Our usual contributors are out on business trips but will be back with more commentary soon.
Quote of the Day
‘‘Although the Federal Reserve generally monitors developments in virtual currencies and other payments system innovations, it does not necessarily have authority to directly supervise or regulate these innovations or the entities that provide them to the market.”
Ben Bernanke in a letter to a Senate committee from the story, “U.S. Agencies to Say Bitcoins Offer Legitimate Benefits”.
Three Companies Weigh Bids for Euronext
Jacob Bunge and Telis Demos – The Wall Street Journal
Three exchange companies are in the early stages of considering individual bids for Euronext, the European exchange group set to be spun off after being acquired last week by IntercontinentalExchange Inc., according to people familiar with the discussions.
China Reform Plan Ticks All The Financial Boxes
Richard Silk – MoneyBeat – WSJ
The lack of any mention of financial reforms was one of the biggest disappointments in a generally underwhelming communique released at the end of a pivotal Communist Party meeting in Beijing on Tuesday. The full report from that meeting, published online Friday night, suggests China is planning to shake up the financial sector after all.
** JL: The biggest news was the change in the one-child policy.
Third Plenum cheat sheet
Paul Murphy | FT Alphaville
Just in case you haven’t been able to review the full 21,500 word “Decision” by the CPC’s Central Committee, covering 15 areas of reform and 60 concrete tasks, here’s a summary of the key measures, with commentary from Nomura’s Zhiwei Zhang
Summers on bubbles and secular stagnation forever
Izabella Kaminska | FT Alphaville
One of the most talked about things in economic circles this weekend? Larry Summers’ speech to the IMF Research Conference on November 8, the video of which started circulating at old fashioned money multiplier rates this Sunday.
** JL: I have tried bubbles, but they don’t do anything for me.
Forget data and rhetoric, Fed liquidity’s the only show in town
For all the fevered speculation about when the Federal Reserve will begin scaling back its monetary stimulus, market volatility has been taking a leisurely nap, suggesting investors see no major shocks on the horizon to derail their bets.
** JL: Volatility may slumber, but it can wake up in a hurry.
Treasury Yield Curve Is Steepest in Almost 2 Years on Fed Views
Susanne Walker – Bloomberg
The difference between the yields on five- and 10-year Treasury notes traded at almost the highest levels in more than two years on speculation the Federal Reserve will continue bond-buying into next year.
** JL: The two-year comparison might be a bit narrow.
Dealers turn to Asian assets for liquidity swap trades
Alex Davis – Risk.net
Last summer, BNY Mellon began facilitating a rather unusual trade flow out of Japan. The firm was using its Japanese trust bank as a vehicle to allow offshore broker-dealers to borrow Japanese government bonds from onshore lenders for terms of up to two years in exchange for a fee and lower-grade collateral. The JGBs would then be whisked away to be used as high-quality collateral in deals elsewhere.
Liquidity is dead?
Izabella Kaminska | FT Alphaville
The interesting thing about this year’s US government shutdown/debt ceiling fiasco was the extent to which markets chose to ignore the chaos in Washington. Indeed, taper tantrum proved much more destabilising then the system’s brief flirtation with a self-made US default. (Perhaps because it was clear from the onset the bluff was not executable?)
The Fed’s Bank Regulation Challenges
Mayra Rodriguez Valladares – American Banker
In her prepared confirmation hearing remarks, Federal Reserve chairman nominee Janet Yellen mentioned that U.S. banks are in much better shape than they were during the crisis. Indeed, this has been a banner year for new regulations that are already changing U.S. banks forever.
ECB interest rate cut could kill the wrong guy
Michael Heise – FT.com
Eurozone inflation is falling and many observers are sounding the alarm. Is the region teetering on the brink of Japanese-style deflation and was the European Central Bank right to react with its surprise rate cut in early November, they ask? The answer depends on whether the eurozone is experiencing “good” or “bad” deflation.
Colorful Fekter Hints Days Numbered As Finance Minister
Nicole Lundeen and Todd Buell – MoneyBeat – WSJ
Austria’s Maria Fekter has hinted she could be on her way out as the country’s finance minister as the country’s two main parties wrangle in coalition talks over ministerial posts after the last elections in September.
Japan’s Banks Find It Hard to Lend Easy Money
Phred Dvorak and Eleanor Warnock – WSJ.com
At Koeido Co., a 156-year-old sweets maker based in this city in southwest Japan, chairman Shuichi Takeda says he feels the country may finally be coming out of a 20-year funk. But with future demand unclear, and costs for imported sugar rising, Koeido still isn’t bullish enough to take out bigger loans to replace equipment or expand its business—even though banks are begging it to borrow more.
