Bits & Pieces
They call them the dog days of summer. We used to think that means sleepy and laid back. This month, it seems, it means we are working like dogs.
Well, unless you are Jim Kharouf. Jim has been on holiday for the past two weeks, which added to the rest of our workloads. To be fair, though, Jim did put in a month of hard work before he left, finishing up three projects for John Lothian Productions, as well as a couple of editorial interviews. We will see him in the office for a few days, and then he and Patrick Lothian head to New York for a project with the International Securities Exchange (more on that in the coming days), and they will also be stopping by the DTCC/Euroclear Collateral Conference for the Americas
During that time Doug Ashburn will be speaking at CTA Expo Chicago, where he will join Sol Waksman, head of BarclayHedge, in a panel on modern investment fund databases and the tools that separate them.
John Lothian and JLN Managing Editor Sarah Rudolph will be headed to the Burgenstock conference in Geneva on September 20. They will be finishing their trip in Paris, meeting up with JLN Environmental/Energy editor Lysiane Baudu
We do not exactly put on the brakes in October, either. We are headed to London for another round of MarketsWiki Education sessions. We will hold three sessions, one on the afternoon of October 14, followed by a reception, and then two sessions on the 15th. Each session will be held at Nasdaq, Woolgate Exchange, in the heart of the City. Registration is officially open. Please click HERE for all the information on dates, speakers, directions and more. Please pass along the info to all your London friends who may have interns, college students, young professionals and anyone else who would benefit from these increasingly popular talks.
We keep having to remind ourselves – we are not an events company. But we play one on TV.
Quote of the Day
“As soon as people sense the government is withdrawing from direct intervention, there will be lots of investors starting to dump stocks again.”
David Cui, China equity strategist at Bank of America in Singapore, in the story, “China’s Stock Rout to Resume as Intervention Ends, Says BofA”
Tough and Tougher for Investment Banks in Asia
Giles Turner – WSJ
Rumblings from China have caused Asian markets to throw a summer tantrum. This has been difficult for stock-market bulls, but not as bad for investment banks operating in Asia. For now, anyway.
BNY Mellon glitch roiled pricing on U.S. funds with $404 bln in assets
Tim McLaughlin – Reuters
BNY Mellon Corp’s computer glitch this week has disrupted pricing on nearly 5 percent of U.S. mutual funds and exchange-traded funds with about $404 billion in assets, according to data from Morningstar Inc and Lipper Inc.
China banks warn of rising bad loans and falling margins as economy slows
Engen Tham and Shu Zhang – Reuters
China’s largest banks warned of a tough year after posting their weakest half-yearly profit growth in at least six years as a slowing economy forces the lenders to make even more provisions for soured loans and squeezes interest income.
This Is One Junk-Bond Rout You Can’t Blame on Wall Street
Lisa Abramowicz – Bloomberg Business
Here’s the bright side for all the investors who’ve been so worried about banks using less money to facilitate trading in the $8 trillion corporate-bond market: at least Wall Street wasn’t a big seller in this latest rout.
The Bush Leaguers of Beijing
Paola Subacchi – Foreign Policy
What better way for China to cement its role in the global economy than to be the trigger of a global financial crisis? It was the United States in 2008 and Europe in 2011 and 2012; now it is China that is sending shockwaves through financial markets. Just as Beijing insists, the global economy is now multipolar — no longer an American-dominated block with the dollar at its core. And like it or not, China has become one of these poles — perhaps before it was quite ready.
Tax-Dodger Hunt Neutralizes Swiss Bank Secrecy, U.S. Says
Andy Hoffman and Hugo Miller – Bloomberg Business
Swiss banking secrecy is no longer viable as the U.S. Justice Department closes in on agreements with most of the institutions that may have helped Americans evade taxes, according to the top American diplomat in Switzerland.
LatAm credit steady on firmer commodities
Paul Kilby – Reuters
LatAm credit was holding steady in the face of EM’s largest debt outflows in two years, as investors pin their hopes on a stabilization in commodity prices and a delay in US rate hikes.
Creditors Squeeze the Last Drop Out of Oil-and-Gas Companies
Matt Jarzemsky – WSJ
Cash-starved oil-and-gas companies are getting a lot of mileage out of their assets these days.
A severe slump in commodity prices has sent energy explorers and producers scrambling to shore up their balance sheets, leading to a flurry of debt sales this year by the industry’s most financially strained firms. The new bonds typically promise creditors ownership of the company’s assets, should it default. But in many cases, that claim sits behind the liens of one or even two higher-priority slices of debt.
