First Impressions

MarketsWiki Education, Chicago 2015, Day Three
Today is the day of our third and final session of this year’s intern education series in Chicago. Headlining today’s sold-out event, held at the recently-renovated event space at Trading Technologies, will be Chicago Mayor Rahm Emanuel. He will be followed by Phupinder Gill, CEO of our Global Premier Sponsor CME Group. Next comes veteran industry compliance executive Mary McDonnell, Chicago Stock Exchange CEO John Kerin, and the event concludes with CBOE business development head Andrew Lowenthal.

Not coincidentally, today is also the day we release the first of the videos from the New York intern series July 15. We will be releasing these over the next few weeks, beginning with NYSE COO Stacey Cunningham. This and all videos from past events, along with a new and improved job board, can be found on the newly-redesigned education web site.

Thanks again to all of our sponsors, including CME Group, BATS, Barchart.com, The IFM, Trading Technologies, CBOE, Nadex, ICE, SunGard and IIT Stuart School of Business.

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Stacey Cunningham, NYSE – The Intersection of People and Technology
MarketsWikiEducation.com

“It’s not about you. You don’t take it personally. You’re working for a goal.”

Stacey Cunningham, COO of NYSE, says the driving factor in her career has been “choosing what was right for the business and choosing what was right for the organization.” Some of those decisions were a good fit for her as well, but not always. She also talks about how technology has created speed and access to the financial markets in ways no one could have predicted. Here’s her story on the intersection of people and technology, and how that can work best on a single technology platform at NYSE.
Watch the video »

Quote of the Day

“Putting the information out there too fast can bamboozle the narrative. There’s less of an ability for journalists and analysts to pick up on the right issues.”

Kevin Dowd, an adjunct scholar at the Cato Institute in Washington, in the story, “Beware: Gazing Into Central Bank’s Crystal Ball Can Befuddle as Well as Benefit”

