First Impressions

Asia’s One Track Mind
By Jim Kharouf, JLN

As one former regulator put it, “Even the regulators in Asia are more concerned with growth.”

That sums up the FIA Asia conference pretty well in Singapore this week. While the regulatory fatigue continues in the US and Europe, Asian exchanges are looking at things such as executing new strategies that improve cooperation between markets as well as access and rolling out new products. Western exchanges have also jumped into the region with ICE Futures Singapore off the ground and Eurex and CME looming. CBOE announced an education partnership with SGX to promote options growth.

Of course, much of the conversation is about China, its role in the region and influence on other markets. Hong Kong Exchanges and Clearing is doing its best to position itself as a gateway to China and the international gold standard for entry into that market. To many here, the August market plunge is simply a speed bump on the road to massive volumes in and out of mainland China, even with the worrisome arrests of market participants. Interestingly, the massive crackdown on Chinese markets and position limits that are more aimed at shuttering markets rather than curtailing them, has created more volume for other exchanges in the region. It’s a simple matter of flow having to go somewhere else. No one here is complaining.

Exchanges are still looking at ways to cooperate across borders with the ASEAN group of 10 countries. Together, this collection of countries holds 600 million people and has the potential to be a major market player in global markets if they can collectively create a sort of European Union block.

The view and the weather here is sunny. Even an occasional downpour of rain cannot dampen the Asian markets’ optimism and efforts to grow.


Alun Green, SunGard – The Technology Roadmap, 2015 Edition

“We as human beings have not evolved to be very good at reading and writing.”

Alun Green asks, “is the written word dying?” Perhaps dying is too strong a word, but Green makes an excellent point in that humans have walked the planet for millions of years, and only began using the written word within the past few hundred years – much too short a time span to have “evolved” to cope with the written word. Meanwhile, as technology continues to disrupt any and all human processes, our species may well revert back to the forms of oral and visual communication to which we are better suited.

As a career technologist facilitating the automation of manual processes, Green asks what human beings will do when the computers and robots take over. His answer? Machine learning is not the same as artificial intelligence, and we sentient beings will be needed for decision making and communication, but not necessarily the written kind.

Watch the video »

Quote of the Day

“A year or two years from now the story we’re all going to remember is oil. It’s not the Fed. I don’t see anything that pushes oil even somewhat back to where it used to be.”

David Blitzer, chairman of the S&P Dow Jones index committee, in the story, “Mohamed El-Erian: Here’s the new paradigm for 2016”

Lead Stories

U.S. Said to Probe Possible Rigging in Agency Bond Market
David McLaughlin and Tom Schoenberg – Bloomberg
The U.S. Justice Department is examining possible manipulation in the trading of agency bonds — $9 trillion or more in debt issued by the likes of German states, government entities and the World Bank — according to three people familiar with the matter.
The inquiry into the market for supranational, sub-sovereign and agency bonds, or SSAs, is gathering momentum as the U.S. investigates whether traders violated fraud statutes or antitrust laws that prohibit collusion, said the people, who asked not to be named because details of the investigation aren’t public.

No One Knows How Messy the Fed Increase Could Get
Liz McCormick and Alexandra Scaggs – Bloomberg
The greatest monetary-easing cycle in the history of the U.S. has left a mind-boggling amount of cash floating around in the economy. Banks hold $2.5 trillion in excess reserves — money they essentially don’t know what to do with — at the Federal Reserve.

Is $50 Billion the Price of Repo Safety?
Katy Burne – WSJ
A firm at the center of Wall Street’s plumbing is seeking $50 billion in commitments from banks and trading firms to shore up a crucial but increasingly illiquid short-term lending market, according to people familiar with the discussions.
Depository Trust & Clearing Corp. wants its members to support the multibillion-dollar credit line to bolster the finances of a unit called Fixed Income Clearing Corp., which facilitates trades in the $2.6 trillion repo market, the people said.

