Today, Nasdaq announced just that: a new U.S. Treasury futures product that builds on their cash Treasury market and allows customers to use “the dollar value of one basis point” to more accurately hedge a portfolio of cash Treasurys. The proper name of the contracts is: U.S. DV01 TREASURY FUTURES.

I have shared this idea with many people over the years, always with a disclaimer that it would take some people at a higher pay grade or education level to make it work. And so the braintrust at Nasdaq did the hard work of talking to clients, regulators and brokers and is giving it a try.

Back in 1996, I had a client who came to then futures broker John Lothian at Gerald Commodities to hedge his large and diverse Treasury portfolio. I went over to the CBOT research department and talked to Joe Benning about how to hedge this portfolio with widely diverging maturities.

Joe taught me how to determine the basis point value of an instrument, which allowed me to get the total basis point value of the portfolio. However, from there it gets a little difficult because the Treasury futures have unique basis point values tied to the cheapest to deliver, not the collection of off-the-run stuff in this portfolio.

In the end we were able to get hedged to about 90 percent. Thus, the idea of basis point value futures came to me as a way to hedge the client’s risks more precisely. The idea I had was for a small contract that would allow hedging of more specific basis point value risk.

However, Nasdaq has chosen to create a large $1 million contract to match the minimum trade size on the Nasdaq Fixed Income, formerly eSpeed, cash Treasury platform. The futures contract will traded on NFX, Nasdaq Futures Exchange, Inc.

They are starting with the on-the-run U.S. Treasury 10-year notes on Thursday, July 19, 2018, pending regulatory approval.

The contracts will be cleared by The Options Clearing Corporation. The daily settlement will use a “quality weighted average price,” or QWAP, of the best bids, offers and executed transactions. The final settlement will use the same QWAP process during the settlement period described by each product rule.

This new entry to the Treasury futures marketplace is not meant as a response to the CME Group’s purchase of NEX, as the research and development for DV01 futures was done long before Nasdaq became aware of that deal. It is a good response nonetheless.

This is a way for Nasdaq to enter the Treasury futures business with an innovative and needed contract. It does not directly challenge the giant incumbent in Treasury futures, the CME Group, rather it complements them. This is a product that can be used alongside the deep and liquid products at the CME Group.

This is the type of contract I have long been in favor of – complementary, innovative and potentially disruptive long-term. I even put this idea in writing and posted it to the MarketsCrowd.com website John Lothian News launched after the MF Global and PFG implosions in order to generate new ideas for the industry.

Nasdaq says they came up with the idea based on discussions with clients and internal product specialists, including Ted Bragg, vice president and head of US fixed income at Nasdaq. So we may or may not ever know if my idea seeped into this new contract in some way. It does not matter, as the ideas behind the contract can’t be patented.

This is not the only contract idea I have shared with people, but it is the first one to potentially see the light of day.  It will be exciting to watch!

The post NFX Basis Point Value Contracts; One quarter hubris, three quarters details appeared first on John Lothian News (JLN).

Besides the FANG+ contract, we have the expectation of the CME Group and Cboe slugging it out later this year with competing bitcoin futures offerings. Earlier this year we had the CME Group resteal the Russell index complex from ICE, returning the contracts to the CME where they were  in 2007.

The FANG+ sprang from this exchange competition, but also from the exchanges listening to customers clamor for products to trade with a little more UMPH in them. The FANG+, which is made up of 10 stocks including the FANG initial components of Facebook, Apple, Netflix and Google, has the requisite umph in its megatrends, story, media exposure and volatility.

The FANG index was coined by CNBC carnival barker and occasional genius Jim Cramer. Dave Goone, chief strategy officer for ICE, had FANG this and FANG that pounded into his head listening to CNBC early one morning while trying to do his strategy mojo for ICE. That sparked the idea for a new equity index product for ICE Futures US clients to trade, which was needed after the CME absconded with its Russell liquidity. The result was FANG+, the FANG four plus some other global technology wunder-stocks.

Facebook, Apple, Netflix and Google are joined by Amazon, Alibaba, Baidu, NVIDIA, Tesla and Twitter in an evenly balanced, broad-based futures index.

FANG+ could not include just the four FANG stocks, as it needed 10 components to be considered a broad-based index and be traded as a futures contract. While its performance may mimic some other products out there, none of them have the star power FANG is showing in the media world.

This basket of stocks is the kind of thing futures traders love. They want markets that move, and this index is full of popular stocks with global stories regularly told in business news and with products and services used by billions of people everyday. People like me.

I am on Facebook. I wake up to an alarm on my Apple iPhone. I don’t watch network television anymore, but I do stream on Netflix any chance I can. And I use Google constantly, often for your benefit as I am searching for stories for John Lothian News.

I have an Amazon Echo, and Dot, and the travel version. I stream Amazon Prime videos and listen to Amazon music. I also buy more things from Amazon than from any other company.

I use Twitter. All the time. Constantly. Everywhere. I tweet like a madman.

I have a NVIDIA card in the computer my son Robby built for me.\

I don’t use Alibaba or Baidu, but that is a regional thing full of people who do things really big. On “Singles Day,” Alibaba sold over $25 billion of goods to people celebrating not having a spouse to tell them to get off the computer.

I have not ordered a TESLA automobile, but that is not from a lack of interest. They have not made one yet that can tow a Boy Scout trailer. I do have interest in the TESLA powerwall battery and solar panels for my garage.

To give you some perspective on the stocks, let me tell you the story of my son Robby and NVIDIA. He bought NViDIA stock at $47.35 in a simulated investment as part of a high school Intro to Business course a year and a half ago and it is now is worth $214.18.  Trading a share of NVIDIA today at $214 would require $21,400 for the full purchase price. Amazon at $1,136.84 would cost $113,684 for the whole purchase price, or half that to buy it on margin.

The high price of these stocks and the negative impact of that price on trading activity was a key driver of Goone’s and ICE’s development of FANG+.

The FANG+ index is at a price of about 220 and has a multiplier of $50, which makes its value $110,000 or so. But having futures margins rather than 50% cash equities margins opens up trading in these core global technology stocks to a greater pool of potential traders.

This is the same logic the CME Group used when they split the S&P 500 into two and then into fifths to create the S&P emini, something Goone was around for as a CME executive back in the 1990s.

The emini was born of exchange competition too, just like the FANG+, as the Chicago Board of Trade won the license to trade [[https://goo.gl/ZeJXRN|Dow Jones futures in 1997]] in head to head competition with the CME. The original S&P 500 contract had been born of the CBOT’s desire to trade the Dow Jones Indices back in the early 1980s. The CBOT was stymied by a lawsuit from Dow Jones, the publisher of the Wall Street Journal, and kept from the early mover position in stock indices. Instead, the CME brought the then-little-known S&P 500 to futures prominence while the CBOT trudged through years of litigation with Dow Jones.

The CBOT did launch a Dow competitor later in the 1980s – the MMI. It saw some success but is best known as the only market that was open during the 1987 stock market crash after the CME and NYSE closed temporarily. Legendary trader Blair Hull is etched in the history books for buying the low in the MMI futures at the CBOT and helping turn around the crash.

The first stock index future was the Kansas City Board of Trade’s Value Line Index. The CME had to reshuffle their filing to the CFTC for the S&P and that put the KCBT Value Line into history as the first U.S. stock index futures contract.

A key component of the history of stock index trading is part of the lore of Leo Melamed, who helped usher in the era of cash settlement after forcing the SEC’s chairman John Shad and the CFTC’s chairman Philip Johnson to settle the issue of the futures industry’s foray into stock indices by agreeing to the Shad-Johnson Accord.

Problems with the physical delivery of stocks in the CME’s S&P 500 broad-based index led Shad to recommend/demand cash settlement for the indices, something Melamed wanted, he said in a recent interview in his office.

