First Impressions

A Boca Oversight
Doug Ashburn – JLN

If you read last week’s newsletters, you know that we were publishing remotely from the FIA conference in sunny Boca Raton, Florida. Though I would say we, in general, did an admirable job pumping out the content amid all of the panels, side meetings and “extracurriculars,” a few few items may have slipped through the cracks.

One big news item we missed, due to a communications glitch, is the announcement Thursday that Société Générale Prime Services (formerly Newedge) is taking an equity stake in Eris Exchange. This move, aside from the fresh capital infusion, will be a welcome addition to Eris’ liquidity profile in voice and electronic markets for its swap futures products.

Read the press release that should have run Friday

Of course, adding a major European bank to the stable is important as Eris contracts prepare to launch in Europe. Last December, the IntercontinentalExchange announced a licensing agreement with Eris that will bring euro- and pound sterling-based interest rate and credit derivative futures contracts based on Eris’ methodology in 2015.

Read the December 5, 2014 ICE/Eris agreement

Meanwhile, Eris continues to forge ahead on the liquidity and connectivity fronts, having recently added Virtu as a market maker and, last week, added CQG as a platform provider. Last Friday, March 12, the exchange set a new record open interest of 159,741, and will soon post its 10th consecutive quarter of total open interest growth.

And as we learned from the other big story from Boca 2015, Basel III and other capital rules will continue to drive capital and margin efficiency, which will continue to drive standardization.

Coincidentally, the FT’s Phil Stafford just wrote a story pointing to the slow uptake of the swap futurization movement (“US swaps market resists futures model” in Lead section below). Though some would point to this as a sign that futurization has not yet matured, Eris CEO Neal Brady would view it as proof positive of the growth potential of swap futures.

Quote of the Day

No economic policy is a free lunch. The euro may weaken and that may make it harder for the UK to export but overall it depends on what happens to the Eurozone as a whole. You hope to gain more from the faster growth swing than you lose from the lower value euro roundabout

Jennifer McKeown, senior European economist at independent macroeconomic analysts Capital Economics, quoted in the Newsweek article “Germany and Greece Losers in ECB’s Quantitative Easing Plan”

Lead Stories

US swaps market resists futures model
The $700tn global swaps market is proving resistant to attempts to remould it in the shape of its listed futures cousin, casting doubt over post-financial crisis reform efforts.

Big question: Will the Federal Reserve stop being ‘patient’?
Wall Street loves that the Federal Reserve has been patient in raising interest rates. Shortly after the financial crisis, the Fed put in place near-zero interest rates. They haven’t touched them since. The low rates have been a driving force behind the roughly 200% rise in stocks since early March 2009, but the low rate party is about to come to an end. The question is just when.

Hawks circle at the Federal Reserve
It feels like it has been a long wait for this week’s Federal Reserve monetary policy meeting, and analysts have had plenty of time to speculate on what will happen to the Federal Open Market Committee’s language if it, as expected, takes a more hawkish turn.

Germany and Greece Losers in ECB’s Quantitative Easing Plan
Greece and Germany stand to lose out from the European Central Bank’s (ECB) quantitative easing programme, according to analysts. Greece has not been included in the bond-buying scheme, in which the ECB have committed to ploughing around EUR 1.1 trillion into the Eurozone economy by buying EUR 60 billion-worth of sovereign assets each month until September 2016.

Beware the $300 Billion Shift Into Treasuries From Japan
Bloomberg Business
Back in the 1980s, the billions of dollars that the Japanese plowed into U.S. government debt reflected the Asian nation’s burgeoning economic might. Now, they’re at it again, only this time it’s to eke out any return they can.

Central Banks

John Dearie: The U.S. Needs Two More Federal Reserve Banks
A number of potential reforms to the Federal Reserve System have been proposed in recent months, and a review of its duties, powers and structure is appropriate and timely. The Fed is more than a century old, and six years after the worst economic downturn since the Great Depression the Federal Open Market Committee (FOMC)—the Fed’s interest-rate-setting body—is in the midst of winding down the most aggressively accommodative monetary policy in its history.

Greek Crisis Tests ECB’s Credibility
When the eurozone decided in 2012 to create a banking union, it did so largely because other ideas for deepening economic integration seemed too contentious. Ceding sovereignty over national banking systems was an easier political sell than, for example, handing Brussels new powers to borrow and spend.

Thousands to protest in Frankfurt against ECB ‘austerity’
Thousands of people are expected to march in Frankfurt on Wednesday to protest against austerity policies they blame on the European Central Bank, as the ECB inaugurates its new high-rise headquarters. The gathering follows protests in Cyprus outside a meeting of the ECB’s decision-making Governing Council and marks dissatisfaction with the powerful institution, which has sought to distance itself from political wrangling in the euro zone.

Bank of Japan meeting comes right before key wage negotiations
Forex Live
A quick preview of the Bank of Japan meeting this week from Bank of America Merrill Lynch.

Russian Economy Shrank 0.7% in First Quarter, Central Bank Says
The Bank of Russia said on its website that its models paint a more optimistic economic outlook than the majority of official forecasts. According to its latest economic outlook, growth could reach 0.6% on the year in the second quarter.