Banks score victory on use of ratings in capital calculations
Caroline Binham – Financial Times
The banking lobby has beaten back a global reform plan that it claimed would result in a “substantial” increase in capital.
The Basel Committee on Banking Supervision said on Thursday that it has dropped a plan to ban banks from relying on rating agencies when they calculate risks in their portfolio.
The US already has such a rule in place, so the global change of heart could make it harder to compare the riskiness of American banks with that of their rivals elsewhere in the world.

Corporate Bond Market Has Potential Emerging Risks, Finra Says
David Michaels – Bloomberg
The corporate bond market is characterized by emerging risks, including a surge in computer-driven trading and volatility of exchange traded funds that invest in debt, according to a report released Thursday by the Financial Industry Regulatory Authority.

SGX announces successful launch of SGX Bond Pro
Singapore Exchange (SGX) today announced the successful launch of SGX Bond Pro, the first Over-The-Counter (OTC) trading venue dedicated to Asian bonds.

Goldman puts its muscle into tech push
Ben McLannahan and Laura Noonan – Financial Times
If Goldman Sachs had its way, “SETLcoin” could ultimately be as much a part of the financial services lexicon as dollar, euros or yen.
Last week, it emerged that the Wall Street bank had applied to patent a virtual currency settlement system under that name, in the hope that the blockchain — the ledger system backing bitcoin — could ultimately offer near-instant trading of stocks and bonds.

Fear grips market as oil leads commodity crash
Ambrose Evans-Pritchard – The Telegraph
Brent crude prices have crashed below $40 a barrel for the first time since the depths of the global financial crisis as Opec floods the market to drive out rivals, with a parallel drama unfolding across the gamut of industrial metals.
The Bloomberg commodity index has fallen to within a whisker of lows last seen in 1998 and has now dropped by two-thirds from its peak, wiping out the entire gains of the resource supercycle. What China giveth, China taketh away.

JPMorgan Said to Win Relief in SEC Case on Sale of Its Own Funds
David Michaels and Matt Robinson – Bloomberg
JPMorgan Chase & Co. is close to settling cases that threatened to bar the bank from raising money for hedge funds and technology startups, ending U.S. regulators’ investigations into whether the bank improperly sold some clients in-house investments that carried high fees, according to a person familiar with the negotiations.

Morgan Stanley in $225 million deal with U.S. regulator over mortgage bonds
Nate Raymond and Jonathan Stempel – Reuters
Morgan Stanley has agreed to pay $225 million to settle claims that it sold toxic mortgage-backed securities to credit unions that later failed, the National Credit Union Administration said on Thursday.

DelphX: No Bond Inventory? No Problem
Julie Segal – Institutional Investor
Institutional investors, including mutual fund managers, will be able to lend their bonds to Wall Street and help fixed-income trading markets get moving again, once a new electronic platform becomes available next year. That’s the idea behind DelphX, a communications network that will allow Wall Street banks to get around regulators’ restrictions on their securities inventories, essentially renting positions from investors to support trading. By renting, not owning, banks won’t have to put up expensive capital to facilitate market making.

Over 60 Institutions Join New BrokerTec Treasuries Rival – LiquidityEdge
Avi Mizrahi – Finance Magnates
LiquidityEdge, a new electronic platform that offers multi-participant, fully disclosed relationship-based trading on US Treasuries, revealed that it has signed up over sixty customers since it commenced live trading in early August with volumes ramping up throughout the last four months.

Here’s the new paradigm for 2016: Mohamed El-Erian
Matthew J. Belvedere – CNBC
Allianz Chief Economic Adviser Mohamed El-Erian said Thursday the new paradigm for financial markets in 2016 is divergence.

Eurozone Fund Weighs Greece Debt-Relief Options
Viktoria Dendrinou – WSJ
A deal to reduce Greece’s debt burden could include capping interest payments, extending debt maturities and linking debt repayments to economic growth, according to a paper drawn up by the eurozone’s bailout fund.

More closures seen among Chinese peer-to-peer lenders as new rules loom
China’s unregulated peer-to-peer (P2P) online lending sector looks set to see more companies falling into difficulties, as greater scrutiny and a slowing economy take their toll on aggressive lenders.
Ezubao, China’s largest P2P platform by lending figures, is being investigated for suspected illegal business activities, the official Xinhua news agency reported on Tuesday.