There was a long legal history that said futures must involve the “contemplation of delivery.” This concept was formed in 1892 in a bid to defeat bucket shops, which had popped up by the hundreds. The change in the 1980s with the launch of stock index futures was a massive legal, moral and economic change that makes today’s new products possible.

FANG+, bitcoin futures and even the VIX all benefited from the work of Melamed, who at age 85 is still making an impact on the markets today.

Goone worked with Melamed during his time at the CME, and before that at Dellsher Investment Co, which Melamed founded in 1965. Goone, 57, is a man with a big smile and a love of the futures industry. He also has the itch to trade, but as an exchange executive is largely prevented from doing so.

“I am dying I can’t trade it!” Goone said in ICE’s 31st floor Chicago office near the Chicago river, in his favorite conference room at ICE, one with a red couch and chair set against stark white walls.

Goone said he knows FANG+ is really something “when FANG+ is leading stocks” and is the focus of price discovery.

When the emini S&P 500 first started, it quickly became the primary price discovery location. The immediacy of electronic trading trumped the human price reporting of the bigger pit traded market. This change in price discovery focus was a key element in the success of the emini S&P.

Goone started on the floor with Shatkin Trading and worked his way around various positions there before moving to increasing opportunities with lndosuez Carr Futures and Chase Manhattan Bank before joining the CME.

Prior to joining ICE as one its first 50 or so employees, Goone served as managing director and head of product development and sales at the Chicago Mercantile Exchange. Goone saw the glory days of the competition in Chicago between the CME and CBOT from his corporate roles and from his perch at the CME.

Having joined ICE in 2001, Goone has continued to hold strategy roles, though the name of the position has changed slightly over the years.

This move of ICE’s, creating the FANG+, enjoys the industry and media infatuation with cute product nicknames and the capability of social media to get the word out.

Business news shows are filled with stories involving the components of FANG+. It is a bull market story, though the bull is a bit long in the tooth by historical standards for some naysayers.

The catchy FANG concept has even prompted the CME to use it in promoting its Nasdaq 100 futures. You can’t beat when your competitors are forced to play along.

The best part of FANG+, though, is its volatility.  At a time when many market making firms not named DRW are struggling to survive, FANG+ gives retail and professional traders alike some umph to trade.

ICE is even helping FCMs whose customer’s trade FANG+. They are offering FCMs a rebate of 25 cents of the $1.00 exchange fee they collect.

This is not payment for order flow or any of those equity market practices that make futures industry professionals scratch their heads or worse. There is but one place to trade the FANG+, not numerous competing venues.

I would expect ICE to be aggressive and relentless in promoting this product.  I would also expect a competitive response from other Chicago exchanges, which is the way things were, are again and ought to be.

(Additional reporting was done by JLN Managing Editor Sarah Rudolph.)

The post FANG+ Puts the UMPH Back into the Markets and Exchange Competition appeared first on John Lothian News (JLN).

When Google was readying for its IPO in 2004, employees were given educational courses in finance and investing. Then senior vice president Jonathan Rosenberg was worried that Google employees — many soon to be minted millionaires — would be taken advantage of by all manner of asset managers and brokers. During the presentations, a series of notable figures all gave the same advice to Google employees, “don’t try to beat the market.”

Through the lens of that story, Tim Edwards, senior director of index investment strategy for S&P Dow Jones Indices, explores the history of indexing in this MarketsWiki Education Video. Edwards follows indexing from the Vanguard origin days to now, an era when 99 percent of European fund managers invested in U.S. stocks could not beat their benchmark.

The post Tim Edwards, S&P Dow Jones Indices – The Relative Importance of Skill, Conviction and Blind Luck in Beating the Market appeared first on John Lothian News (JLN).

Big Newsletter Changes
Starting tomorrow, JLN Financials will no longer be published. Our flagship morning newsletter is getting a makeover — content that would usually be found in JLN Financials will now be included in the morning newsletter. Subscribers to JLN Financials will now get the morning newsletter instead (if they do not already subscribe). We hope you will enjoy the expanded coverage.

If you do not wish to receive the morning newsletter in lieu of JLN Financials, simply unsubscribe by clicking the link at the end of the email. JLN Options will still be published daily.

Have a great weekend!

Quote of the Day

“At the beginning everyone thought [Tidjane Thiam] could walk on water. Nowadays everyone thinks he struggles to swim.”

Zuercher Kantonalbank analyst Andreas Brun in the story, “A year into the job, Credit Suisse CEO’s superstar status loses shine”

Lead Stories

Most big U.S. banks pass Fed’s stress test, boosting shareholder payouts
Reuters
Nearly all of the largest U.S. banks are on steady enough footing to increase payouts to shareholders, the U.S. Federal Reserve said on Wednesday, with just two subsidiaries of foreign banks failing its annual stress test.
reut.rs/29gArc9

Banks warned over conflict of interest
Financial Times
Banks have been warned about conflicts of interest by a new body charged with cleaning up the City of London in the wake of a string of financial scandals. A year after the Bank of England and Treasury called for its creation, the FICC Markets Standards Board made its first concrete proposals on Thursday, concentrating on so-called reference-price transactions.
on.ft.com/29g6pFH

Britain’s biggest banks called to BoE for ‘fireside chat’
Financial Times
The chief executives of Britain’s biggest lenders were called into the Bank of England on Wednesday to discuss the impact on the financial system of the country’s vote to leave the EU in last week’s referendum.
/goo.gl/kNtWwl

A year into the job, Credit Suisse CEO’s superstar status loses shine
Joshua Franklin and Oliver Hirt – Reuters
Credit Suisse Chief Executive Tidjane Thiam likes to joke he has a predilection for being under pressure. A year into the job he may have got more than he bargained for. Shares in Switzerland’s second-biggest bank touched record lows in June, and have plunged more than 50 percent since the former head of British insurer Prudential took up his new post on July 1 last year.
reut.rs/29ga5at

German ratings agencies merge to gain clout in U.S.-dominated market
Reuters
Two small German ratings agencies with a combined European market share of less than 3 percent are merging to increase their clout in a market dominated by the big three U.S. groups Standard & Poor’s, Moody’s and Fitch. Berlin-based Scope said on Thursday it was acquiring Feri Eurorating from financial services group MLP (MLPG.DE) for an undisclosed sum and would expand its coverage to include sovereign ratings.
reut.rs/29g9x4o

Was Brexit fear a giant hoax or is this the calm before the next storm?
The Telegraph
Let us separate matters. We face a political upheaval of the first order, but this is a necessary catharsis. Governments come and go. So do political parties. We face a much more serious constitutional crisis. It is why some of us want a national unity government, keenly alert to the interests of Scotland and Northern Ireland. As Professor Kevin O’Rourke from All Souls College argues here, most Leavers waltzed into Brexit with scarcely a moment’s thought for trauma inflicted on both sides of the Irish border. This carelessness must be rectified immediately.
bit.ly/29gdCFu

The infrastructure of power
The Economist
China’s growing global clout can be unsettling for the incumbents who must make room for it. At the same time, China’s recent financial tumult has been unnerving for the investors exposed to it. This combination of vastness and vulnerability has left some people afraid of China and others afraid for it. Both groups have found reason to worry about the Asia Infrastructure Investment Bank (AIIB), which has just held its initial annual meeting in Beijing and approved its first $509m-worth of projects.
econ.st/29gAZiu

Islamic banking can be the ideal support system
GulfNews.com
There are mounting concerns currently being voiced by organisations such as the International Monetary Fund (IMF) and the Bank of International Settlements over the long-term impact of the slow growth rate reported across all major regions from the latter part of 2015 to early this year. Significant losses in the global financial and commodity markets have been observed following crucial developments such as the slowdown of the Chinese economy, volatile oil prices, and currency weaknesses in emerging economies.
bit.ly/29gcKAL