U.S. funds cut recommended global equity exposure again: Reuters poll
Siddharth Iyer – Reuters
U.S. funds cut recommended equity allocations in August and increased exposure to debt, a Reuters poll found, largely maintaining a broad trend since the start of the year as stocks underperform and government bonds remain in demand.
China’s Stock Rout to Resume as Intervention Ends, Says BofA
The rebound in China’s stocks will be short-lived because state intervention is too costly to continue and valuations aren’t justified given the slowing economy, says Bank of America Corp.
Three European banks fight for right to manage US pensions
Martin Arnold – Financial Times
Three of Europe’s biggest banks are scrambling to keep their right to manage money for US pensioners after regulators threatened to withdraw it as further punishment for pleading guilty to market manipulation earlier this year.
BoE Staff: Bond Dealers Aren’t The Shock Absorbers They Used To Be
Ralph Atkins – WSJ
Bond trading has enjoyed a more stable week than equities, but questions still remain about how liquid the market will be in the event of a fixed-income selloff.
Quant Risk Overblown to SocGen as JPMorgan Warns No Rally Safe
Inyoung Hwang and Camila Russo – Bloomberg Business
Warnings that computer-driven investors could ignite crashes in stocks with robotic selling in coming weeks are simplifications that fail to account for precautions the funds take to lessen their impact, according to Societe Generale SA.
Zombie Factories Stalk the Sputtering Chinese Economy
Michael Schuman – The New York Times
Miao Leijie loses money on each ton of cement his company produces. But stopping production is not an option.
When the plant opened in 2011 to supply the real estate and infrastructure industries in the northern Chinese city of Changzhi, the company raised most of the initial money from banks. Now, Mr. Miao, the factory’s general director, needs to keep churning out cement simply so the company can pay the interest on its loans.
Uh-oh, Canada. China Pales as a Risk to U.S. Growth
Jeanna Smialek – Bloomberg Business
Canada probably experienced a technical recession in the first half of 2015, and the fact that the No. 1 U.S. export market is in a slump could spell bad news for growth in the world’s biggest economy.
Canada’s gross domestic product contracted for a second quarter in the three months through June, a Sept. 1 report will show, according to almost all economists in a Bloomberg survey. The economy probably shrank by 1 percent, even worse than the 0.6 percent first-quarter drop.
We should worry about China’s politics not the economics
Bill Emmott – Financial Times
In all the noise and debate, the stock market crash raises three big questions
Wreckage of containers are seen at the site of the explosions in Tianjin on August 15, 2015. Residents near the site of two giant explosions in the northern Chinese port city of Tianjin were being evacuated on August over fears of toxic contamination, state media said. CHINA OUT
Bottom Fishing for Bargains Amid the Market Turmoil
Min Zeng – WSJ
Some of the world’s largest money managers have been bottom fishing amid this week’s global market turmoil, snapping up beaten-down assets that they now see as relative bargains.
Senior money managers at Allianz Investment Management and Schroders Investment Management said in interviews they have stepped in to buy U.S. corporate bonds over the past few days. Meanwhile, BlackRock Inc., the world’s largest money manager by assets, said in its weekly investment report that European stocks and German stocks are attractive to buy.
German Inflation Holds Near Zero as ECB Shows Concern
Fergal O’Brien – Bloomberg Business
German inflation held close to zero for a third month amid a drop in oil prices that’s raised concerns among some European Central Bank policy makers.
Understanding the Mechanics—and Risks—of Securities-Based Loans
Michael Wursthorn and AnnaMaria Andriotis- WSJ
While the stock market has surged from its low on Tuesday, the recent sharp downdraft highlighted the risks that individual investors and financial institutions face from loans backed by investment portfolios.
S.E.C. Settlement With Citigroup Holds No One Responsible
Gretchen Morgenson – The New York Times
How can we expect Wall Street’s me-first culture to change when regulators won’t pursue or even identify the me-firsters who are directly involved?
That question came to mind after reading the terms of a settlement struck on Aug. 17 between the Securities and Exchange Commission and two units of Citigroup. It is a deal that holds no one at the bank accountable for behavior that caused investors to lose an estimated $2 billion.
