US financial regulation
How a baccarat binge helped launder the world’s biggest cyberheist; how passive investing is now in danger of devouring capitalism; how credit raters ducked reform; an honest business news update; the Irish Farmers Journal weighs in on what you could buy instead of Neymar; other stuff.
To analogise the ongoing diplomatic maneuvering between the US and Cuba to a scenario of mutual hostage-taking doesn’t sound charitable, but it might be the best framework for understanding a relationship long defined by its baffling surrealism. And it’s a useful lens through which to see not only President Obama’s visit to the island, the first by a sitting US president in almost nine decades, but also the specific actions taken by each side in the time since the intent to normalise relations was first announced on 17 December 2014.
We hosted our New York Pub Quiz on Wednesday night. Congrats to the winning team, Lower Expectations, who defended their title from last year’s event by answering 53 out of 70 questions correctly, eking out a win over the team Paul Volcker Rules, William Miller Drools by just a single answer. We had a blast producing the event and were honoured to have been joined by former Fed chair Paul Volcker, who co-hosted the economics and history section of the quiz and even submitted a few questions of his own. For more on the night’s activity, you can scroll down through the #FTPubQuiz hashtag on Twitter, and be sure to listen to the vox-pop segment of this week’s Alphachat, in which producer Aimee Keane asked attendees for their views on the Fed and the likelihood of a China crash. First up are the questions alone (for those who want to test themselves), and halfway down begins the same set of questions with the answers provided. ROUND 1 NAME THAT FINANCE MINISTER
It’s been a long hand, but GVC looks to have trumped 888 in the bid battle for bwin.party. FT Opening Quote, with commentary by City editor Jonathan Guthrie, is your early Square Mile briefing. You can Asian marketsNikkei 225 down -390.23 (-2.15%) at 17,792Topix down -30.45 (-2.06%) at 1,445Hang Seng down -135.40 (-0.65%) at 20,800
Repo expert Scott Skyrm at Wedbush warned last week that August 24 could be a date to watch because it’s a GSIB surcharge calculation day, along with July 31 and September 30. As he stressed: Taking that one step further, traders are even thinking about September 30 quarter‐end Repo rates. And here’s another date to watch ‐ August 24th, which is the second G‐SIB capital surcharge calculation date (in addition to July 31 and September 30) We should expect some type of funding pressure and/or Repo market distortion on Monday. If there is no obvious change in GC rates, it could be that cash is permanently gone from the market through early October, or maybe even forever. With the GSE cash in the market this week and slight soft funding, it’s a good time to finance long positions through month‐end and into September.
A new paper from Craig Doidge, G Andrew Karolyi, and René M Stulz investigates the reasons why the number of publicly listed US companies peaked in 1996, even as the number of publicly listed foreign firms climbed. From the study: The number of U.S. listings fell from 8,025 in 1996 to 4,101 in 2012, whereas non-U.S. listings increased from 30,734 to 39,427. (Click to enlarge, and careful with the dual Y-axes.)
You can sign up to receive the email here. Don’t expect that rate rise anytime soon. Minutes from the latest Federal Reserve meeting show policy makers have doubts about the strength of the US recovery. June was the expected timing for a rate rise but few of the Federal Open Market Committee think that would be the right time now first-quarter data has raised the prospect of a slowing economy. The central bank must weigh whether the slowdown was the result of the long, cold winter and a lengthy port strike, and whether the economy is in for a sharp rebound. (FT)
Sometimes the simplest explanation is the only one needed, and in economics it doesn’t get much simpler than supply and demand. Competing reasons have been offered for the sustained, vigorous decline in 10-year and long-dated US Treasury yields despite the acceleration in the economic recovery since last spring. Most recently the sharp drop in yields has coincided with the stunning fall in oil and long-term inflation expectations, which boost real yields and thus make Treasuries more appealing.
Whilst everyone was focused on the ECB on Thursday… … the Fed pulled this little snippet out of its bag: As part of the continuing program of operational testing of its policy tools, the Federal Reserve plans to conduct a series of eight consecutive seven-day term deposit operations through its Term Deposit Facility (TDF) beginning in October. Okay, the Fed has tested term deposits before, so it’s not that mind blowing an announcement in and of itself. The significance, if any, is that it’s subtle confirmation that both reverse repos and TDs will be used in the Fed’s unwind process. The maximum award has also been increased to $20bn.