GE Capital Sheds ‘Systemically Important’ Label
Ted Mann and Ryan Tracy – WSJ
General Electric Co.’s lending arm became the first big financial institution to escape stricter postcrisis rules by dramatically shrinking its business, a strategic pivot in sync with regulators’ demands for firms to reduce risk-taking.
on.wsj.com/29gx596

JPMorgan is launching a startup residency program for fintech
Business Insider
JPMorgan is taking a new approach to working with tech startups. The firm is expected to launch a residency program for financial technology, or fintech, companies on Thursday in an effort to tackle strategic and security-related challenges.
read.bi/29gxI2p

Central Banks

Carney Signals Rate Cuts as Brexit Chaos Engulfs Political Class
Bloomberg
Mark Carney signaled the Bank of England could cut interest rates within months as the central bank tries to shield an economy rattled by the shock of Brexit and the chaos engulfing Britain’s political classes.
bloom.bg/29uwSey

Britain’s biggest banks called to BoE for ‘fireside chat’
Financial Times
The chief executives of Britain’s biggest lenders were called into the Bank of England on Wednesday to discuss the impact on the financial system of the country’s vote to leave the EU in last week’s referendum.
/goo.gl/kNtWwl

The arcane world of central banks have been put on notice
The Australian
Of all the chairmen of the US Federal Reserve, Alan Greenspan stands alone. He shamelessly used the office to promote himself as an international celebrity. He toyed with Wall Street, which hung on his every word. He once contemptuously quipped: “I know you think you understand what you thought I said, but I’m not sure you realise that what you heard is not what I meant.” In 1996, by using the words “irrational exuberance”, he knocked 2 per cent off stock prices in a half-hour. He never clarified whether he had the stockmarket in mind, yet such was his influence.
goo.gl/5msupL

Let’s Talk It Over, Says BOJ, as Banks Lead Japanese Bond Revolt
Bloomberg
Struggling to feel positive about negative yen bond yields? Record-low trading getting you down? The Bank of Japan wants to hear from you. The BOJ has added its own surveys of investors and primary dealers since last year, on top of separate Ministry of Finance panel discussions with traders and economists. Never before have Japanese authorities opened so many avenues of discourse with market participants.
bloom.bg/29uyxB6

China central bank criticizes media for publishing ‘inaccurate information’ on yuan rate
Reuters
China’s central bank criticized the media on Thursday, saying some media continuously publish “inaccurate information” on the yuan foreign exchange rate, which help some “speculative forces” short the yuan.
reut.rs/29gaCZQ

Mexico Raises Key Rate More Than Expected After Brexit Vote
Bloomberg
Mexico raised its key interest rate after the peso plunged on the U.K.’s vote to leave the European Union, outweighing concerns revealed in the same central bank decision of a weaker domestic economy. The currency rallied.
bloom.bg/29uxOQp

Regulatory News

Brexit gives Valdis Dombrovskis big sway over banks
Financial Times
Valdis Dombrovskis had a blunt message for Latvians when he took over as the country’s prime minister in the depths of a financial meltdown in 2009: “We are facing national bankruptcy. It’s going to be tough.” In a twist of fate — Britain’s shock vote to leave the EU — Mr Dombrovskis now finds himself in charge of bank regulation across Europe, and with a mandate to prevent a recurrence of the sort of crisis that rattled his Baltic nation.
on.ft.com/29gaGZE

How Banks Fared in This Year’s Stress Tests
The Atlantic
Last week, it was announced that the results of the first round of the Federal Reserve’s annual “stress tests”—which evaluate whether U.S. banks have enough capital to withstand a financial crisis—were positive: All 33 U.S. banks passed the “warm up” stress tests, signaling that they could, hypothetically, withstand an estimated $385 billion in losses should a recession occur. But the second round of results—released just after markets closed on Wednesday—were less promising.
theatln.tc/29uwBbG

Europe’s banking watchdog set for costly HQ exit on Brexit vote
Financial Times
Europe’s banking watchdog is set to take a multimillion pound hit as it looks to force through an early exit of its Canary Wharf headquarters following the UK’s decision to exit the EU. The European Banking Authority — which oversees EU-wide bank policy and stress testing — has said that it would move in the event of a vote to leave the EU. The regulator is locked into a £1.8m-a-year lease on a Canary Wharf tower until the end of 2020, meaning that its early departure will leave the EBA on the hook for the Docklands offices.
/goo.gl/uG5z8q

Morgan Stanley Must Resubmit Capital Plan in Fed Stress Test
Bloomberg
Morgan Stanley was alone among the largest U.S. banks in stumbling through the Federal Reserve’s annual stress tests, getting conditional approval to increase payouts to shareholders. Thirty other firms passed, while two subsidiaries failed.
bloom.bg/29gvQH1

Currencies

How China Took Center Stage in Bitcoin’s Civil War
Nathaniel Popper – NY Times
A delegation of American executives flew to Beijing in April for a secret meeting at the Grand Hyatt hotel, just blocks from Tiananmen Square. They went to meet with the new kingmakers in what has become one of the grandest and strangest experiments in money the world has seen: the virtual currency known as Bitcoin. Against long odds, and despite an abstruse structure, in which supercomputers are said to mine the currency via mathematical formulas, Bitcoin has become a multibillion-dollar industry. It has attracted major investments from Silicon Valley and a significant following on Wall Street.
nyti.ms/2980aT2

FX: Retail investors dodge sterling Brexit bullet
Euromoney Magazine
As the polls closed on the UK’s EU referendum, the market was heavily positioned for a Remain victory. As news came in the result had gone the other way, traders scrambled to reverse their positions, triggering heightened volumes and volatility.
goo.gl/D6JpCw

FX traders pick through Brexit wreckage
Euromoney Magazine
A week since Britain voted to leave the European Union (EU) after 43 years of membership, it is still no clearer who will lead the UK government or how Britain will negotiate its exit from the EU. Markets are on tenterhooks for more details, but some traders have already profited from currency bets. Paul Chappell, founder and chief investment officer at C-View, says it has been a while since currency markets have seen such sudden moves.
goo.gl/wlHBXO

How Brexit Makes China’s Currency a Crucial Thing for Markets to Watch
Bloomberg
For markets, Brexit is not just a story of European disintegration. The financial market stresses that could emanate from the results of the U.K. referendum bear a close resemblance to what investors were worried about in the summer of 2015 and the start of 2016: the potentially unwelcome tightening in financial conditions in Asian countries. Many in the Far East, including China, operate under managed exchange rate regimes that have historically tended to rise along with the U.S. dollar when investors seek refuge in safe havens.
bloom.bg/29gzeBG

The yen as a safe haven: a familiar but painful refrain for Japan
Reuters
A weak economy, deflation, massive public debt, negative interest rates and an ageing citizenry don’t seem like good reasons for a country’s currency to surge, but that’s exactly what happened to Japan’s yen after Britain’s vote to leave the European Union.
reut.rs/29ga4TJ

BOJ board newcomer Masai warns against excess FX volatility
Reuters
The Bank of Japan’s new board member, Takako Masai, said on Thursday excessive currency moves that do not reflect economic fundamentals are undesirable. “Excess volatility in currency markets risks hurting companies’ investment activity,” Masai said at her inaugural news conference.
reut.rs/29gafyl

Yuan Heads for Worst Quarter on Record as Outflows Seen Rising
Bloomberg
Losses deepen after U.K. vote to leave European Union
Depreciation pressure seen for yuan over coming years: Danske
The yuan’s worst quarterly performance on record is raising the risk of capital flight.
bloom.bg/29g8stj

Winklevoss Bitcoin Trust dumped NASDAQ for the largest market operator for exchange-traded funds, BATS
Brave New Coin
On Wednesday the Winklevoss twins filed a sixth amendment to their Securities and Exchange Commission (SEC) registration for the Winklevoss Bitcoin Trust. The amendment includes two major changes, the price and their chosen exchange. Cameron Winklevoss, CEO of the Trust, originally filed the Winklevoss Bitcoin Trust Registration Statement with the SEC on July 1, 2013. An amendment on May 8, 2014, named NASDAQ as the chosen exchange for trading. On July 1, 2014, a further amendment was revealed that the shares will be traded under the symbol “COIN.”
goo.gl/P0OxoQ

