First Impressions

Craig Donohue, executive chairman, OCC – Clearing Today and Tomorrow

“When we first came into the industry, clearing, I guarantee you, was not sexy at all.”

Craig Donohue, executive chairman of OCC, begins by giving a quick overview of OCC and highlighting its achievements with equity derivatives contracts and margin collateral. He then goes on to discuss challenges in industry, including the 2008 financial crisis and the G20 response to shifting more risk to central counterparties. Donohue also explains what a systemically important financial market utility is, and what challenges OCC and other SIFMUs face in the future.

Watch the video »

Quote of the Day

“We are seeing massive capitulation. Given the weakness in the data, the continued geopolitical risk, the turn in consumer sentiment and consumption, everything is coming together to ignite the safe-haven trade. Volatility in risk markets is providing more fuel for the rally.”

Christopher Sullivan, chief investment officer at United Nations Federal Credit in the story, “Treasuries Rally Biggest Since 2009 on Fed Speculation”.

Lead Stories

Treasuries Rally Biggest Since 2009 on Fed Speculation
Daniel Kruger and Cordell Eddings – Bloomberg
Treasuries surged, with 10-year yields falling below 2 percent for the first time since June 2013, amid speculation that European economic stagnation is curbing U.S. growth after a report showed retail sales fell more than forecast in September.

UK takes first orders for debut renminbi bond
Elaine Moore in London and Josh Noble in Hong Kong – Financial Times
Britain has attracted orders of nearly Rmb6bn (£600m) for its debut government bond denominated in China’s currency as the UK becomes the first western country to issue debt in renminbi.

China Swap Rate Declines to Two-Year Low as More Easing Seen
China’s one-year interest-rate swaps dropped to a two-year low as slowing inflation boosted bets the central bank will implement more targeted easing measures.
Consumer prices rose the least in almost five years and factory-gate prices fell the most since April, official data showed today. The People’s Bank of China cut the interest rate on 14-day repurchase agreements to 3.4 percent from 3.5 percent yesterday, after lowering it from 3.7 percent on Sept. 18.

Investors Are Thinking Twice About Greek Bonds
Tommy Stubbington – MoneyBeat – WSJ
Six months after Greece’s spectacular rehabilitation on international debt markets, investors are thinking twice.

Are Germans Falling Out of Love With Bonds?
Emese Bartha – MoneyBeat – WSJ
Germany’s two-year bonds are returning less than nothing these days, with yields in negative territory. And yet the country’s retail investors continue to pour money in.

Buy-Side Firms Begin Trading Corporates Via MTS API
Dan DeFrancesco – WatersTechnology
MTS Markets International announced liquidity-provisioned trades by buy-side institutions through its enhanced application program interface (API) on MTS have begun taking place.

Fellow Economists Express Skepticism About Thomas Piketty
Justin Wolfers – NY Times
The craze for the French heartthrob economist has been called Pikettymania. His research has been called “Nobel Prize-worthy,” and it was met by a rapturous reception among laureates like Robert Solow, Joseph Stiglitz and Paul Krugman.

JPMorgan’s LoBue, O’Grady to Head Global Debt Syndicate Business
Alastair Marsh – Bloomberg
JPMorgan Chase & Co. (JPM), which arranged more corporate bond sales than any other bank this year, appointed Bob LoBue and Ryan O’Grady as co-heads of its global syndicate business as the U.S. lender consolidates credit operations.
The bank’s securitized products syndicate unit, which is led by Andy Cherna, will become part of the bank’s global syndicate platform, as will the European medium-term note business, according to an internal memo. Kate Haywood, a spokeswoman for JPMorgan in London, confirmed the contents of the note.

Central Banks

Fed Is Silent on Doomsday Book, a Blueprint for Fighting Crises
It’s called the Doomsday Book — though by now, officials at the Federal Reserve Bank of New York probably regret they ever came up with that catchy nickname. It’s a collection of legal opinions that describe and delineate the Federal Reserve’s ability to fight financial crises, along with a variety of related documents. And the Fed would really prefer to tell the public nothing more than that.

Why More Malpractice From the Fed Will Hurt the Economy
Steve Forbes – Forbes
THE FEDERAL RESERVE is reportedly upset about the dollar’s recent strength, fearing this will foil its desire to create a certain amount of inflation and thereby retard economic growth. In the Fed’s mind a more muscular greenback will also hurt exports, which will be another growth dampener. The result, the central bank is muttering, may be the postponement of previously hinted-at increases in interest rates, starting in mid-2015.

