First Impressions

JM: Gillian Tett has it right, regarding the US budget stupidity… oh, sorry, I misspelled “conflict”.  “The risk of an accident is rising,” she writes in “Debt impasse exposes Achilles’ heel of finance”, below, and that’s a good point.  Reacting with relief to yet another “crisis averted” smoke signal doesn’t change that the government is now adopting this process as normal.  The more ordinary it becomes to threaten global economic collapse for ANY reason, much less for every little reason one can think of, the better the chances of accidentally getting there.  And if you fall off a cliff, does it really matter if you fell because of a misstep rather than because you thought it wouldn’t be such a big deal?  Maybe… but only for a few seconds.

Quote of the Day:

“President Barack Obama knows who is the boss: the bond market.”

David J. Lynch & Cordell Eddings in “Obama Says Real Boss in Default Showdown Means Bonds Call Shots”

Lead Stories

US debt stand-off provokes ire among China’s officials
Simon Rabinovitch in Shanghai – FT.com
Washington’s debt brinkmanship has provoked deep anger in Beijing and bolstered its resolve to lessen the world’s reliance on the dollar, according to current and former Chinese government advisers.
http://jlne.ws/1g6C88y

Obama Says Real Boss in Default Showdown Means Bonds Call Shots
David J. Lynch & Cordell Eddings – Bloomberg
President Barack Obama knows who is the boss: the bond market.
“Ultimately, what matters is: What do the people who are buying Treasury bills think?” the president told reporters this week, when discussing measures he could take to end the threat of a historic default on the nation’s debt.
http://jlne.ws/GUfiAC

Monetary activism has little to show for it
Martin Wolf – FT.com
Six years have passed since the financial crisis in the high-income economies became evident. Five years have passed since the failure of Lehman Brothers unleashed turmoil. Four years have passed since the discovery of Greek statistical malfeasance launched the eurozone crisis. So where is the world economy? Start with a truth too easily forgotten: the state of the high-income economies remains extraordinarily feeble.
http://jlne.ws/1c88HO8

IMF wants central banks to oversee markets with government supervision
Reuters
Central banks should be independent in setting monetary policy but they should also be tasked with monitoring financial market stability under political supervision, the International Monetary Fund’s (IMF) chief economist said.
http://jlne.ws/1asYBFz

Schrodinger’s T-bill
Izabella Kaminska | FT Alphaville    
The FT’s Tracy Alloway and Michael Mackenzie report on Thursday that banks are making contingency plans to deal with the potential impact on the $5tn “repo market” of the US government missing a payment on its debt.
http://jlne.ws/1g6CaNy

Pre-World War I Evoked in Post-Crisis Markets: Cutting Research
Simon Kennedy – Bloomberg
Global capital markets are more integrated than at any time since the late 19th century, giving a reason to be upbeat about the world economic outlook.
http://jlne.ws/GUfO1x

Debt impasse exposes Achilles’ heel of finance
Gillian Tett – FT.com
Who is getting spooked by Halloween bonds? That is a question which many traders are wondering. Little wonder. A week ago, I (like most people) blithely assumed that Congress would find a way to resolve the budget and debt ceiling impasse before the crucial October 17 deadline, when the Treasury claims it will start running out of funds.
http://jlne.ws/1g6Cb3Z

Treasury Default Firewall Hatched in 2011 Crisis: Credit Markets
Liz Capo McCormick, Caroline Salas Gage & Jody Shenn – Bloomberg
The groundwork for preventing a U.S. Treasury default from causing a cataclysmic breakdown of the plumbing of the global financial system was laid after the last debt-ceiling crisis in 2011 — and is still a work in progress.
http://jlne.ws/19FAase

Central Banks

Janet Yellen will stick to her predecessor’s expansionary policies
The Economist
FOR most of the past few years, monetary policy has urged the economy on while dysfunctional fiscal policy has held it back. Barack Obama’s decision to nominate Janet Yellen to succeed Ben Bernanke as the Fed’s chairman in February raises the odds that stimulative monetary policy will continue. But disquiet about that stance is growing.
http://jlne.ws/GUgcgq

Fed officials split on policy, united on default danger
Reuters
While officials of the Federal Reserve have sparred over whether the U.S. central bank should continue full-bore with its massive bond-buying stimulus, two Fed officials with differing policy views agreed on Thursday that a national debt default could have devastating effects.
http://jlne.ws/1asYDgz

Are Disasters Lurking in European Banks? Who Knows?
FLOYD NORRIS – NYTimes.com
Mario Draghi, the president of the European Central Bank, gave a generally upbeat speech on Thursday. “We have seen much progress in the banking sector of the euro area,” he told the Economics Club of New York.
http://jlne.ws/1asYBFC
***JM: Well, at least he’s being honest about it.