Bonds

The ECB Admits: “We Are Concerned About The Shrinking Pool Of Eligible Debt”
Zero Hedge
Back in April of 2015 in a post titled “Mario Draghi, Collateral Scarcity, And Why The ECB Will Soon Buy Corporate Bonds”, we explained not only why, one year before it was unveiled, the ECB would buy corporate bonds, but why in Europes highly supply constrained bond market, Mario Draghi would not only have to expand his central bank’s collateral pool as it runs out of eligible bonds whose yields are below the ECB’s deposit floor thus making them ineligible for ECB purchases, but may have to do even more QE in a vicious loop as frontrunning the ECB leads to ever lower yields, and thus even more deflation.
bit.ly/29gx8Sq

Puerto Rico Faces Record Default: A Look at the Bonds Due
Bloomberg
Puerto Rico Governor Alejandro Garcia Padilla says the island won’t pay general-obligation debt coming due on Friday even with President Obama poised to sign a bill that enables the commonwealth to restructure its $70 billion debt load.
bloom.bg/29uyeWX

The 96% Gainer: Government Bonds
Mike Bird and Christopher Whittall – WSJ
A corner of the market once sought after for steady returns has been this year’s jackpot investment: the government debt of advanced economies.
on.wsj.com/29gAaG9

U.K. Opens Bond Market With Cigarettes and Alcohol After Brexit
Bloomberg
The U.K. has reopened its corporate bond market with cigarettes and alcohol. British American Tobacco Plc and Jack Daniel’s whiskey maker Brown-Forman Corp. sold sterling bonds on Thursday, ending a month-long shutdown surrounding the nation’s vote to leave the European Union. BAT’s deal comprised 500 million pounds ($663 million) of notes, while Brown-Forman issued 300 million pounds of securities, according to data compiled by Bloomberg.
bloom.bg/29gcZMg

Here’s why investors bought S&P 500 bonds — not stocks — after Brexit
MarketWatch
The bonds of companies in the S&P 500 index enjoyed a good run following the victorious “leave” vote in the U.K.’s referendum on EU membership — even as their stocks got crushed. The strong performance baffled analysts at first because corporate bonds are considered so-called risk assets, if not typically as risky as their stock brethren. Demand for corporate bonds over government-issued debt, for instance, tends to rise when risk appetite spikes and fall when markets are in panic mode; that’s typically true of stocks, too.
on.mktw.net/29gfqOY

Indexes & Index Products

Investors, Don’t Play Footsie With Brexit
James Mackintosh – WSJ
Don’t be fooled by the Footsie. The U.K.’s FTSE 100 index is back above last Thursday’s close, just before Britons voted to leave the European Union, and those in favor of Brexit are crowing that everything’s fine. It isn’t. The FTSE 100 is a very poor representation of the U.K. In fact, it’s probably a better representation of the rest of the world than it is of Britain: Only 22% of its companies’ sales come from the U.K., according to Goldman Sachs. Many of the companies don’t even operate in sterling, with more than a third of dividends declared in dollars.
on.wsj.com/29g9Lsl

Vanguard’s King Sees No Future For ETFs In 401(k)s
ETF.com
Defined contribution retirement plans—such as 401(k)s—are a $6.7 trillion market today, covering some 90 million working Americans. Vanguard manages about $800 billion of those assets. That market has grown and improved significantly in the past decade, Vanguard Managing Director Martha King says, but there’s plenty of room to improve. What there doesn’t seem to be is a whole lot of demand—or use—for ETFs.
goo.gl/9bkqyy

Here’s how ETF traders rode out post-Brexit stock-market rout
MarketWatch
ETF investors kept their cool in the market turmoil that followed the U.K.’s vote last week to exit the European Union. A more than twofold jump in value of total market trading on Friday—a day that saw the biggest one-day rout for global equities in history—was almost entirely driven by trades in individual stocks, while ETF traders appeared to shrug off the most anticipated economic event of the year, said Dave Nadig, director of exchange-traded funds at FactSet, on Wednesday.
on.mktw.net/29g9Jk9

This Week’s ETF Launches: AccuShares Builds a Better Oil ETF
Yahoo Finance
Contango and backwardation. For professional commodity investors, the two terms are common knowledge. However, for regular retail investors, many are blissfully unaware of how these two situations can affect their returns – even if they own popular commodity-linked ETFs like the United States Oil ETF (USO A). In fact, the two situations can actually put investments into some pretty nasty losses.
yhoo.it/29guFr4

Gold

Cheap Gold Mines Disappear as Buyers Splurge for Surging Bullion
Bloomberg
So much for the run on cheap gold mines. Producers who were forced by slumping prices to unload assets last year are regaining leverage.
bloom.bg/29uANbq

Gold expert: ‘I don’t think anyone has missed the boat at this point’
Yahoo Finance
Gold investing pro George Milling-Stanley, head of gold investment strategy at State Street Global Advisors, says investors haven’t missed the boat on investing in gold. Following the stunning Brexit vote last week, investors piled into gold, which is considered a “safe-haven” asset, pushing the precious metal’s price to a two-year high.
yhoo.it/29uy9m5

The post JLN Financials: Most big U.S. banks pass Fed’s stress test, boosting shareholder payouts; Banks warned over conflict of interest; Britain’s biggest banks called to BoE for ‘fireside chat’ appeared first on John Lothian News (JLN).

Stars Of The Next Generation
Jim Kharouf

John and Doug are in New York today drumming up support for our MarketsWiki Education series in the Big Apple on July 19.

If you have not signed up your interns, or know of someone who would benefit from hearing the likes of Adena Friedman of Nasdaq, Jenny Knott of ICAP, Steve Gibson of Euclid Opportunities, Gary DeWaal of Katten, Bill Harts of the MMI, Kevin Wolf of Eris and Kenny Polcari of O’Neil Securities, then register here.

Chicago’s series runs July 12, 14 & 15.

Quote of the Day

“As of this evening, I see no way back from the Brexit vote. This is no time for wishful thinking, but rather to grasp reality.”

German Chancellor Angela Merkel in the story, “Merkel Says No Way Back From Brexit as Cameron Regrets Loss”

Lead Stories

Forget December. Forget Next Year. The Fed’s Done Hiking Until 2018
Liz McCormick and Matthew Boesler – Bloomberg
Dollar rebound, volatility derail efforts to normalize policy
Derivative markets see rate cut more likely than hike in 2016
Circle Jan. 31, 2018, on the calendar. That’s the soonest the Federal Reserve hikes next.
bloom.bg/29pkv3E

Hard-to-Sell Assets Complicate European Banks’ ‘Brexit’ Risks
Landon Thomas Jr. – NY Times
Even before Britain voted to cut ties with the rest of Europe, large European banks with global ambitions and sprawling operations in London were struggling. Now, as banks scramble to assess the impact of a British exit from the European Union, Deutsche Bank, Credit Suisse, Barclays and others face increased pressure from investors. While they recovered some ground on Tuesday, the stock prices of these banks have fallen sharply after the British vote, on increased fears that they will be unable to sell the billions of dollars of derivatives, securitized mortgages and other hard-to-value and sell securities that they so desperately need to get rid of.
nyti.ms/29cWm4a

Fed flags Morgan Stanley, Deutsche Bank, Santander, in stress testing
CNBC
The Federal Reserve objects to capital distribution plans proposed at the U.S. units of Deutsche Bank and Santander, meaning that the banks cannot issue dividends or make share buybacks until they establish a new plan, the central bank said Wednesday.
cnb.cx/29dm7kJ