Lead Stories

The Irresistible China Trade That Keeps Burning Investors
Cindy Wang – Bloomberg
It looked like a no-brainer for buyers of Chinese shares in Hong Kong.
Valuations in April were 25 percent cheaper than in the mainland, monetary stimulus was just getting started and money was pouring in through Hong Kong’s new exchange link with Shanghai. Bulls snapped up funds tracking so-called H shares at a record pace, while analysts at some of the world’s biggest banks predicted big gains to come.
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The Activist Floodgates Are Open, J.P. Morgan Says
Giles Turner – WSJ
“New entrants are pouring into shareholder activism,” and “the floodgates are open,” according to a new report from J.P. Morgan’s corporate defense team.
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Wolfgang Schäuble, Debt Relief, and the Future of the Eurozone
Ashoka Mody – Bruegel.org
The German Finance Minister Wolfgang Schäuble has had enough. Greece, he says, cannot receive debt relief from European creditors because European official creditors are forbidden by European treaties to grant relief. But this cannot be true. Once a loan has been made, any lender exposes himself to a default risk. The reason Schäuble is concerned is that the carefully constructed but fragile crisis management system—intended to insulate Germany from paying the bills of others—is now under threat. If Greece creates a precedent, then either the crisis management system goes, or a transfer union is effectively in place, with Germany on the hook. Hence his call for Greece’s exit is accompanied by an equal vigorous effort to control the budgets the euro area sovereigns. Acrimony is bound to follow, creating deeper divisions in Europe.
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China, Hong Kong Cross-Border Fund Sales Awaits Approval
Bloomberg Business
Money managers and banks are still waiting for regulators to approve sales of funds under the mutual recognition plan between Hong Kong and China a month after its start date, according to people with knowledge of the matter. The China Securities Regulatory Commission hadn’t officially started processing applications from Hong Kong fund houses as of July 31 as it focused on stabilizing the stock market, the people said, asking not to be identified because the information is private.
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Fund giants back new project to boost shrinking bond liquidity
Laura Dew – InvestmentWeek
A new industry initiative aiming to improve liquidity in the fixed income market has gone live under the title Neptune, supported by 42 banks and investment firms.
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Basel IV Is the Buzzword as Europe’s Big Banks Brace for Costs
Nicholas Comfort – Bloomberg Business
“Basel IV is coming.” Laurent Mignon, chief executive officer of Natixis SA, sounded that alarm on July 31, referring to the mass of regulatory work in the pipeline at the Basel Committee on Banking Supervision. The issue was raised on at least a dozen other European banks’ earnings calls in recent weeks.
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EU officials to review progress in Greek bailout talks
Robert-Jan Bartunek and Lefteris Papadimas – Reuters
Senior EU officials will confer by telephone late on Friday on progress in negotiations between Greece and its international creditors on a third bailout for the near-bankrupt euro zone country with Germany reported to be warning against haste.
Greek Prime Minister Alexis Tsipras is trying to force the pace of the talks, keen to wrap up agreement on sensitive economic reforms by mid-August, while many Greeks are on holiday, and receive an initial aid disbursement by Aug. 20 in time to make a bond payment to the European Central Bank.
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Two Large Puerto Rico Bondholders Demand Full Payment
Mary Williams Walsh – NY Times
Two mutual fund companies that hold Puerto Rico’s bonds wrote to senior officials on the island on Thursday, demanding full payment on bonds that defaulted earlier in the week.
“The path that the current administration has chosen will steer Puerto Rico towards litigation and create further deterioration in the capital markets’ trust in Puerto Rico, potentially leading to years of economic turmoil,” the senior vice presidents of OppenheimerFunds and Franklin Advisers said in a joint letter.
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Investors Run Out of Reasons to Sell Greece
Tommy Stubbington – WSJ
After a bruising week, Greek stocks appear to be bottoming out.
Shares tumbled after Greece’s stock market reopened on Monday after a five-week hiatus during which the country teetered on the brink of an exit from the eurozone. But a small rally late in the week indicates a lack of enthusiasm to chase the beaten-down market lower still.
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Rise of the Robots May Hold Back Interest Rates
Mark Gilbert – Bloomberg
The U.S. Federal Reserve still seems to be set to raise borrowing costs later this year, probably in September. The Bank of England is trying to convince investors that it, too, is poised to push up interest rates. I’m still worried both may be seduced into acting before their economies justify a move. They may be propelled instead by psychology: Leaving rates near zero makes central bankers uncomfortable.
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Europe adopts rules to force OTC swaps clearing
Philip Stafford – FT
Europe is set to enforce mandatory clearing of interest rates swaps from late April next year after Brussels yesterday adopted new rules to bolster over-the-counter derivatives trading. The move means Europe will finally fall into line with counterparts in the US and Japan — the other main markets for over-the-counter derivatives clearing — in requiring big market participants such as banks to clear some of the swaps.
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China’s Stock Crash Is Spurring a Shakeout in Shadow Banks
Bloomberg Business
China has been struggling to tame its shadow banks for years. Now, a stock market crash has hamstrung some of the fastest growing ones in a matter of weeks. Loans from sources such as online lenders for equity purchases have plunged by at least 700 billion yuan ($113 billion), a drop of 61 percent from this year’s peak, after authorities banned them from funding stock buying in July, according to a Bloomberg survey conducted last month.
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PIMCO: Villain or Hero?
John Rekenthaler – Morningstar
On Monday, PIMCO disclosed that the SEC had served the company with a “Wells Notice” for alleged infractions in pricing bonds for PIMCO Total Return Active ETF (BOND), launched in early 2012. A Wells Notice indicates that the SEC plans to file a civil suit against the company, but PIMCO does have the opportunity to attempt to dissuade the commission. The notice “pertains to the valuation of smaller sized positions in non-agency mortgage-backed securities” bought by the fund during its first four months of operations.
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Can Putin Save Russia’s Struggling Companies?
Carol Matlack – Bloomberg
Russian agribusiness group EkoNiva recently got a 2 billion ruble ($32 million) loan to expand its dairy operations in the Black Earth region of Voronezh. There’s nothing unusual about that, except that the loan came from the Central Bank of Russia, which has set aside 100 billion rubles to help finance industrial and agricultural projects.
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Basic materials M&A hits seven-year high buoyed by chemicals deals
Pamela Barbaglia – Reuters
Worldwide dealmaking in the basic materials sector rose in July to a seven-year high, lifted by U.S. fertiliser maker CF Industries’ $8 billion bid for some of Dutch firm OCI NV’s North American and European, Thomson Reuters data shows.
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Canadian Banks’ Money-Laundering Controls Failed; Canada’s banking regulator found 72 failures of anti-money-laundering controls between 2009 and 2014
Rita Trichur and Alistair Macdonald – WSJ
Canada’s top banking regulator has found that money-laundering controls at the country’s banks failed on numerous occasions, according to a document obtained by The Wall Street Journal.
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Central Banks

