Switzerland from an overvalued currency that’s pushing it toward a recession, according to Europe’s biggest bank.
HSBC Holdings Plc says investors seeking a haven from the faltering global recovery will keep being attracted by the relative stability of the franc, even if Greece pulls back from the brink of default. The franc is the best performing major currency against the euro this year, and options prices suggest traders expect a repeat performance in the second half.

Winners and losers emerge from fragmented FX swap rules
Paul Golden – Euromoney Magazine
The International Swaps and Derivatives Association has frequently warned that market fragmentation will continue and market transparency will be damaged as US and European regulators fail to reconcile their FX rule sets.

Anticipating Further U.S. Dollar ETF Strength
Tom Lydon – ETF Trends
The U.S. dollar and related currency exchange traded funds will likely continue to strengthen as traders front-run the Federal Reserve.

Winds of change blow through FX risk management
Paul Golden – Euromoney Magazine
Earlier this month, Thomson Reuters announced a number of changes to its bank-to-customer e-commerce platform, including the integration of its multi-bank platform FXall.

Indexes & Index Products

Banks slash payments to index funds for Russell rebalance
Jessica Toonkel – Reuters
With the annual rebalance of the Russell stock indexes just a day away, brokerage firms are shaving the discounts they typically offer to big index funds on what is usually one of the biggest trading days of the year.

Advisers Wary As Indexes Add China A-Shares
Daisy Maxey – WSJ
Financial advisers largely welcome the addition of China A-shares to emerging-markets indexes and funds, but also appreciate that the shift is coming gradually. That’s because advisers remain a bit wary of A-shares, which are stocks of mainland China companies traded on the Shanghai or Shenzhen stock exchanges. They cite the market’s volatility and its current rich stock valuations.

The Broadening Opportunity Set Of MSCI Emerging Markets
What are the implications of adding new markets ? China A-shares or Saudi Arabia ? to the widely followed MSCI Emerging Markets benchmark? And how does Causeway’s Emerging Markets strategy adapt to an ever-changing investable universe? We examine the effects of adding these “graduating” markets to the emerging markets opportunity set.

Environmental and Socially Responsible Index Based on the S&P 500 Launched by S&P Dow Jones Indices
Press Release
S&P Dow Jones Indices, one of the world’s leading providers of financial market indices, announced today the launch of the S&P Environmental & Socially Responsible Indices which are designed to offer investors enhanced exposure to securities meeting sustainability investing criteria while maintaining a risk and performance profile similar to their respective underlying indices – the S&P 500 and the S&P Developed BMI Ex-U.S. & Korea LargeMidcap. The Indices have been licensed to Goldman Sachs Asset Management, who worked collaboratively with S&P DJI to develop the sustainability criteria used in these Indices.

Deutsche AWM Launches New Japan Nikkei 400 ETF
David Fabian – Benzinga
Deutsche Asset & Wealth Management has quickly made a name for itself with the release of innovative ETFs designed to take advantage of international markets. Its Deutsche X-trackers MSCI EAFE Hedged Equity ETF is number two on the list of top year-to-date inflows with over $10.6 billion in new assets.

London Stock Exchange says FTSE and Russell indexes making good progress


ICBC Considers London Gold Fix as Shanghai Preps Yuan Price
Industrial & Commercial Bank of China Ltd. became the latest Chinese bank to consider joining the auction process that sets gold prices in London as a yuan-based fix is on track to start in Shanghai this year.


The Robots Are Coming. To Put You in an Index Fund
Ben Steverman and Margaret Collins – Bloomberg
You’re sitting down with your financial adviser and looking her right in the eye. Is she advising you? Or selling you?
Some financial advisers, like doctors and lawyers, have a legal duty to put their clients’ interests first. Others are free to sell expensive funds or complicated annuities with hidden fees.
And then there are the robots.

Trigger-Happy Traders Fan Brazil Rout as Lula Report Sows Panic
Denyse Godoy and Filipe Pacheco – Bloomberg
These days in Brazilian markets, it’s shoot first and ask questions later.
A news report triggering concern that former President Luiz Inacio Lula da Silva could be arrested as part of a sweeping corruption scandal — a fear that was later diffused — sent investors scrambling to dump Brazilian assets, according to interviews with half a dozen brokerages from Miami to Curitiba, Brazil.

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