Banks on edge over UK passporting options
Steve Slater – Reuters
Investment banks are scrambling to establish how post-Brexit changes in the UK’s “passporting” rights for financial services will impact their businesses, putting thousands of jobs in London in the balance. Passporting is considered the most significant feature of the EU single market for banks and other financial companies, allowing firms in one EU country to provide services to clients elsewhere in the single market.
reut.rs/29cYetT

Brexit: When the Facts Change
Bluford Putnam – CME Group
Britain’s Brexit decision on Thursday, 23 June 2016, appeared to catch the financial markets by surprise even though the opinion polls had been warning of a very close vote. On Friday, 24 June 2016, the British pound fell sharply, over 7%. The S&P 500 fell over 3%, while U.K. stocks, European exchanges, and Japanese stocks fell much more. As Japanese and global equities declined, non-Japanese sellers of Japanese equities covered their FX hedges, and the Japanese yen briefly strengthened below 100 versus the dollar, before rebounding based in part on Bank of Japan intervention. The VIX had its biggest one-day rise since the Chinese-induced sell-off in August 2015. Bank stocks in the European Union took a beating, down 10% to 20%. On the flight-to-quality side of the ledger, U.S. Treasuries rallied big and gold surged. On Monday morning, 27 June 2016, the hangover was still severe, with the pound falling further, global equities moving down, and the “flight-to-quality” U.S. Treasuries rallying. The dust is not settling several days after the event, so it is time to take stock.
goo.gl/3wPkdb

Brexit-Related Selling Might Already Be Over in the U.S.
Bloomberg
Brexit? Boooooooring. There have been only three trading sessions in North America since the U.K. voted in favor of leaving the European Union. But according to some strategists, that story’s already stale.
bloom.bg/29prauF

U.S. banks and Brexit: ‘keep calm and carry on’ while planning for contingencies
Henry Engler – Reuters Blog
The venerable English phrase, “keep calm and carry on,” might be appropriate for U.S. financial institutions as they grapple with unfolding drama of Britain’s separation from the European Union. With uncertainty clouding the timing, the broad shape and the ultimate fine print of the divorce proceedings, U.S. firms will need to consider a series of contingency options regarding their future operations in Europe. However, the greatest immediate test for compliance and risk management across all firms will be the likelihood of continued market volatility and possibility of improper conduct.
reut.rs/29pq0z9

EU referendum: London’s financial industry relies on foreigners, which is a big problem after Brexit
Quartz
New York is a cosmopolitan place. London is of another order. Consider the financial services sector, which accounts for more than 11% of the UK government’s tax receipts: the Bank of England is run by a Canadian, a Frenchman is head of the London Stock Exchange, executives from Portugal and New Zealand run two of the country’s state-run banks, and Barclays, one of the few big British banks left with global aspirations, recently replaced a Brit with an American at the helm.
bit.ly/29cNPON

Do Sovereign Credit Downgrades Tell Us Very Much? Surprisingly Not
Adam Creighton – WSJ
Standard & Poor’s decision to strip the United Kingdom of its AAA credit rating in the wake of the country’s vote to leave the European Union has highlighted once again the limited value of sovereign credit ratings.
on.wsj.com/29qdqzD

Groups say Fannie and Freddie are gouging home buyers with add-on fees
Washington Post
Think of them as backroom surcharges that increase what you pay when you get a conventional home mortgage. They can also kill your loan application and make purchasing a house or condo much more difficult. Although you’ve probably never heard of LLPAs or G-fees — they’ve got eye-glazing names and aren’t always explained by loan officers — they are important. They can raise your interest rate, costing you thousands of dollars extra because of the size of your down payment, the type of property you’re buying and your credit score. And you had no idea.
wapo.st/29cXfcT

Merkel Says No Way Back From Brexit as Cameron Regrets Loss
Bloomberg
European Union leaders said there could be no turning back for the U.K. after Prime Minister David Cameron used his last EU summit to express disappointment at his failure to win the referendum he called on Britain’s membership.
bloom.bg/29qc0Fe

Central Banks

Brexit’s Market Punch Tests New Fed Playbook on Business Cycles
Matthew Boesler and Craig Torres – Bloomberg
The Federal Reserve has been testing out a new playbook for monetary policy this year that’s helping officials understand how Brexit-inspired shock waves across financial markets will affect the U.S. economy. Their innovation, which incorporates the biggest lesson they learned in the financial crisis, may sound like common sense: Monetary policy needs to respond to investor anxiety triggered by events such as China’s currency devaluation and the U.K. vote to leave the European Union. That’s because market instability can have important economic effects which were previously under-appreciated.
bloom.bg/29pp3qq

Brexit shows central banks can’t go it alone – governments have to step up
Quartz
The UK vote to leave the EU is already causing market volatility. Central banks are immediately reassuring markets that they will do their job. Their job used to be just managing monetary policy, aimed at an inflation and/or full employment target. Now central banks are expected to maintain financial stability when the instability is caused by events far beyond their control.
goo.gl/C6SdwG

Brexit — how will central banks respond?
Financial Times
Brexit poses another problem for central banks struggling to combat low productivity and high debt levels on the path to growth and armed with narrow policy options. How does Brexit affect them, how might they respond and what are they likely to do?
on.ft.com/29d1eGC

The Unfinished Agenda of Raghuram Rajan
Business Today
Think increasingly the job of (a central bank) governor in a modern economy requires somebody with, if not training in economics, but a very good understanding of economics and finance and banking. They (governors) have to have a sense of the whole thing. If you are a macro economist, but don’t understand finance and banking, you could be out of your depth very soon on the regulatory front.” Raghuram Rajan, 23rd governor of the Reserve Bank of India (RBI), was explaining what was required to head a central bank to Business Today.
goo.gl/OEZGxI

Regulatory News

Stress test inc.: Billions of dollars and bank consultants to manage other consultants
Ryan Tracy – WSJ via Financial News
After Citigroup unexpectedly failed the Federal Reserve’s annual stress tests in March 2014, the bank opened its checkbook and called in the consultants. The firm had to address several of the regulator’s concerns in a short time frame, and no single consulting firm could do the job, according to people familiar with the matter. The bank hired multiple firms and said it spent about $180 million on stress tests during the second half of 2014. The next year, it passed.
goo.gl/dskeRl

****SD: Bloomberg: European Banks Spend Billions to Get U.S. Units Fit for Fed

European Banking Authority’s Location in Question After Brexit Vote
Todd Buell – WSJ
Britain’s pending exit from the European Union raises questions about the future location of the EU’s London-based European Banking Authority. It could also raise questions about the future of the agency itself. That is because the EU has a second banking overseer—but only for banks from countries that use the euro—tucked inside the European Central Bank. The ECB’s banking supervisor, the Single Supervisory Mechanism, is based in Frankfurt, which is among several cities vying to snag the EBA when it leaves the U.K.
on.wsj.com/29d3pd7

Libya wealth fund boss screamed, cursed at Goldman bankers -witness
Reuters
The Libyan wealth fund’s former deputy chief screamed and cursed at Goldman Sachs bankers in a stormy meeting over derivatives trades made on the bank’s advice that ultimately turned out to be worthless, a witness told a court on Tuesday. In a trial at London’s High Court, the Libyan Investment Authority (LIA) is trying to claw back $1.2 billion from Goldman Sachs related to nine disputed trades carried out in 2008.
reut.rs/29cXch8

Brexit Update: What’s Next for the Global Marketplace
Lexology
The United Kingdom’s vote to leave the European Union is expected to have complex legal implications for the United Kingdom, the European Union and the global marketplace in the near and long term. McDermott has an experienced team of lawyers who have been evaluating the potential legal ramifications of the June 23 referendum and are ready to answer questions and assist clients in navigating the consequences of the United Kingdom’s exit.
goo.gl/fN93MX

