First Impressions

Passing the Torch, and Speaking the Language
Doug Ashburn – John Lothian News

In today’s lead story, Bloomberg’s Simon Kennedy looks at the the winding down of the Federal Reserve’s bond-buying program just as the deflationary threat in Europe is prompting its central bank to step up stimulus efforts. This will mean, among other things, a little less Fed-watching and a bit more attention paid to the ECB head.

In my trading days I received a crash course in Greenspanese, a language that was constantly evolving but, once learned, provided much clarity. When Bernanke took over as Fed chief, he started his tenure by speaking the people’s language, English, but soon devolved into Greenspanese once he learned that transparency was not all it was cracked up to be. Janet Yellen’s first press conference was delivered mostly in English, and the resulting mini-panic forced her to retreat to the old tongue in her subsequent press conference.

If the ECB is truly taking on the role as the last word on global monetary policy, I wonder what language it will be delivered in. Perhaps Berlitz makes an Italian/Greenspanese phrase book.

Quote of the Day

If any central bank can take over the Fed’s role in terms of its impact on global liquidity, it’s the ECB.

Standard Chartered’s Marios Maratheftos, as quoted in the Bloomberg story “World’s ATM Moves to Frankfurt as Yellen’s Fed Slows Cash”

Lead Stories

World’s ATM Moves to Frankfurt as Yellen’s Fed Slows Cash
Simon Kennedy – Bloomberg
As Janet Yellen winds down the Federal Reserve’s money-printing operation, Mario Draghi is boosting Europe’s cash supply.
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**JK – Interesting estimate from the story: “ECB would need to provide $10 billion of liquidity for every $9.5 billion withdrawn by the Fed,” to keep the global money supply stable.

Bad advice from Basel’s Jeremiah
Martin Wolf – Financial Times
I admire the Bank for International Settlements. It takes courage to accuse its owners – the world’s main central banks – of incompetence. Yet this is what it has done, most recently in its latest annual report. It would be easy to dismiss this as the rantings of a prophet of doom. That would be a mistake. Whether or not one agrees with its pre-1930s view of macroeconomic policy, the BIS raises big questions. Contrariness adds value.
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**JK – In an age of journalism that is often throw-away commentary, Wolf presents a great analysis here. Worth a read.

Favourable treatment of covered bonds backed by European watchdog
Sam Fleming – Financial Times
European regulators have backed the preferential capital treatment ascribed to covered bonds but argued for tougher rules to protect holders of the securities. The European Banking Authority said the favourable risk weightings ascribed to covered bonds were “appropriate” – in a boost to countries that are heavy users of the bonds including Denmark and Germany.
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**JK – Factoid: Mortgages, primarily in Europe, account for 80 percent of the backing for the covered bond market.

FX dark pools predicted to rise
Farah Khalique – Euromoney Magazine
Dark pools are the most recent corner of the financial markets facing the wrath of the regulators. However, despite the furore and speculation that some banks will close them down, foreign-exchange dark pools are gaining popularity and are predicted to increase in use among the buy and sell side.
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**JK – James Sinclair of MarketFactory and Dmitri Galinov of FastMatch say FX world to get darker.

Markit to launch electronic service for FX options
Eva Szalay – FX Week
Markit is developing an electronic trade confirmation and exercise management service for FX options in a bid to automate manual, post-trade processes to help market participants reduce their operational risk and costs.
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Cinnober acquires BOAT from Markit — independent European trade reporting service is here to stay
Cinnober Financial Technology today announced the acquisition of Markit Trade Reporting (“BOAT”) from Markit with Cinnober taking full control of BOAT’s European trade reporting service as of July 1st. Earlier this year, Markit announced plans to discontinue the trade reporting service. However, with significant market demand for an independent trade reporting service and an extensive client base, Cinnober has decided to acquire BOAT. Cinnober has provided the core technology and operated the BOAT platform since its inception in 2007.
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***JK: “Veronica, I think we need a bigger boat.” (Couldn’t resist.)

Banks treat most sovereign exposures as risk-free
Lukas Becker – Risk.net
Banks apply a zero risk-weight to more than half of their holdings of sovereign debt, according to the Basel Committee on Banking Supervision’s annual report.
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Record Bond Sales Show Li Focused on GDP Over Debt: China Credit
Bloomberg
China’s Premier Li Keqiang has promised to cut credit while also meeting a 7.5 percent economic growth target. Record bond sales last quarter show which pledge he’s prioritizing.
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**JK – More air for a Chinese bubble or just better business?