BOE Officially Boring, Economists Say
Richard Barley – MoneyBeat – WSJ
“Our ambition at the Bank of England is to be boring,” former Governor Mervyn King famously said back in 2000. And after the excitement of the global financial crisis, his successor, Mark Carney, appears to be delivering on that ambition.
http://jlne.ws/1c88KJZ

Currencies

Hedge Fund Closures Can’t Slow Retail-Merger Flurry: Currencies
Lucy Meakin – Bloomberg
FXCM Inc., the largest retail currency broker in the U.S., is leading a wave of buyouts and mergers in this corner of the $5.3 trillion-a-day foreign-exchange market as tougher regulation increases costs.
http://jlne.ws/1asYD0f

OzForex surges 30 pct in debut, Australia IPO appetite strong
Reuters
OzForex Group jumped 30 percent in its market debut on Friday, highlighting a resurgence in demand for new offerings in Australia as well as hopes that the foreign exchange broking industry is heading for a turnaround.
http://jlne.ws/1asYBFt

Markets dance to the tune of easy money
Henny Sender – FT.com
The Yellen put is proving to be even more seductive than either the Bernanke or Greenspan put. With the expiry of the debt ceiling just days away (possibly), most market players are focusing less on the prospect of a default on government debt and the possible questioning of the dollar’s reserve currency status and more on the fact that quantitative easing is alive and well.
http://jlne.ws/1g6CaNJ

Indexes and Index Products

Ibex 35 finds favour with foreign investors
Jonathan López – Risk.net
Spain’s main benchmark index is seeing increased interest from investors abroad following its devaluation throughout the financial crisis, say bankers. The Ibex 35 peaked at 16,000 points in 2007 but is now almost half that, leaving some investors confident it has turned the corner
http://jlne.ws/1c88LNM

India in talks with JPMorgan, others to join bond indexes
Business Standard
India is talking with JPMorgan and others to gain entry to benchmark indexes for emerging market debt in hopes of attracting billions of dollars in investment and may ease some restrictions on foreign inflows in order to do so, sources said.
http://jlne.ws/1c88LNO

Demand For SGX FTSE China A50 Index Futures Rises To A New Level
Yesterday, PowerShares, a leading ETF provider, launched a new ETF that tracks the FTSE China A50 Index.  The ETF will invest primarily in the SGX FTSE China A50 Index Futures to track the Index.
http://jlne.ws/1c88L0k

Gold

METALS OUTLOOK: Gold Market Eyes Washington For Direction
By Debbie Carlson – Kitco News
Thursday is the U.S. debt-ceiling deadline, and gold-market participants will focus squarely on whether or not Republicans and President Barack Obama can come to an agreement to lift the ceiling.
http://jlne.ws/19FB33Q

Moscow Exchange Plans Gold to Silver Trading to Broaden Appeal
Maria Levitov – Bloomberg
OAO Moscow Exchange will introduce trading of gold and silver as early as this month as part of plans to make metals more accessible to smaller banks by reducing transaction costs.
http://jlne.ws/1g6Cb44

India curbing gold imports as inflows of the yellow metal wreak havoc
Mining Weekly
India’s fatal attraction to gold is a story foretold. Ingrained in social, cultural and religious mores, the fiscal remedies offered by government to wean Indians off the yellow metal could, therefore, have only a minimal impact.
http://jlne.ws/1g6Cb47

IMF gold sales to fund lending to poor countries
AFP
The International Monetary Fund announced Thursday it has harnessed windfall gold profits from member countries to fund loans to the world’s poorest countries in the coming years. “We have just reached the threshold of enough approvals from our membership to transfer the existing gold profit to meet the financing needs of our low-income countries,” IMF managing director Christine Lagarde said.
http://jlne.ws/1g6CdJ6

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