Currencies

Citadel Quadruples Currency Trading as Brexit Spurs Volume Surge
Bloomberg
Citadel Securities LLC says it traded record currency volume last week after the U.K.’s Brexit vote sent shock waves through financial markets. The company expects more volatility to come. The market-making arm of money manager and securities firm Citadel LLC said its foreign-exchange activity on June 24 surged to more than four and a half times the firm’s daily average this year. The Chicago-based company declined to provide a dollar figure. The U.K. vote to leave the European Union also led to a surge in volume across trading venues run by Thomson Reuters Corp., Bats Global Markets Inc. and FastMatch Inc. as the pound tumbled to a three-decade low.
bloom.bg/29cUXue

FX Update: Post-Brexit risk rally slow to impact FX
TradingFloor.com
While opinions have swirled in the headlines that the UK referendum may not end in a real Brexit, the events in Brussels have certainly taken a firm tone of finality. Resigning UK prime minister David Cameron has said that there is no way back and German chancellor Angela Merkel stated that “this is no time for wishful thinking, but rather to grasp reality.” Meanwhile, market action was inconsistent: our risk barometer of the S&P 500 future ripped higher to the first Fibonacci retracement – a remarkable 50-plus points from the lows, but of course that came after a drop of over 130 points, so we’re still in dead cat territory for now.
/goo.gl/aEvB8E

Yuan internationalisation likely delayed by euro and pound volatility, says BOCHK economist
South China Morning Post
The process of yuan internationalisation may face a setback as volatility in the world’s two largest reserve currencies – the British pound and the euro – are pushing the very foundation of the global monetary order into question, warned Bank of China Hong Kong (BOCHK) on Wednesday.
bit.ly/29d1rtb

Dollar Poised for First-Half Drop as Fed Hike Prospects Dwindle
Bloomberg
The dollar dropped for a second day, extending its loss for the first half of this year, as traders wager the Federal Reserve is more likely to cut interest rates than raise them in upcoming meetings.
bloom.bg/29qdjUL

China shows commitment to renminbi stability with currency fix
Financial Times
China fixed the renminbi’s exchange rate at a level stronger than many expected on Wednesday in a sign that stability for the currency remained Beijing’s paramount objective. Dollar strength since Friday’s Brexit vote had led the People’s Bank of China to fix the midpoint, around which it allows the onshore currency to trade 2 per cent, at far weaker levels against the surging US currency.
goo.gl/rfQqjq

BSO To Build Financial Cloud Aimed at FX Market Needs
Traders News
BSO, a global Ethernet network, cloud and hosting provider, announced that it is adding Financial Cloud to its service portfolio to provide a low latency network and cloud offering specifically engineered for the global financial community.
goo.gl/3AiuTQ

Hollande Takes Aim at City of London in Euro Clearing Threat
Helene Fouquet and John Detrixhe – Bloomberg
The City of London is facing the first direct threat to its role as Europe’s dominant financial center as French President Francois Hollande takes aim at a key pillar of the U.K. industry.
“The City, which could handle clearing operations in euros thanks to the U.K.’s presence in the EU, won’t be able to do them any more,” Hollande said after the first day of a European Union summit in Brussels.
goo.gl/Gnmm6N

Investors might be excited by Nigeria’s new free floating naira but president Buhari isn’t
Quartz
After months of strict currency controls, Nigeria’s new currency policy which saw the naira floated and valued by market forces kicked in last week.
goo.gl/p0QAWZ

You Just Stole $50 Million In Cryptocurrency — Now How The Hell Do You Spend It?
Buzzfeed
Imagine that you are a master thief, a real Danny Ocean. In your latest caper, you discover a way into the vault of a brand-new bank, one thought to be pretty much uncrackable. And then, using the bank’s own state-of-the-art systems against it, you steal about $60 million dollars. Finally, you escape — and no one knows who you are.
bzfd.it/29cWzUZ

Bonds

Trading Tech: Markit Launches Real-Time Bond Pricing
Traders News
Markit, a provider of financial information services, launched the live pricing for bonds, a streaming pricing service for investment grade and high yield corporate, sovereign and agency bonds. Markit’s new live bond pricing service covers more than 35,000 bonds across 40 currencies and delivers more than 250,000 pricing updates per minute. Customers will benefit from improved pre-trade price transparency, timely intraday asset valuation calculations and superior best execution analysis.
goo.gl/YCb6mS

Weekly Bond Update: Brexit blues
TradingFloor.com
In an historic and sensational referendum vote, the British electorate upset the political establishment and opted to leave the European Union last week. The surprise decision has left the political system on both sides of the aisle in chaos, and caused panic in financial markets.
/goo.gl/Alt5Il

Brexit Uncertainty Ensures Bond Rally’s Survival
TheStreet
As European Union leaders are gathered in a summit without the U.K. in Brussels on Wednesday, investors can be sure of one thing in all this Brexit-related drama: the bond rally looks set to continue. The president of the European Central Bank (ECB) Mario Draghi said ahead of the EU summit that Brexit could shrink the GDP of the eurozone by around 0.5% over the next three years, according to a document seen by Bloomberg reporters. As investors already know, there’s nothing like the threat of recession to push bond prices up because markets flee to the safety of bonds at the same time as central banks purchase them as part of their quantitative easing efforts.
bit.ly/29d5EwR

Puerto Rico Says It Will Default Even With Congressional Aid
Bloomberg
Two days before a potential historical default, Puerto Rico Governor Alejandro Garcia Padilla made it clear that the commonwealth won’t pay bondholders even as Congress votes on a bill allowing the island to restructure its $70 billion in debt.
bloom.bg/29qbO94

Singapore’s Millionaires Humbled in Local Bond Restructurings
Denise Wee and David Yong – Bloomberg
Singapore’s wealthy investors are discovering they lack clout in negotiations when high-yield bond investments blow up. PT Trikomsel Oke became the first company to default on Singapore dollar debt since 2009 when it failed to repay a bond coupon in November last year, followed shortly afterwards by Pacific Andes Resources Development Ltd. The market faces more tests with Swiber Holdings Ltd.’s July 6 maturity among S$2 billion ($1.5 billion) of notes coming due by year-end.
bloom.bg/29cXF2Q

Indexes & Index Products

U.K. Stocks Are Staying in Europe
Aleksandra Gjorgievska – Bloomberg
The U.K. voted to leave. Its stocks will remain. So say the biggest index providers, who have no plans to alter the composition of their benchmarks after Britain chose to exit the European Union. The nation’s shares will stay in the MSCI Europe Index as membership in the trading bloc has no bearing on the gauge’s make-up, said Remy Briand, MSCI Inc.’s global head of research. They’ll also continue to be eligible for global and regional measures at Stoxx Ltd., overseer of the Stoxx Europe 600 Index, according to a company spokeswoman.
bloom.bg/29q3Rkm

ETFs Gain Ground as Advisors Look to Passive Beta-Index Strategies
Nasdaq
Exchange traded funds have been a huge hit in the investment community, with financial advisors increasingly turning to the index-based tool as their go-to investment option for clients.
goo.gl/uUFwHD

If Warren Buffett Recommends Index Funds, Why Would Anyone Invest in Other Areas?
The Motley Fool
A little over eight years ago, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) CEO Warren Buffett bet hedge fund manager Tom Seides that an investment in a low-cost S&P 500 index fund would outperform a basket of hedge funds chosen by Seides over a 10-year period. So far, Buffett’s index fund has more than tripled the performance of Seides’ hedge funds.
goo.gl/SlKsak

An Index of Uncertainty Surges After ‘Brexit’
NY Times
This morning, my 3-year-old son asked what was going to happen after breakfast. I misheard, and launched into a disquisition on the political disturbances in Britain, the challenge of maintaining an integrated Europe and threats to the world economy in the wake of “Brexit.” Judging by the tenor of recent commentary, it was an understandable mistake.
nyti.ms/29d6GZQ