East Asia could be in trouble due to aging population, World Bank says
Saheli Roy Choudhury – CNBC
If stock market volatility, slowing economies, and low commodity prices were not enough of a problem for East Asia, many countries in the region now have to worry about losing as much as 15 percent of their working-age population by 2040, according to the World Bank.

Central Banks

WSJ Survey: Economists Are Convinced Fed Will Raise Rates in December
Ben Leubsdorf – WSJ
There now is little doubt among private economic forecasters that the Federal Reserve will raise short-term interest rates next week.
About 97% of business and academic economists surveyed by The Wall Street Journal in recent days predicted Fed officials will raise the benchmark federal-funds rate Wednesday. Just 3% said they expected officials would wait until next year to move rates up. Last month, 92% of forecasters predicted a December rate increase.

Mersch Says ECB Leak Led to `Flights of Fancy’ by Investors
Jeff Black – Bloomberg
A media report that the European Central Bank was discussing a two-tier deposit rate led to unwarranted expectations about the scale of monetary stimulus planned, Executive Board member Yves Mersch said.

The house that Mario built
Pierre Briancon – POLITICO
The 40-story twin towers that house the European Central Bank are set apart from Frankfurt’s business center, projecting power, mystery and distance. “If we designed it today we might prefer modesty, and something more unassuming,” said a close associate of its president, Mario Draghi, whose office is on the top floor.

Charting the Markets: Stocks Sliding as Central Banks Decide
Mark Barton – Bloomberg
Global stocks are falling for a fourth session in a day dominated by central bank decisions. The Reserve Bank of New Zealand cut interest rates while The Bank of Korea and The Swiss National Bank kept rates at a record low. The Bank of England followed suit, holding borrowing costs at a record low 0.5 percent. Emerging-markets equities are sinking for a seventh day, the longest losing stretch since August, as the prospect of a U.S. interest rate hike next week lessens the appeal of riskier assets. European stocks are slipping for the seventh session in eight.

Oil price slump will mean Bank of England keeps interest rates low for longer
Peter Spence – The Telegraph
Falling oil prices will hold down inflation, the Bank of England has warned, signalling that its interest rates could stay low for longer.

As Fed Sets Pace on Rate Increases, Watch Inflation
Steven Russolillo – WSJ
The U.S. Federal Reserve says historically low inflation is transitory. The market begs to differ.
Inflation has fallen short of the Fed’s 2% target for more than three years. And while the central bank is all but set to raise interest rates next week, the inflation conundrum should give the Fed pause as it weighs the pace of future rate hikes in 2016 and perhaps beyond.

Swiss National Bank Keeps Record-Low Rate, Says Franc Overvalued
Catherine Bosley and Alice Baghdjian – Bloomberg
The Swiss National Bank left interest rates at a record low and maintained its pledge to intervene if needed to push back against pressure on the “significantly overvalued” franc.

Opec, political turmoil put Russian rates in a deep freeze
Nadia Kazakova – TradingFloor
On one hand, the decision not to cut rates must be quite easy for the Russian central bank. Monthly inflation is on the rise, the rouble needs propping up, and a less-than-predictable political landscape keep risks high and the outlook cloudy.
It is not surprising that the market also does not expect a cut on December 11, forecasting that the central bank will keep its key rate at 11%.


China’s Yuan Closes at Four-Year Low on Signs PBOC Allowing Drop
Fion Li – Bloomberg
China’s yuan closed at the weakest level in more than four years on signs the central bank is allowing depreciation to boost exports in the run-up to the Federal Reserve’s interest-rate decision.

This euro bubble needs busting
Stephen Pope – TradingFloor
I am staggered at some of the comments that have appeared from the European Central Bank post the disappointing rate press conference last week.
Austria’s Ewald Nowotny said the financial community was guilty of misjudging the state of the Eurozone economy and had unrealistic expectations for more stimulus last week.