The Federal Reserve is ready for ‘lift off’ on interest rates
The Federal Open Market Committee, the branch of the US Federal Reserve which determines monetary policy, meets this week. After some confusion, the Fed’s intentions on the date of ‘lift off’, or the long-expected first increase in interest rates, now seem to indicate it is more than 50 per cent likely to come in June. The behaviour of the dollar, and of core inflation, are likely to determine whether June or September is eventually chosen for lift off.

Which Asian Currencies Are Vulnerable To A Stronger Dollar?
Last week, the U.S. dollar index, which benchmarks against a basket of major currencies, hit a milestone of 100, the highest level since 2000. The U.S. economy is stronger, but the Federal Reserve Bank is also set to tighten rates this year, while the rest of the world is walking the other way. The dollar has already gained over 10% this year.

Buy American? Goldman Says Ride The Wave Of Dollar Strength
Warren Buffett famously advised investors to “Buy American” in a 2008 op-ed a few months before the stock market bottomed, reasoning that the U.S. had always bounced back from economic crises past and would do the same once again. Goldman Sachs strategists offered a similar suggestion to focus on the homefront in their latest weekly research note, albeit with a different rationale: the strong dollar.

ECB’s Visco helps euro recover, eyes on Fed
The euro found a foothold against the dollar on Monday, bolstered by concerns expressed by Italy’s central bank governor about the pace of its fall to 12-year lows as the European Central Bank launched quantitative easing.

As the US dollar rises, weaker yen and euro likely to boost sharemarkets there
Financial Review
With the wild swings in foreign exchange markets this week, it’s hardly surprising that investors are asking themselves how they can best position themselves to profit from the global currency wars.

Sterling vs Euro Volatility Could Spike by 40% Over UK General Election Period
Pound Sterling Live
The British pound exchange rate complex (GBP) is forecast to come under increased levels of volatility as the United Kingdom goes to the polls in 2015.

Bank welcomes removing yuan cap limits
Taipei Times
The central bank yesterday welcomed positive remarks by its Chinese counterpart last week to consider removing the daily yuan conversion limit, as demand for the Chinese currency is flourishing.

Beijing to strengthen HK as yuan offshore centre
Macau Business Daily
People’s Bank of China governor Zhou Xiaochuan said that Beijing will launch new measures to strengthen Hong Kong as an offshore yuan centre, if necessary.

Indexes & Index Products

Attack of the Algorithms!; Smart-beta ETFs use machines to outperform humans, but some can be less than brilliant.
by Anthony Effinger, Eric Balchunas
Few people have profited more from the so-called smart-beta craze than Tom Dorsey. A new exchange-traded fund that he runs using a century-old charting methods took in $1.2 billion last year. Then, in January, he sold his 22-person investment firm, Dorsey, Wright & Associates, to Nasdaq OMX Group for $225 million.

Big Changes for Some PowerShares ETFs
ETF Trends
nvesco’s (NYSE: IVZ) PowerShares unit, the fourth-largest U.S. issuer of exchange traded funds, announced noteworthy changes for 10 of its ETFs, including index changes for nine that will see those funds drop Research Affiliates indexes for benchmarks provided by Russell Indexes.

Do Institutional Investment Consultants Add Value?
Results were noisy, but a new paper shows consultants overall struggle to add value through fund selection, writes Morningstar’s John Rekenthaler.

China stocks struggling for MSCI inclusion
Global Times
China must make bolder market reforms before Chinese-listed shares can be included in key MSCI emerging market benchmark indexes, leading global fund managers and MSCI insiders told Reuters.

How many funds routinely beat the market? Zero
Irish Times
The bull market in stocks turned six last Monday, and despite some rocky stretches — like last week, when the market fell — it has generally been a very pleasant time for money managers, who have often posted good numbers. Look more closely at those gaudy returns, however, and you may see something startling. The truth is that very few professional investors have actually managed to outperform the rising market consistently over those years.


Gold-Bug Narrative Has Just Not Worked: Barry Ritholtz (VIDEO)
Bloomberg Business
On “Before The Bell,” Bloomberg View Columnist Barry Ritholtz and Bloomberg’s Betty Liu discuss the state of the gold market. They speak on “In The Loop.” (Ritholtz is a Bloomberg View columnist. The opinions expressed are his own.)

Why Bitcoin Is Better Off without a “Gold Standard”
Panam Post
What’s certain is that since the end of the 19th century, thanks to the simultaneous discoveries of William Stanley Jevons, Léon Walras, and Carl Menger, we know that value is subjective, and that it also depends on our perception of whether an object, tangible or not, will help us achieve our ends. What’s more, this perception changes in time and space.

Is Gold About To Plunge To $1,000 Or Even Lower?
Since warning about a possible correction in gold and silver in late-January, gold has fallen by $125 and silver by $1.64. Though I am a longer-term fan of precious metals, I have been concerned in recent years about the risks posed by the ending of the commodities supercycle as well as the rising U.S. dollar, which trades inversely with precious metals and other commodities.

A simple test to see if gold is at a bottom
Tocqueville’s John Hathaway and Doug Groh take us through the test they use to determine if gold is at a bottom. A Gold Report interview.

Poll: What determines the price of gold?
Vote in our poll and tell us what you think will impact the price of gold

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