Gold

Precious metals see continued demand
TradingFloor.com
Gold and silver remain two of the “winners” in the aftermath of the Brexit vote last Thursday. Support from negative bond yields and an increasingly dovish Federal Open Market Committee was already firm before the vote.
/goo.gl/jtihlD

Faber Says Own Gold, Prepare for QE4 as Easing Follows Brexit
Bloomberg
Gold’s investment case has been strengthened by the U.K.’s vote to quit the European Union as the fallout may spur the world’s central banks to step up easing, hurting currencies and favoring bullion, according to Marc Faber, publisher of the Gloom, Boom & Doom Report.
bloom.bg/29d3a1M

Gold smuggling on the rise
Business Standard News
Since February, import of gold for domestic consumption (as opposed to that done for export, after value addition) has taken a big hit. That is, through official channels; ‘unofficial’ imports have increased significantly.
goo.gl/T2p4rO

Miscellaneous

Here’s how Europeans feel about their dismal economic situations
Business Insider
Europe’s economy as a whole and individual European economies have been sort of not good since the global financial crisis. So we decided to take a deeper look at how Europeans feel about this.
read.bi/29cTXX5

The post JLN Financials: The Fed’s Done Hiking Until 2018; Hard-to-Sell Assets Complicate European Banks’ ‘Brexit’ Risks; Fed flags Morgan Stanley, Deutsche Bank, Santander, in stress testing appeared first on John Lothian News (JLN).

Stars Of The Next Generation
Jim Kharouf

John and Doug are in New York today drumming up support for our MarketsWiki Education series in the Big Apple on July 19.

If you have not signed up your interns, or know of someone who would benefit from hearing the likes of Adena Friedman of Nasdaq, Jenny Knott of ICAP, Steve Gibson of Euclid Opportunities, Gary DeWaal of Katten, Bill Harts of the MMI, Kevin Wolf of Eris and Kenny Polcari of O’Neil Securities, then register here.

Chicago’s series runs July 12, 14 & 15.

Quote of the Day

“As of this evening, I see no way back from the Brexit vote. This is no time for wishful thinking, but rather to grasp reality.”

German Chancellor Angela Merkel in the story, “Merkel Says No Way Back From Brexit as Cameron Regrets Loss”

Lead Stories

Forget December. Forget Next Year. The Fed’s Done Hiking Until 2018
Liz McCormick and Matthew Boesler – Bloomberg
Dollar rebound, volatility derail efforts to normalize policy
Derivative markets see rate cut more likely than hike in 2016
Circle Jan. 31, 2018, on the calendar. That’s the soonest the Federal Reserve hikes next.
bloom.bg/29pkv3E

Hard-to-Sell Assets Complicate European Banks’ ‘Brexit’ Risks
Landon Thomas Jr. – NY Times
Even before Britain voted to cut ties with the rest of Europe, large European banks with global ambitions and sprawling operations in London were struggling. Now, as banks scramble to assess the impact of a British exit from the European Union, Deutsche Bank, Credit Suisse, Barclays and others face increased pressure from investors. While they recovered some ground on Tuesday, the stock prices of these banks have fallen sharply after the British vote, on increased fears that they will be unable to sell the billions of dollars of derivatives, securitized mortgages and other hard-to-value and sell securities that they so desperately need to get rid of.
nyti.ms/29cWm4a

Fed flags Morgan Stanley, Deutsche Bank, Santander, in stress testing
CNBC
The Federal Reserve objects to capital distribution plans proposed at the U.S. units of Deutsche Bank and Santander, meaning that the banks cannot issue dividends or make share buybacks until they establish a new plan, the central bank said Wednesday.
cnb.cx/29dm7kJ

Banks on edge over UK passporting options
Steve Slater – Reuters
Investment banks are scrambling to establish how post-Brexit changes in the UK’s “passporting” rights for financial services will impact their businesses, putting thousands of jobs in London in the balance. Passporting is considered the most significant feature of the EU single market for banks and other financial companies, allowing firms in one EU country to provide services to clients elsewhere in the single market.
reut.rs/29cYetT

Brexit: When the Facts Change
Bluford Putnam – CME Group
Britain’s Brexit decision on Thursday, 23 June 2016, appeared to catch the financial markets by surprise even though the opinion polls had been warning of a very close vote. On Friday, 24 June 2016, the British pound fell sharply, over 7%. The S&P 500 fell over 3%, while U.K. stocks, European exchanges, and Japanese stocks fell much more. As Japanese and global equities declined, non-Japanese sellers of Japanese equities covered their FX hedges, and the Japanese yen briefly strengthened below 100 versus the dollar, before rebounding based in part on Bank of Japan intervention. The VIX had its biggest one-day rise since the Chinese-induced sell-off in August 2015. Bank stocks in the European Union took a beating, down 10% to 20%. On the flight-to-quality side of the ledger, U.S. Treasuries rallied big and gold surged. On Monday morning, 27 June 2016, the hangover was still severe, with the pound falling further, global equities moving down, and the “flight-to-quality” U.S. Treasuries rallying. The dust is not settling several days after the event, so it is time to take stock.
goo.gl/3wPkdb

Brexit-Related Selling Might Already Be Over in the U.S.
Bloomberg
Brexit? Boooooooring. There have been only three trading sessions in North America since the U.K. voted in favor of leaving the European Union. But according to some strategists, that story’s already stale.
bloom.bg/29prauF

U.S. banks and Brexit: ‘keep calm and carry on’ while planning for contingencies
Henry Engler – Reuters Blog
The venerable English phrase, “keep calm and carry on,” might be appropriate for U.S. financial institutions as they grapple with unfolding drama of Britain’s separation from the European Union. With uncertainty clouding the timing, the broad shape and the ultimate fine print of the divorce proceedings, U.S. firms will need to consider a series of contingency options regarding their future operations in Europe. However, the greatest immediate test for compliance and risk management across all firms will be the likelihood of continued market volatility and possibility of improper conduct.
reut.rs/29pq0z9

EU referendum: London’s financial industry relies on foreigners, which is a big problem after Brexit
Quartz
New York is a cosmopolitan place. London is of another order. Consider the financial services sector, which accounts for more than 11% of the UK government’s tax receipts: the Bank of England is run by a Canadian, a Frenchman is head of the London Stock Exchange, executives from Portugal and New Zealand run two of the country’s state-run banks, and Barclays, one of the few big British banks left with global aspirations, recently replaced a Brit with an American at the helm.
bit.ly/29cNPON

Do Sovereign Credit Downgrades Tell Us Very Much? Surprisingly Not
Adam Creighton – WSJ
Standard & Poor’s decision to strip the United Kingdom of its AAA credit rating in the wake of the country’s vote to leave the European Union has highlighted once again the limited value of sovereign credit ratings.
on.wsj.com/29qdqzD

Groups say Fannie and Freddie are gouging home buyers with add-on fees
Washington Post
Think of them as backroom surcharges that increase what you pay when you get a conventional home mortgage. They can also kill your loan application and make purchasing a house or condo much more difficult. Although you’ve probably never heard of LLPAs or G-fees — they’ve got eye-glazing names and aren’t always explained by loan officers — they are important. They can raise your interest rate, costing you thousands of dollars extra because of the size of your down payment, the type of property you’re buying and your credit score. And you had no idea.
wapo.st/29cXfcT

Merkel Says No Way Back From Brexit as Cameron Regrets Loss
Bloomberg
European Union leaders said there could be no turning back for the U.K. after Prime Minister David Cameron used his last EU summit to express disappointment at his failure to win the referendum he called on Britain’s membership.
bloom.bg/29qc0Fe

Central Banks

Brexit’s Market Punch Tests New Fed Playbook on Business Cycles
Matthew Boesler and Craig Torres – Bloomberg
The Federal Reserve has been testing out a new playbook for monetary policy this year that’s helping officials understand how Brexit-inspired shock waves across financial markets will affect the U.S. economy. Their innovation, which incorporates the biggest lesson they learned in the financial crisis, may sound like common sense: Monetary policy needs to respond to investor anxiety triggered by events such as China’s currency devaluation and the U.K. vote to leave the European Union. That’s because market instability can have important economic effects which were previously under-appreciated.
bloom.bg/29pp3qq

