Sunday, July 25, 2010

Harding: Fed to shift policy if recovery stalls

Trichet: Stimulate no more – it is now time for all to tighten

Mackenzie, Duyn: Volatility gauges suggest trouble is brewing

More than six months ahead, investors are signalling severe caution, with the gap between current and future measures of equity volatility widening to a record. This also signals illiquidity in these parts of the derivatives markets – there are few traders wanting to bet future volatility will fall – causing prices to surge...

Tett: Time for true debate on Fannie and Freddie

It remains to be seen whether any of this gets beyond political posturing. However, judging from a consultation exercise now being organised by the US Treasury, there are some interesting ideas floating around. These essentially fall into two camps. Parts of the Republican party – and some private sector banks – want to remove the state subsidy for the GSE altogether. One idea submitted to the Treasury, for example, calls for banks to organise a mutual, private sector insurance scheme to guarantee mortgages, without state support.

However, a second strand of ideas calls for the state subsidy to be maintained, both to ensure stability in the short term – and to guarantee that the mortgage market remains liquid and homogenous in the long term. Sifma, the banking lobby group, for example, says that it is crucial to maintain the so-called “to be announced” sector, to give the market depth...

US Senate passes financial reform

Meyer, Duyn: CFTC to formulate rules on derivatives

Meyer: Commodities demand stays robust

Blas: Policymakers need new commodities roadmap

Grant et al: Chicago traders launch new derivatives exchange

Five Chicago-based trading firms have joined forces with CME Group, the US futures exchange, to launch a new exchange that will offer trading in interest rate swap derivatives closely modelled on current over-the-counter (OTC) rate swaps, people familiar with the matter said.

The new venture, called Eris Exchange, is designed to take advantage of the rapidly shifting competitive landscape in trading and clearing of derivatives amid sweeping financial regulatory reform of such markets...

Saturday, July 24, 2010

Politi: Treasury $10bn profits from bail-out

Wright: Port shipping up

Duisburg saw container volumes in the first quarter this year up 26 per cent on the same quarter of 2009. Barge operators, whose vessels account for about 30 per cent of container movements in and out of the large ports of Rotterdam and Antwerp, are benefiting from a surge of restocking by European retailers and manufacturers following the economic traumas of the past 18 months.

The waterways’ resurgence reflects a remarkable rebound in international container traffic – container imports into Europe from Asia were up more than 25 per cent this April over April 2009, when imports fell 25 per cent.

Sakoui et al: Correlation

...“In a macroeconomic crisis investors don’t lose time stock-picking. Either the whole economy is going to ground and you sell everything or the market is cheap, then you buy everything. Stock-picking comes later in the cycle,” says Stephane Mattatia, head of financial engineering and advisory at Société Générale.

“Volatile and bear periods are characterised by high correlation,” he says.

The rapid growth of exchange-traded funds may be a factor as well. As trading in ETF shares has grown in popularity, some analysts believe that it has led to increased activity in buying and selling groups of stocks and other assets.

Bullock: Credit spreads predicted to widen

Credit spreads for a broad range of companies in both the US and Europe are expected to widen over the next three months amid concern about the global economic recovery and the possibility of a sovereign default, according to a survey of credit portfolio managers at financial institutions around the world...

The IACPM, which consists of credit portfolio managers at 88 banks and other financial institutions in 14 countries, conducted the quarterly survey among its members. Sentiment turned negative in the second quarter after several quarters of improving forecasts.

Harding: Looser Fed polciy

The Fed identifies a range of options if it does need to act but all of them come with risks, opponents on the Federal Open Market Committee, and uncertainty about their effects. The two simplest measures will be to stop paying interest on bank reserves, encouraging banks to lend the money out instead, or to start reinvesting capital repayments from the Fed’s portfolio of mortgage-backed securities.

Neither is a drastic move but the Fed will expect quite a strong signalling effect from its first change towards looser policy.

Cutting interest on bank reserves has the advantage of being easy to reverse but could lead to serious distortions in the money markets.

Another possibility is a change of communication. One option that the Fed has begun to study is linking its pledge of low rates to an external condition.

At the moment, the Fed says rates are likely to stay “exceptionally low” for an “extended period”. Instead, it could say that they will stay low until a variable, such as the price level, has reached a certain target.

Academic research suggests this could be effective in preventing deflation because it commits the central bank to keeping rates at zero until the goal is reached. It would not distort markets and is more flexible than a crude promise to keep rates at zero for a fixed period.

Thursday, July 22, 2010

Duyn et al: derivatives dealers get ready for clearing shake-up

Grant: 24 hour Eures\x

Regling on European Financial Stability Facility

As chief executive of the European Financial Stability Facility, he oversees a €440bn ($554bn, £369bn) fund that can help eurozone states in difficulty, but which his political masters – the finance ministers of the European Union – hope will never be used.

Sakoui: Cash currency of risk averse investment

A survey of UK investors last month found their holding more cash in their portfolios than at any time since the aftermath of Lehman Brothers’ collapse in 2008. The Reuters poll showed that cash accounted for 8.7 per cent of their holdings.

The same poll found European investors with a 6.8 per cent cash holding. At the end of last year, those positions were about 5 per cent...

Bankers speculate that the trend is less pronounced among US investors as corporate bond issuance has been higher there and investors are less worried than those in Europe about the impact of government austerity packages

Wednesday, July 14, 2010

Spence: US growth strategy needed

Bad news summary...

To avoid an outbreak of protectionism, there has to be an alternative. President Barack Obama’s new export council, announced on Wednesday, is a step in the right direction. But a bolder move is needed: a broad public-private partnership to invest in the development of technology in parts of the tradable sector where there are opportunities to make advanced countries competitive. The goal must be to create capital-intensive jobs that have labour productivity levels consistent with advanced country incomes.

Wagsty: emerging market bonds jitters

Spreads over US Treasuries, which measure the risk premium applied to emerging market bonds, have followed a similar course. Before the global crisis, they touched a record low in 2007 of just 148 basis points. They then soared in the turmoil to as high as 865bps in late 2008, but dropped back dramatically to 231bps this April. The recent retreat to safety has seen spreads widen, to 327 bps by yesterday. But by historic standards that is still low.

Not surprisingly, emerging market borrowers have taken advantage of these low yields, raising 10 per cent more in the first half of 2010 than in the same period in 2009, which was itself a record year.

Hughes: emerging marketdebtpace

Emerging markets have been subject to inflows of hot money in the past, hitting their economies hard when the money left as quickly as it arrived. However, investors believe the financial crisis and shift in risk perceptions mean that this time it is different.

“Debt-to-GDP ratios in the developed world are about double those in emerging markets, and they’re growing,” said Sam Finkelstein, head of emerging markets debt at Goldman Sachs Asset Management.

“This makes emerging markets interesting because you’re picking up incremental spread [higher interest rates compared with developed world rates], and in return you’re actually taking less macroeconomic risk.”

Goldman’s dedicated emerging markets debt assets grew from $3.3bn in March last year to $13.2bn in March 2010.

Brown: SingaporeAsian derivatives clearing hub

...several executives said MAS had approached a number of international clearing houses, including the US-based group Intercontinental Exchange (ICE), which has Asia ambitions.

Other big international clearers such as LCH.Clearnet of the UK, the world’s largest clearer of OTC interest rate swaps, and Chicago-based CME Group may be approached as the plan progresses.

Any new clearing operation would compete with two existing exchange and clearing operations run by SGX, the Singapore exchange, and Singapore Mercantile Exchange (SMX), owned by India’s Financial Technologies group, which has been licensed and is due to launch shortly.