Markets: A solid rebound in US markets failed to provide Asian bourses with any momentum. Equities across Asia-Pacific were weaker, with losses amplified by data suggesting China’s services sector stagnated for the first time in nine years last month. HSBC’s purchasing managers’ index for China’s services sector, fell to a reading of 50 for July, the lowest in records dating back to November 2005. Market sentiment had been better in earlier trading following a rebound on Wall Street. The S&P 500 rose 0.7 per cent, helped by some encouraging earnings reports, after losing 2.7 per cent last week. (FT’s Global Markets Overview)
Markets: “Asian stocks dropped, extending the biggest global rout in six months that saw the Dow Jones Industrial Average wipe out this year’s gains in one session amid weaker earnings and credit-market concerns.” (Bloomberg)
Markets: Asian markets were broadly positive on hopes of a robust US second quarter gross domestic product report due out later today. Tokyo markets were subdued after data released on Wednesday showed a 3.3 per cent decline in Japanese industrial production from May to June. (FT’s Global Markets Overview)
Markets: Asia-Pacific equities climbed to fresh six-year highs as investors continued to place geopolitical concerns on the back burner. The upward moves followed an overnight session that saw global equities rally, in part because sales of previously owned homes in the US rose to their highest since October. The S&P 500 touched a record intraday high but then pared gains, ending up 0.5 per cent at 1,983.5. Volatility, as measured by the CBOE Vix index, fell 6.8 per cent. Even Russia’s Micex snapped a six-day run of losses, gaining 1.6 per cent. (FT’s Global Markets Overview)
Markets: The influential head of the US House Financial Services Committee has called on US Treasury secretary Jack Lew to investigate whether sweeping financial reform has impaired the $10tn market for US corporate debt and risks amplifying an interest rate shock for large companies.In a letter sent this week to Mr Lew, Congressman Jeb Hensarling argued that it was the responsibility of regulators to ensure that the Volcker rule, a core element of the Dodd-Frank financial reforms that bans banks from proprietary trading, does not harm US capital markets. (Financial Times) UK ministers, led by business secretary Vince Cable, have ordered a review into the sell-off of state assets, just days before MPs publish a report that is expected to criticise last year’s privatisation of Royal Mail. Lord Myners, former City minister, will lead a panel of experts to examine alternatives to initial public offerings for privatising state assets, as well as whether the process of gauging what investors are willing to pay for shares can be improved. (Financial Times)
Ukraine, Georgia and Moldova agree closer ties with EU || Italy leads calls to slow sanctions against Russia || Merkel to limit Juncker fallout || Berlin drops Verizon over US spying fears || Banks start to drain Barclays dark pool || NYSE has won the coveted listing of Alibaba || The World Bank has issued its first ever catastrophe bond || Wall Street banks create corporate bond trading platform || GoPro Shares Jump 31% in Debut || American Apparel faces loan repayment || Markets
Camp Alphaville reminder: Eight days to go (Details here) Markets: Japanese stocks dropped following indications the Bank of Japan sees no urgent need to ramp up already aggressive monetary stimulus, while most other major Asian bourses ticked up. The yen nudged higher against the US dollar, rising 0.08 per cent as traders exited bets on further currency-weakening stimulus. Shares in Japanese exporters reacted negatively, as a higher domestic currency erodes the value of their local currency earnings. (FT’s Global Markets Overview)
Camp Alphaville reminder: Tickets to nerdstock available here. Markets: Asia-Pacific equities fell back from Tuesday’s six-month highs as investors adopted a cautious stance ahead of a key meeting by Europe’s central bank on Thursday and influential jobs data from the US. Wall Street’s session overnight added to the subdued tone. The S&P 500 was flat, after striking new record highs in each of the three prior sessions, as signs of rally fatigue emerged. The CBOE Vix volatility index – Wall Street’s “fear gauge” – was up 2.4 per cent in late trade, but still at a historically low level. (FT’s Global Markets Overview)
Hey, how would you like to invest in US credit card debt, via the UK’s tax free regime of individual saving’s accounts? You can’t yet, but the hedge fund Marshall Wace and broker Liberum are aiming to raise £197m for a investment trust listed in London to do just that. For possible catches, you might turn to the 96 page prospectus that dwells on the risks at hand. But the chief pause for thought might be that this will be an expensive way to lend money to consumers and small businesses, offset by the use of some leverage to juice the returns back up. First though, a little background on those involved may help to understand how it works.