How foreign exchange contracts blew up for Citic Pacific
Benjamin Robertson – South China Morning Post
Citic Pacific initially benefited from market-beating exchange rates before poorly judged foreign exchange contracts and a HK$14.7 billion loss landed the firm in a markets misconduct tribunal, a key inside witness said yesterday in a closely watched case that has wide implications for director responsibilities.
A former assistant director of finance at Citic Pacific, Simon Chui Wing-nin told the tribunal; “The original purpose of doing this all along was Citic Pacific going into TRF (target redemption forward) contracts wanting to lock in on an exchange rate that was lower than market rate.”

Forget Turning Bullish on Battered Rand, Zuma Has Other Ideas
Xdola Potelwa – Bloomberg
South Africa’s rand was being tipped by some strategists as one of 2016’s likely currency winners as recently as Wednesday.
They didn’t see Jacob Zuma coming.
The rand extended losses to near an all-time low on Thursday after the South African President unexpectedly fired his widely-respected finance minister, Nhlanhla Nene. Barclays Plc, the world’s third-biggest foreign-exchange trader, immediately cut its 2016 forecast for the currency, citing concern the National Treasury won’t stick to spending ceilings and fiscal targets before municipal elections next year. Options markets showed traders added to bets that the rand will weaken in the next three months.

Does dollar weakness suggest positioning ahead of the Fed?
Richard Perry – FXStreet
The sharp and somewhat surprising sell-off on the dollar yesterday (on little fundamental news) may have come as traders look to position themselves ahead of the Fed next week. Could it be that traders are mindful of the pricing mistakes made in the run up to the ECB meeting last week and they are unwilling to price in too much again? On balance the dollar should strengthen ahead of a meeting where the Fed is expected to hike, but perhaps there is a concern that too hawkish a position is being taken as the Fed is still likely to be very gradual in its path of tightening. The strong anti-dollar move saw forex majors spiking higher. Incredibly, even a rate cut from the Reserve Bank of New Zealand overnight has done little to help the US dollar.

Bitcoin Hits Highs on (Possible) Unmasking of Creator
Bloomberg Business
Bitcoin climbed on Wednesday to hit its highest levels since early November, amid fresh speculation that the identity of Satoshi Nakamoto—the virtual currency’s creator—may have finally been revealed. Bitcoin’s price hit $423 after Wired and Gizmodo published separate articles this week asserting that Craig Steven Wright, a businessman in Australia, was involved in the invention of the cryptocurrency.

John Mauldin On His $1 Million Yen Bet
Sumit Roy –
John Mauldin is chairman of Mauldin Economics. He is a noted financial expert, a New York Times best-selling author, a pioneering online commentator and will be a keynote speaker at the upcoming Inside ETFs conference in Florida. Mauldin recently sat down with to discuss some of his bold market views and outlook for the future.

Indexes & Index Products

ETFs/ETPs Listed In The United States Have Gathered A Record 201.7 Billion US Dollars In Net New Assets This Year As Of The End Of November 2015, According To ETFGI
Press Release
ETFs/ETPs listed in the Un

Managers turn to reassuringly expensive smart beta as ETF fees fall
Peter Davy – Financial News
Exchange-traded fund providers are reluctant to call it a price war, but that has not stopped ETF fees from heading lower, with some barely more than the cost of administration. While economies of scale can offset this, some fund managers are turning to smart beta products to make up the shortfall.

17,000? 16,000? How Far Will the Dow Slide on Cheap Oil?
The Fiscal Times
That truth is being revealed this week as fresh weakness in crude oil — prices have fallen to seven-year lows — is pushing the Dow Jones Industrial Average back below its 200-day moving average after a push toward the 18,000 level once again met intractable resistance. The Energy Select SPDR (XLE) touched lows not seen since late September, down roughly 13 percent from its early November high.

How the Grinch stalled the ‘Santa rally’
Anora Mahmudova – MarketWatch
The Santa Rally, known to come to Wall Street in the last two weeks of the year, has a big obstacle — a sticky 2,100 level on the S&P 500.
The 2,100 level on the S&P 500 SPX, +0.31% had such a strong gravitational pull that the index crossed it 38 times in 2015, according to FactSet.