Fed says rate hike next month hinges on market volatility
Jonathan Spicer and Howard Schneider – Reuters
The U.S. Federal Reserve on Friday left the door open to a September interest rate hike even while several central bank officials acknowledged that turmoil in financial markets, if prolonged, could delay monetary policy tightening.
Some top policymakers, including Fed Vice Chairman Stanley Fischer, said the recent volatility in global markets could quickly ease and possibly pave the way for the first U.S. rate hike in nearly a decade.
Why the Fed Won’t Raise Rates by Much
Justin Lahart – WSJ
The topic at the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyo., is “Inflation Dynamics and Monetary Policy.” Pardon the attendees at this year’s meeting, which runs through Saturday, if they are feeling a little deflated.
Market turmoil shouldn’t delay at least one Fed rate hike: Bullard
Jonathan Spicer – Reuters
Recent market turmoil should not delay the Federal Reserve from raising U.S. interest rates at least once, given that the selloff and a slowdown in China have so far had little effect on the U.S. economy, a top Fed official said on Friday.
Fed’s Fischer: Still too early to tell if September hike will happen
Everett Rosenfeld – CNBC
It’s too early to determine if recent market turmoil has made a September rate hike more or less compelling, Federal Reserve Vice Chairman Stanley Fischer told CNBC on Friday.
Some Fed thoughts: QE4 and all that
Matthew C Klein – FT Alphaville
After a considerable period of boredom, trying to figure out America’s central bank has gotten interesting again.
For months, the mid-September meeting of the Federal Open Market Committee was being telegraphed as the most likely start date of the “normalisation” process. Or, to use another bit of central banker-ese, the day when short-term interest rates would begin “liftoff” from the current range of zero to 25 basis points.
Fed’s Kocherlakota Says Open To More Stimulus Measures
Michael S. Derby – WSJ
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Friday he’d likely support additional stimulus measures from the U.S. central bank if such options were on the table.
All of That Dollar Borrowing in Emerging Markets Looks Like It’s Been One Giant Carry Trade
Since the 2008 financial crisis, companies across emerging markets have been borrowing dollars and converting them into local currencies as part of a massive carry trade. This practice has helped U.S. dollar shadow banking go global as the effects of near-zero U.S. interest rates seep into all corners of the world economy.
Switzerland avoids recession despite steep rise in franc
Ralph Atkins – Financial Times
Switzerland has unexpectedly escaped falling into recession, with the affluent Alpine economy weathering a steep rise in the value of the Swiss franc.
A Currency Drop is Inflationary, Right?
Jeff Black Jennifer Ryan – Bloomberg Business
The central banker’s task of keeping inflation just right has become a permanent tussle with the global currency markets. Too weak a currency equals too rapid price gains. Too strong, and disinflation looms.
Brazil’s Real Leads Losses in Latin America as Stocks Fluctuate
Paula Sambo Denyse Godoy – Bloomberg Business
Brazil’s real led global losses and stocks slumped after data showing Latin America’s largest economy entered a recession added to concern corporate earnings will falter.
China’s Big Dollar Borrowers Hold Off on Hedging Foreign-Currency Debt
Fiona Law and Esther Fung – WSJ
Chinese real-estate firms, among the country’s heaviest dollar borrowers, aren’t rushing to hedge their foreign-currency liabilities even as the surprise devaluation of the yuan last month adds to their debt load, according to interviews with property developers, bankers and analysts.
Bitcoin Technology Piques Interest on Wall St.
Nathaniel Popper – The New York Times
Most people still think of Bitcoin as the virtual currency used by drug dealers and shadowy hackers looking to evade the authorities.
But the innovations that helped turn Bitcoin into the most popular virtual currency are now being viewed as a potentially enormous disruptive force for several industries, including accounting, music and journalism.
Nowhere, though, are more money and resources being spent on the technology than on Wall Street — the very industry that Bitcoin was created to circumvent.
Printing Money Goes Haywire in Venezuela
Megan McArdle – Bloomberg View
Venezuela seems to be hovering on the edge of tipping into hyperinflation. Or perhaps it has already fallen into the abyss. Given the paucity of official data — the none-too-believable official figures were last published in February — it’s a little hard to tell. The best guess we have at the value of a Venezuelan bolivar comes from the Colombian village of Cucuta, where people go to buy currency so they can smuggle subsidized fuel and other price-controlled goods out of Venezuela. As The Economist notes: “Transactions are few; the dollar rate is calculated indirectly, from the value of the Colombian peso. The result is erratic, but more realistic than the three official rates.”