One Whiff of Rate Increase and Currency Traders Pre-Empt Policy
Eshe Nelson – Bloomberg
Central bankers in Europe have their hands tied by currency markets.
Take the Bank of England. Governor Mark Carney said in mid-July the time for higher interest rates was getting closer. On Thursday, U.K. policy makers said the stronger pound would hold inflation lower for longer than they’d expected, making an imminent move less likely. The Czech central bank said the same day the koruna was getting in the way of its price-growth targets.
The concern for policy makers is that, with interest rates near record lows around the world, the faintest whiff of an increase is sufficient to draw a flood of cash in their direction. That has the same effect as tightening policy and makes central banks reluctant to act.
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Nobody is talking about the world’s most underrated economic policy
Ryan Cooper – The Week
Since the 2008 crisis, practically the entire developed world has been stuck in an economic sandpit. Not only have most nations not fixed their economies, they have almost totally abandoned attempting to fix them. Outside of some halfhearted monetary stimulus, they have instead chosen to make the problem worse with job-killing austerity.
As a result, 2008 is looking increasingly like a global hinge point in economic development, where the steady upward trend in per capita GDP from the Industrial Revolution through the early 21st century slowed dramatically. The potential implications are colossal. In the U.S. alone, estimates of the gap between potential and actual economic output are today about $500 billion per year — which has decreased from over $1 trillion in 2009 mainly through the slow erosion in potential, rather than catch-up growth that would undo some of the damage of the Great Recession. The cumulative worldwide loss 50 years hence could be literally in the tens of trillions of dollars.
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Why a Boring Jobs Report Is Great News for the Fed
Neal Irwin – NY Times
Here is how to think about the July jobs numbers that the government released Friday morning: Whatever you thought about the economy, or financial markets or the proper course of Federal Reserve policy at 8:29 a.m., just before the numbers were released, you have every reason to have also believed it at 8:31 a.m., just after.
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Fed Rate Hike in September Seen 60% Likely
Barron’s
Comments Tuesday from Federal Reserve Bank of Atlanta President Dennis Lockhart pushed up the probability of a 25 basis-points Fed rate hike, to a 0.25-0.50 target range, at the Sept. 17 Federal Open Market Committee meeting from 41% to 60% per the fed-fund futures curve and our calculation.
This contrasts with the reaction across asset classes last week (lower U.S. Treasury yields, weaker dollar, etc.) following the smallest ever increase in the Employment Cost Index for June.
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Beware: Gazing Into Central Bank’s Crystal Ball Can Befuddle as Well as Benefit
Tobias Burns – TheStreet
The Bank of England released the minutes of its Monetary Policy Committee meeting this week just 24 hours after the meeting itself took place — a speedy new precedent for one of the world’s oldest central banks.
The move is part of a larger trend on the part of monetary authorities toward transparency and responsiveness, which analysts say can benefit investors who know how to spot the clues.
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China Central Bank to Use Monetary Tools to Ensure Sufficient Liquidity
Grace Zhu – WSJ
China’s central bank said Friday that it would use a combination of monetary tools to ensure sufficient levels of liquidity in the economy amid slowing growth.
The People’s Bank of China said in its second-quarter monetary policy report that it would enhance the flexibility of its monetary policy, while continuing its prudent stance.
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Bank of Japan Leaves Monetary Policy Unchanged as Forecast
Toru Fujioka and Masahiro Hidaka – Bloomberg
The Bank of Japan refrained from expanding monetary stimulus as Governor Haruhiko Kuroda bets the world’s third-biggest economy will emerge from a recent soft patch and inflation will pick up.
The central bank will keep increasing the monetary base at an annual pace of 80 trillion yen ($640 billion), as expected by all 37 economists surveyed by Bloomberg.
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Finance ministry to seek cabinet nod for monetary policy panel; no veto power for RBI governor
Deepshikha Sikarwar – Economic Times
No veto, but a casting vote. That’s what the Reserve Bank of India governor could have on the Monetary Policy Committee, according to the proposal that the finance ministry is readying to present to the Cabinet. This is based on an understanding that the finance ministry has reached with RBI on the contours of the committee. Once Cabinet approves the plan, the government will move legislation in Parliament to amend the RBI Act to pave the ground for the creation of the committee, setting in motion a key reform that was in Finance Minister Arun Jaitley’s February Budget.
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Currencies