Wall Street Offloading Risk of Burning-Bed Loans: Credit Markets
Kristen Haunss – Bloomberg
Wall Street banks, burned by commitments to fund leveraged buyouts before the credit crisis, are reducing the chances they’ll be stuck with junk-rated loans again by getting investors to take on that risk.
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Portugal to Launch New 10-Year Dollar Bond
Emese Bartha – WSJ
Portugal is launching a new 10-year U.S. dollar-denominated government bond via a syndicate of banks Wednesday, in a fresh sign of smooth and steady market access following the country’s recent exit from a three-year bailout program.
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Is Greece Eyeing The Bond Market? Again?
Emese Bartha – MoneyBeat – WSJ
Typical. You wait four years for a new Greek government bond, and then two come along at once. (Kind of.)
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Argentina’s Interest Payment Hangs In Limbo
Nicole Hong – MoneyBeat – WSJ
Remember the interest payment Argentina had to pay on Monday? That cash is sitting in limbo right now.
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Central Banks

RBI buys $19 billion forex forwards in May to shore up reserves
Business Standard
The Reserve Bank will continue to shore up its forex kitty after having bought $19.1 billion of short-term forwards in May following improvement in investor confidence post Narendra Modi-led BJP’s victory in the general elections, a report said today.
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Currencies

High Hong Kong Dollar Likely to Stay That Way
Fiona Law – MoneyBeat – WSJ
The Hong Kong dollar is staying stubbornly strong even after the city’s de facto central bank weakened the currency for the first time in a year and a half.
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Hong Kong Defends Currency Peg for First Time Since 2012
Fion Li – Bloomberg
Hong Kong’s de facto central bank stepped in for the first time since December 2012 to prevent the city’s currency from rising against the U.S. dollar.
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Hungary’s Currency Weakens on Government Plan to Convert Loans
Margit Feher – WSJ
Hungary’s currency weakened sharply on Tuesday in reaction to the government’s latest plan to ease the debt burden for foreign-currency borrowers at the expense of banks, with a European Union warning that the country may return next year under strict budget oversight adding to the forint’s slide.
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BitBeat: Only One Winner in Marshals Service Bitcoin Auction
MoneyBeat – WSJ
There was one, yes, one, winner in the U.S. Marshals Service’s auction of the Silk Road bitcoins, the service said in a statement late this afternoon. That bidder took home all 10 blocks that were up for auction, totaling roughly 30,000 bitcoins.
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Aussie Dollar Parity Talk Resumes
James Glynn and James Ramage – WSJ
The Australian dollar is catching up with its U.S. namesake as higher interest rates and bond yields lure investors from around the world. The Australian dollar, also known as the Aussie, has risen 6.5% against the U.S. dollar so far this year, making it the second-best-performing major currency after the New Zealand dollar.
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Indexes & Index Products

PUT Index Rose 1510% (with Lower Volatility) Over 28 Years
Matt Moran – www.cboeoptionshub.com
A 2013 paper by BlackRock on “VIX Your Portfolio – Selling Volatility to Improve Performance” noted that – “A strategy that systematically sells volatility on a diversified equity index should capture a positive risk premium over long horizons because it is similar to selling insurance,” and the paper highlighted three volatility-selling strategies
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Vix market fear gauge goes global
Neil Munshi in Chicago – Financial Times
Wall Street’s ‘fear gauge’ is going global. After success in the US, where betting on share price swings has become firmly established, the Chicago Board Options Exchange is rolling out its Vix equity volatility index into new markets.
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ETF Halftime Report: 2013’s Losers Lead, Vanguard Hauls It In
Eric Balchunas – Bloomberg
A year ago, solar energy and Japan exchange-traded funds roared back after suffering near-death experiences. At 2014’s halfway mark, ETFs focused on India, coffee and gold miners are the comeback kids.
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Gold

Gold climbs to three-month high
Xan Rice – Financial Times
Gold rose to a three-month high on Tuesday on the back of increased geopolitical tensions and a weaker dollar while platinum breached $1,500 a troy ounce for the first time since September. The yellow metal reached $1332.10 a troy ounce in morning trading, the highest level since March 24.
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