Indexes & Index Products
Asia Seeks Algorithms to Beat Turmoil as Designer Indexes Surge
Regina Tan – Bloomberg Business
Tired of dull returns from traditional indexes? Try designing your own, throwing in a secret formula and maybe earning 6 percent even as the world caves in.
ETF providers question US trading limit rules
Joe Rennison and Nicole Bullock – Financial Times
Providers of exchange traded funds reeling from the market turmoil this week are calling for a reassessment of stock market risk controls, which they say prevented accurate pricing of ETFs.
Can S&P 500 shrug off ‘deathcross’ in coming weeks?
A ‘deathcross’ occurs when an index’s 50-day moving average falls below its 200-day trend line.
Traders fear this kind of formation could signal a short-term drop is about to become a wider slump.
The Dow Jones Industrial Average did something it’s never done before
Mark DeCambre – MarketWatch
The Dow Jones Industrial Average just made history, highlighting the new level of turbulence stock investors face in whipsawing trading sessions. On Thursday, the blue-chip index ended with a gain or loss of at least 200 points for a sixth consecutive session–something the Dow has never done, according to Dow Jones data.
Implementing Carbon-free Investment Mandates using Index Futures
S&P Dow Jones Indices
Socially responsible investment mandates have gradually worked their way into the investment world. The most prominent example might be the divestiture of companies that are involved in the expansion of mankind’s carbon footprint, i.e. the Energy Sector. At the same time, there is often a need to use listed derivatives to achieve the investment outcome. Luckily, this can be accomplished with index futures such as those listed for trading at CME Group. For example, one can easily replicate the S&P 500 ex-Energy with just the E-mini S&P 500 futures and the E-mini S&P Energy Select Sector Futures.
ACM Gold’s Trading License Suspended Over Links to Dodgy Entities
Andy Traveller – Finance Magnates
One of the biggest South African brokers, ACM Gold and Forex Trading (ACM), has taken a hit to its reputation and business with the provisional withdrawal of its trading license by the Financial Services Board (FSB) after a number of its clients and introducing brokers (IB) have come under scrutiny.
Eldorado, miners take legal action over Greek project
Angeliki Koutantou – Reuters
Canada’s Eldorado Gold and workers at its disputed gold mine project in northern Greece filed a new legal complaint on Friday to overturn a government decision which led to its activities being halted, court officials said.
Lonmin Keen on Promoting Platinum as BRICS Reserve Currency
Andre Janse Van Vuuren – Bloomberg Business
Lonmin Plc, the world’s third-largest platinum producer, said South Africa should push its BRICS emerging-market partners to enact stricter laws to curb vehicle emissions and adopt the metal as a reserve holding to drive demand.
People’s Daily executives detained on bribery claims
Bryan Harris – Financial Times
Two top executives at a Chinese government mouthpiece have been detained on suspicion of bribery, in a move likely to send ripples across the country’s media industry.
A Shaggy ‘Correction Beard’ Comes Off After This Week’s Stock Turmoil
Kristen Scholer – WSJ
Jesse Felder finally shaved his “correction beard” Monday – 11 months after he vowed to let it grow until the stock market fell 10%.
Mr. Felder, a trader, stock-market blogger and former Bear Stearns employee, started growing his correction beard in late September, expecting the market was due for a correction last autumn.
FBI to US Art Dealers: ISIL-Looted Antiquities Hitting Market
Alanna Martinez – Observer
The Federal Bureau of Investigation issued a detailed warning to art collectors and dealers to be on high alert for looted antiquities seized from Syria and Iraq by ISIL. Artworks stolen by terrorist organizations, the agency warned, are known to be entering the marketplace.
Illinois Lottery can’t pay biggest winners
AP – Crain’s Chicago Business
Big-time Illinois Lottery winners aren’t getting the largesse — they’re getting left out.
Without a state budget agreement two months into the new fiscal year, there’s no authority for the state comptroller to cut checks over $25,000. Smaller amounts are being disbursed.
CEO of Ashley Madison Parent Steps Down
David George-Cosh – WSJ
Avid Life Media Inc., the parent company of infidelity website Ashley Madison, said Friday that its chief executive had left the company by mutual agreement.
The move came just days after authorities in the U.S. and Canada, where Avid Life is based, launched a probe to track down those responsible for hacking the Ashley Madison site and related extortion attempts.