Iceland Tells Hedge Funds Not to Bet on 75% Claims Writedown
Omar R. Valdimarsson – Bloomberg
Iceland’s government says speculation by creditors in the island’s failed banks, many of whom are hedge funds, that they will need to take a 75 percent writedown on their claims is an exaggeration.
Fed Largess Aids U.S. Financial Strength BofA Deems Unrivaled
Cordell Eddings – Bloomberg
Five years after Federal Reserve Chairman Ben S. Bernanke dropped U.S. interest rates toward zero to end the worst economic crisis since the Great Depression, America’s financial markets have become the envy of the world.
Will the ECB Break Its Bond-Buying Taboo?
For five years, the European Central Bank has resisted calls for it to engage in quantitative easing. Is it time to break this final taboo? Last week’s euro-zone third-quarter gross-domestic-product data offered something for both sides of this increasingly polarized debate.
Podcast: Yellin’ About Yellen
Steven Russolillo – MoneyBeat – WSJ
Call it the Yellen rally. In the latest installment of MoneyBeat Week, our Friday podcast, the crew analyzed Janet Yellen’s Senate testimony — the nominee to lead the Fed next year –and what it means for the future of the Fed’s bond-buying program.
RBI to overhaul debt recovery process: Rajan
The Reserve Bank of India (RBI) is to soon announce measures to ensure fair recovery for bankers and investors, and to punish those trying to milk the system.
Ecosystem has a natural feel for the renminbi
Josh Noble in Hong Kong – FT.com
Based purely on the numbers, no financial centre has mounted a real challenge to Hong Kong when it comes to the renminbi. The city has been at the forefront of China’s moves to make its currency a globally accepted form of payment: it has been the test bed for reform, and the only well-established currency channel in and out of China itself.
Rajeev Kher taskforce mulls currency swap with Japan, South Korea to cut dollar outflow
The Economic Times
India is exploring local currency trade with Japan and South Korea as it seeks to cut outflow of dollars, much needed to finance its large current account deficit.
Indian FX/debt factors to watch – Nov 18
U.S. Agencies to Say Bitcoins Offer Legitimate Benefits
Max Raskin – Bloomberg
The Department of Justice and Securities and Exchange Commission are telling a U.S. Senate committee that Bitcoins are legitimate financial instruments, boosting prospects for wider acceptance of the virtual currency.
Indexes and Index Products
Stock Indexes Hit Milestones Before Slipping Back
AP (via ABC News)
U.S. stock market indexes are hitting major round-number milestones.
The Dow Jones industrial average crossed 16,000 for the first time early Monday. The Standard & Poor’s 500 rose past 1,800, then dipped slightly.
The future looks bright for ETF trading volumes
Leland Clemons – Financial News
Assets under management in exchange-traded funds have grown at an incredible rate (22.6% annually) over the past five years, however, the evolution of the trading landscape has not kept pace with the growth in assets.
What Floats Your Boat Might Not Float Your Fund
Jason Zweig – MoneyBeat – WSJ
The question isn’t whether interest rates will rise, but when. As Janet Yellen, the nominee to succeed Ben Bernanke as head of the Federal Reserve, made clear to lawmakers Thursday, the Fed won’t keep rates low forever. Some investors already are trying to protect themselves by pouring money into “bank loan” funds, or portfolios that hold short-term loans extended by banks to companies.
Investors Weigh End Game in Bond Rally
E.S. Browning – MoneyBeat – WSJ
Smart analysts have been warning for years that the bottom could fall out of the surging bond market. They were wrong. Bond yields went to unprecedented lows, pushing bond prices to unprecedented highs, and they just kept going. The weak economy, tiny inflation and exceptional Federal Reserve policies took bonds to unnatural levels.
Leveraged exchange-traded funds see strong rise
Mike Foster – Financial News
The value of leveraged exchange-traded funds globally has risen 24% this year to the end of October, to $23.3 billion, according to leveraged ETF manager Boost.
Markit Unveils Global ETP Platform
Faye Kilburn – WatersTechnology
Data vendor Markit has developed a new platform which will enable users to navigate and analyze its universe of over 5,100 global exchange-traded products.
Gold-Laden Brides in India Defying Singh as Culture Win
Swansy Afonsos – Bloomberg
As the sound of traditional drums, trumpets and cymbals ushers Amrita Mannil into the wedding hall, she’s adorned by four finely crafted necklaces, rings, 16 bangles, a glistening belt, dangling chandelier earrings and a stone-encrusted head piece to match the silk borders of her dress. She’s wearing about 800 grams (1.8 pounds) of gold.
Gold Bears Return Before Yellen Signals More Easing: Commodities
Luzi Ann Javier & Debarati Roy – Bloomberg
Investors got less bullish on gold as hedge funds doubled their short holdings just before prices erased a weekly loss and Janet Yellen pledged to press on with economic stimulus if confirmed as Federal Reserve chairman.