Exchanges stake out $5tn currency market for next OTC battle
Philip Stafford – FT
Exchanges are staking out the $5tn a day global currency market as part of their latest efforts to tap this lucrative and booming sector that has long been dominated by global banks. This week Bats Global Markets, the US’s second largest equities exchange, fired the latest salvo by offering three months of free trading on its forthcoming London-based Hotspot currency trading platform, the centrepiece of Bats’ $365m purchase of the venue from KCG Holdings in March.
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The Euro’s Failed Dream of a Wonderful Life
Stephen Fidler – WSJ
What would Europe be like if the euro had never been born? Unlike George Bailey in the 1946 film classic “It’s a Wonderful Life,” we don’t get the chance to go back and find out.
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Currency changes and contracts: Lessons for Greece
Sebastian Edwards – VOX
A number of commentators continue to think that Greece’s best option is to exit the Eurozone and reintroduce the drachma at a depreciated level ((e.g. Brinded 2015). Those that favour this policy argue that with a currency of its own and exchange rate flexibility, Greece would gain competitiveness, increase exports, and move towards recovery.
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Bitcoin startups lure quant whizzes from Wall Street
Gertrude Chavez-Dreyfuss – Reuters
Armed with a doctorate in financial engineering, 34-year-old Timo Schlaefer was on his way to a promising career at Goldman Sachs in London. Previously with the bank’s mergers and acquisitions team, he became an executive director of credit quantitative modeling at Goldman, where quants like Schlaefer are highly valued.
In February he gave that up, and launched a company called Crypto Facilities Ltd, a bitcoin derivatives trading platform, which now has six employees. For now, the platform trades bitcoin forwards, which are directly linked to the price of bitcoin, but it’s also developing other digital currency derivative products.
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India’s Rupee Rises Most in Asia This Week on Inflow Optimism
Nupur Acharya – Bloomberg
India’s rupee rose the most in Asia this week on speculation policy makers will ease curbs to allow global funds to buy more of the nation’s debt.
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Malaysia Reserves Slide Below $100 Billion Amid Ringgit’s Plunge
Y-Sing Liau – Bloomberg
Malaysia’s foreign-exchange reserves dropped below $100 billion for the first time since 2010 after the ringgit slid 18 percent in the past 12 months.
BNP Paribas SA, Societe Generale SA and Australia & New Zealand Banking Group Ltd. all cut their forecasts this week for Asia’s worst-performing currency, which has weakened due to a slump in oil, a political scandal involving Prime Minister Najib Razak and odds for a U.S. interest-rate increase. As speculation mounts that the central bank is buying the ringgit to stem the losses, Societe Generale said the defense of the exchange rate may stop at about the $90 billion reserves mark.
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Indexes & Index Products