ECB must buy covered bonds aggressively, or not at all
Bill Thornhill – GlobalCapital
The ECB is running out of policy options. Faced with falling eurozone growth and declining inflation the prospect that the central bank will need to embark on unconventional measures is drawing closer by the day. On Tuesday the German ZEW October current conditions sentiment index collapsed and is now at levels last seen in November 2012. Italian and Spanish September inflation is negative and French inflation is quickly getting there.
The ECB has said that it wants to expand its balance sheet to the levels was last seen in 2012 when it peaked at EUR3tr. As it has fallen to about EUR2tr, it will need to expand by about EUR1tr. The ECB recognises that there are about EUR600bn of covered bonds in its database that are eligible for purchase, but it will be lucky to buy a small fraction of these unless it severely distorts the market.

Draghi’s Whatever It Takes Bid Saved Euro Area, ECB Says
Stephanie Bodoni – Bloomberg
European Central Bank President Mario Draghi helped save the euro with his pledge to do “whatever it takes” as lenders prepared for a collapse of the currency, an ECB lawyer told a hearing today.
The European Court of Justice, the bloc’s highest court, is weighing whether Draghi’s ECB overstepped its powers in 2012 with the promise to buy the debt of stressed countries if needed. The EU tribunal’s 15-judge panel is examining the Outright Monetary Transactions program after Germany’s own top court earlier this year expressed doubts about its legality.

Exclusive: Fed’s Williams downplays global risks, eyes U.S. inflation
Ann Saphir and Jonathan Spicer – Reuters
A bellwether Federal Reserve policymaker on Tuesday downplayed concerns about weakness in the global economy, saying the U.S. central bank should only delay an interest rate hike next year if inflation or wages fail to perk up.
John Williams, president of the San Francisco Fed, said in an interview with Reuters that the first line of defense at the central bank, if needed, would be to telegraph that U.S. rates would stay near zero for longer than mid-2015, when he currently expects them to rise.

Russia Plans FX Deposit Auction to Ease Pressure on Ruble Rate
Olga Tanas, Ekaterina Shatalova and Vladimir Kuznetsov – Bloomberg
Russia plans to hold foreign currency deposit auctions for the first time to smooth the ruble rate, Finance Minister Anton Siluanov said.


Forex trading bounces back strongly
Delphine Strauss – Financial Times
Foreign exchange markets spent much of this year in a deep freeze, with record lows in volatility exacerbating a slump in trading volumes. Now, volatility is back – and the market has revived along with it.

Lira in the eye of the storm
Solomon Teague – Euromoney Magazine
Turkey’s embattled investors can be forgiven feeling defensive, with economic challenges closing in on them from every side – from the Middle East crisis and strengthening dollar to the stubborn current-account deficit.

BitBeat: Lawsky Outlines Changes to BitLicense
Paul Vigna and Michael J. Casey – MoneyBeat – WSJ
The BitLicense is coming, but it won’t be the draconian net many in the bitcoin community fear, according to Benjamin Lawsky’s prepared opening remarks for a panel discussion on digital currencies and regulation at Cardozo Law School in New York City Tuesday evening.

Indexes & Index Products

Downtown Josh Brown on Smart Money Being Stupid
Eric Balchunas – Bloomberg
Joshua Brown, CEO of Ritholtz Wealth Management, is known for a lot of things — television appearances, tweeting as @downtownjoshbrown to his 86,000 followers, a widely read blog and his story of going from a commission-based broker to a fee-based adviser. It’s a story captured perfectly in the name of his website:

NYSE Group Announces Enhanced Methodology For The NYSE Arca Biotechnology Index
Now Includes 30 Companies Representing A Cross-Section Of The Biotechnology Industry


SNB fights to block public gold vote
Delphine Strauss – Financial Times
Switzerland’s central bank is flexing its muscles to defend its cap on the Swiss franc. Its battle to fend off deflation – in which it sees the exchange rate as its chief weapon – is already complicated by the slide in the euro that followed European Central Bank easing. Now the SNB is fighting on a new front: to block a populist motion that would force it to almost treble the proportion of reserves held in gold.

The chart gets worse and worse for gold
Amanda Diaz – Yahoo Finance
Suddenly, traders can’t get enough of gold.
After turning negative for 2014, gold has staged a fierce comeback, hitting a four-week high as the recent, volatile selloff in stocks has traders running for the safety of gold.
The precious metal is now up 2 percent on the year, so can we expect to see even more action in the gold market?

1,000 Year Old Viking Gold Found By Treasure Hunter
Robert W. Wood – Forbes
A hoard of Viking gold and silver over 1,000 years old was discovered by a retired businessman with a metal detector in a Scottish field. Derek McLennan made the find that is being hailed as one of the most significant Viking hoards ever discovered in Scotland. So says Scotland’s Treasure Trove unit that has physical custody of the loot while details are being worked out.

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