China Goes for Gold as Central Bank Expands Reserves
Biman Mukherji – WSJ
While gold has crashed to multiyear lows as the strengthening dollar spooks investors, the bearish sentiment hasn’t daunted one quiet operator: China’s central bank.
After six years of revealing nothing about its gold reserves, the People’s Bank of China surprised markets in July by announcing that its holdings of the metal had risen by more than 50% since 2009 to 1,658 metric tons. The central bank has been steadily scooping up more gold since then, with its reserves climbing another 5.1% to 1,743 metric tons by the end of November.

How Indian Temples Like Shree Siddhivinayak, Tirupati Are Crucial To The Global Gold Market
Tim Worstall – Forbes
This is an interesting little piece of economic trivia. It might even rise above being trivia in fact, if the whole scheme comes off as planned. But what we’ve got is the delightful idea that the medium term future of the global gold market is reliant upon the current actions of a number of Indian temples. It’s all rather tenuous at present, most assuredly, but the Shree Siddhivinayak and the Tirupati temples are considering joining the Modi government’s gold monetisation scheme. The amounts they’re considering are entirely trivial by the standards of that global gold market, seriously irrelevant. And yet if they are harbingers of a new wave of activity then that is going to change the market considerably.

New Mined Gold Output Still Not Falling
Lawrence Williams – Seeking Alpha
What has been vexing many analysts is that global new mined gold production has so far not been falling, despite the much lower gold price. This has been put down to a number of factors – most notably the mining companies’ successes in cutting costs. However, this has been hugely aided by, in many parts of the gold producing world, dramatic falls in local currency parities against the US dollar (miners get paid for their gold in dollars, yet many, if not most, of their input costs are in the mine’s local currency thus substantially reducing the impact of the US dollar fall in the gold price – this applies to no less than eight of the world’s top gold producing nations, and to most others too), coupled with the huge fall in the oil price – oil forms an important element in input costs.


China Billionaire Guo Guangchang Unreachable, Caixin Reports
The billionaire chairman of Chinese conglomerate Fosun Group has become unreachable, Caixin magazine reported on its website, citing people it didn’t identify.
The closely held group has “lost contact” with Guo Guangchang, 48, the magazine said. Fosun Group, which owns Club Mediterranee SA and bought a stake in Cirque du Soleil Inc., has business interests in insurance, real estate, pharmaceutical and commodities.

Navigating the minefield of China’s retail investors
Jennifer Hughes – Financial Times
We’ve told Sid, sought average Joes from Bloggs to Sixpack, and followed the investing adventures of Mrs Watanabe around the world. Archetypal retail investors serve the same purpose for market observers as pollsters’ voter stereotypes for politicians. So meet Mrs Wong, China’s contribution to the genre and the force behind its stock-market gyrations.

Who’s investigating fake Chinese goods? Fake investigators
Erika Kinetz – AP
The woman called herself Flaming Lee, an English name she picked when she was 10 years old, long before she got into the dirty business of counterfeit goods. Her job as a private investigator sometimes took her to client meetings at Dubai’s seven-star Burj Al Arab hotel. Otherwise, she lived in apparent simplicity.
There were few signs of the deception that shaped her life. Officially, Flaming Lee hunted counterfeiters for Swiss power technology giant ABB Asea Brown Boveri Ltd. Unofficially, she herself sold counterfeit ABB circuit breakers for export — the very things ABB was paying her to track down.

America’s Middle-class Meltdown: Core shrinks to half of US homes
Sam Fleming and Shawn Donnan – Financial Times
America’s middle class has shrunk to just half the population for the first time in at least four decades as the forces of technological change and globalisation drive a wedge between the winners and losers in a splintering US society.
The ranks of the middle class are now narrowly outnumbered by those in lower and upper income strata combined for the first time since at least the early 1970s, according to the definitions by the Pew Research Center, a non-partisan think-tank in research shared with the Financial Times.

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