Half the Gain Gone in Energy Partnerships Bitten by Rates, Oil
Joseph Ciolli – Bloomberg
An energy investment vehicle best known for providing reliable cash payouts is running out of gas.
The Alerian MLP Index has retraced half of the 254 percent gain it realized over a six-year period starting November 2008. The gauge, which tracks 50 master-limited partnerships, is 22 percent below its 200-day moving average, the biggest discount to the technical measure since 2009.
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China market turmoil could delay Hong Kong futures plan: sources
The Fiscal Times
Plans by the Hong Kong stock exchange to begin trading China’s most popular index future could be delayed due to growing opposition from Chinese officials unnerved by a recent sell-off in mainland share markets, sources said. The Hong Kong Exchanges & Clearing (HKEx) has been in talks with Chinese authorities and brokers over launching the CSI300 futures contract in Hong Kong, a move that would further open up the mainland equity market to foreign investors.
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Lost In The Crowd? Identifying & Measuring Crowding Strategies
Rupert Hargreaves – ValueWalk
Back in June, MSCI published a research report titled, “Lost In The Crowd? Identifying And Measuring Crowding Strategies And Trades”. The report discussed the issue of crowding risk, and the effects it could have on an investment strategy. Indeed, the rapid growth of “smart beta” indexes and their use in ETFs, has increased the risk of overcrowding for some investment instruments. As a result, accounting for crowding risk in any investment strategy is important because it may a substantial portion of strategy risk and performance during certain periods, especially during times of excessive market volatility.
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China ETFs May Be Trading Back Down to Fair Value
Tom Lydon – ETF Trends
fter dropping off from the June highs, Chinese equities and country-specific exchange traded funds may have dipped back to fair market value. Alexander Redman and Arun Sai at Credit Suisse looked at four different indicators on pricing of MSCI China H-shares and B-shares after the Chinese market sell-off.
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Active vs. Passive Investing: Dispelling Some Popular Beliefs
Think Advisor
As the ongoing debate between active and passive management continues with no end in sight, advisors may want to consider these findings from S&P Capital IQ and S&P Dow Jones Indices that dispel some popular investment beliefs. They were presented in a webinar this week hosted by Todd Rosenbluth, director of ETF Research at S&P Capital IQ, and Aye Soe, senior director of global research and design at S&P Dow Jones Indices.
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ETFs And ETPs Listed Globally Are Gathering Net New Assets 21 Percent Faster Than In Prior Years According To ETFGI
Mondovisione
ETFs and ETPs listed globally are gathering net new assets 21% percent faster than in prior years according to ETFGI. Assets invested in ETFs and ETPs are again above the US$3 trillion milestone which they first passed at the end of May 2015 before dropping below US$3 trillion at the end of June 2015.
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Gold

Traders Have Disappeared From the Gold Market
Joe Deaux and Tatiana Darie – Bloomberg
As gold continues to languish near its lowest price in five years, one element seems to be missing: traders.
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Joe Mazumdar Tells Gold Investors to Go Underground to Survive
The Market Oracle
Unlike many analysts, Joe Mazumdar of Canaccord Genuity does not expect a substantially higher gold price any time soon. So what are hard-pressed gold investors to do? In this interview with The Gold Report, Mazumdar argues that they should seek high-grade resources—usually underground—in stable jurisdictions that benefit from the strong American dollar. And he highlights seven near-term developers that offer exactly that.
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Miscellaneous

In ‘Wild West’ of after-hours trading, some find profit, others pain
Noel Randewich – Reuters
Medical student Syed Shah loves to trade tech stocks when most on Wall Street have called it a day.
In what many professional investors view as an inhospitable trading landscape starved of liquidity and fraught with dramatic price swings, Shah and others see buying stocks outside of normal trading hours as a chance to get in early on those swings after popular companies such as Facebook and Chipotle Mexican Grill post quarterly reports.
Observing that steep moves in the after-market hours often extend into the following day, the 26-year-old New Yorker made a quick profit on Yelp after the review website reported a surprise second-quarter loss late on July 28. He shorted the stock in extended trade as it dropped to $28 from $33 and then bought it at $24 the following day to close his position.
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