Brexit shows central banks can’t go it alone – governments have to step up
Quartz
The UK vote to leave the EU is already causing market volatility. Central banks are immediately reassuring markets that they will do their job. Their job used to be just managing monetary policy, aimed at an inflation and/or full employment target. Now central banks are expected to maintain financial stability when the instability is caused by events far beyond their control.
goo.gl/C6SdwG

Brexit — how will central banks respond?
Financial Times
Brexit poses another problem for central banks struggling to combat low productivity and high debt levels on the path to growth and armed with narrow policy options. How does Brexit affect them, how might they respond and what are they likely to do?
on.ft.com/29d1eGC

The Unfinished Agenda of Raghuram Rajan
Business Today
Think increasingly the job of (a central bank) governor in a modern economy requires somebody with, if not training in economics, but a very good understanding of economics and finance and banking. They (governors) have to have a sense of the whole thing. If you are a macro economist, but don’t understand finance and banking, you could be out of your depth very soon on the regulatory front.” Raghuram Rajan, 23rd governor of the Reserve Bank of India (RBI), was explaining what was required to head a central bank to Business Today.
goo.gl/OEZGxI

Regulatory News

Stress test inc.: Billions of dollars and bank consultants to manage other consultants
Ryan Tracy – WSJ via Financial News
After Citigroup unexpectedly failed the Federal Reserve’s annual stress tests in March 2014, the bank opened its checkbook and called in the consultants. The firm had to address several of the regulator’s concerns in a short time frame, and no single consulting firm could do the job, according to people familiar with the matter. The bank hired multiple firms and said it spent about $180 million on stress tests during the second half of 2014. The next year, it passed.
goo.gl/dskeRl

****SD: Bloomberg: European Banks Spend Billions to Get U.S. Units Fit for Fed

European Banking Authority’s Location in Question After Brexit Vote
Todd Buell – WSJ
Britain’s pending exit from the European Union raises questions about the future location of the EU’s London-based European Banking Authority. It could also raise questions about the future of the agency itself. That is because the EU has a second banking overseer—but only for banks from countries that use the euro—tucked inside the European Central Bank. The ECB’s banking supervisor, the Single Supervisory Mechanism, is based in Frankfurt, which is among several cities vying to snag the EBA when it leaves the U.K.
on.wsj.com/29d3pd7

Libya wealth fund boss screamed, cursed at Goldman bankers -witness
Reuters
The Libyan wealth fund’s former deputy chief screamed and cursed at Goldman Sachs bankers in a stormy meeting over derivatives trades made on the bank’s advice that ultimately turned out to be worthless, a witness told a court on Tuesday. In a trial at London’s High Court, the Libyan Investment Authority (LIA) is trying to claw back $1.2 billion from Goldman Sachs related to nine disputed trades carried out in 2008.
reut.rs/29cXch8

Brexit Update: What’s Next for the Global Marketplace
Lexology
The United Kingdom’s vote to leave the European Union is expected to have complex legal implications for the United Kingdom, the European Union and the global marketplace in the near and long term. McDermott has an experienced team of lawyers who have been evaluating the potential legal ramifications of the June 23 referendum and are ready to answer questions and assist clients in navigating the consequences of the United Kingdom’s exit.
goo.gl/fN93MX

Currencies

Citadel Quadruples Currency Trading as Brexit Spurs Volume Surge
Bloomberg
Citadel Securities LLC says it traded record currency volume last week after the U.K.’s Brexit vote sent shock waves through financial markets. The company expects more volatility to come. The market-making arm of money manager and securities firm Citadel LLC said its foreign-exchange activity on June 24 surged to more than four and a half times the firm’s daily average this year. The Chicago-based company declined to provide a dollar figure. The U.K. vote to leave the European Union also led to a surge in volume across trading venues run by Thomson Reuters Corp., Bats Global Markets Inc. and FastMatch Inc. as the pound tumbled to a three-decade low.
bloom.bg/29cUXue

FX Update: Post-Brexit risk rally slow to impact FX
TradingFloor.com
While opinions have swirled in the headlines that the UK referendum may not end in a real Brexit, the events in Brussels have certainly taken a firm tone of finality. Resigning UK prime minister David Cameron has said that there is no way back and German chancellor Angela Merkel stated that “this is no time for wishful thinking, but rather to grasp reality.” Meanwhile, market action was inconsistent: our risk barometer of the S&P 500 future ripped higher to the first Fibonacci retracement – a remarkable 50-plus points from the lows, but of course that came after a drop of over 130 points, so we’re still in dead cat territory for now.
/goo.gl/aEvB8E

Yuan internationalisation likely delayed by euro and pound volatility, says BOCHK economist
South China Morning Post
The process of yuan internationalisation may face a setback as volatility in the world’s two largest reserve currencies – the British pound and the euro – are pushing the very foundation of the global monetary order into question, warned Bank of China Hong Kong (BOCHK) on Wednesday.
bit.ly/29d1rtb

Dollar Poised for First-Half Drop as Fed Hike Prospects Dwindle
Bloomberg
The dollar dropped for a second day, extending its loss for the first half of this year, as traders wager the Federal Reserve is more likely to cut interest rates than raise them in upcoming meetings.
bloom.bg/29qdjUL

China shows commitment to renminbi stability with currency fix
Financial Times
China fixed the renminbi’s exchange rate at a level stronger than many expected on Wednesday in a sign that stability for the currency remained Beijing’s paramount objective. Dollar strength since Friday’s Brexit vote had led the People’s Bank of China to fix the midpoint, around which it allows the onshore currency to trade 2 per cent, at far weaker levels against the surging US currency.
goo.gl/rfQqjq

BSO To Build Financial Cloud Aimed at FX Market Needs
Traders News
BSO, a global Ethernet network, cloud and hosting provider, announced that it is adding Financial Cloud to its service portfolio to provide a low latency network and cloud offering specifically engineered for the global financial community.
goo.gl/3AiuTQ

Hollande Takes Aim at City of London in Euro Clearing Threat
Helene Fouquet and John Detrixhe – Bloomberg
The City of London is facing the first direct threat to its role as Europe’s dominant financial center as French President Francois Hollande takes aim at a key pillar of the U.K. industry.
“The City, which could handle clearing operations in euros thanks to the U.K.’s presence in the EU, won’t be able to do them any more,” Hollande said after the first day of a European Union summit in Brussels.
goo.gl/Gnmm6N

Investors might be excited by Nigeria’s new free floating naira but president Buhari isn’t
Quartz
After months of strict currency controls, Nigeria’s new currency policy which saw the naira floated and valued by market forces kicked in last week.
goo.gl/p0QAWZ

You Just Stole $50 Million In Cryptocurrency — Now How The Hell Do You Spend It?
Buzzfeed
Imagine that you are a master thief, a real Danny Ocean. In your latest caper, you discover a way into the vault of a brand-new bank, one thought to be pretty much uncrackable. And then, using the bank’s own state-of-the-art systems against it, you steal about $60 million dollars. Finally, you escape — and no one knows who you are.
bzfd.it/29cWzUZ

Bonds

Trading Tech: Markit Launches Real-Time Bond Pricing
Traders News
Markit, a provider of financial information services, launched the live pricing for bonds, a streaming pricing service for investment grade and high yield corporate, sovereign and agency bonds. Markit’s new live bond pricing service covers more than 35,000 bonds across 40 currencies and delivers more than 250,000 pricing updates per minute. Customers will benefit from improved pre-trade price transparency, timely intraday asset valuation calculations and superior best execution analysis.
goo.gl/YCb6mS

Weekly Bond Update: Brexit blues
TradingFloor.com
In an historic and sensational referendum vote, the British electorate upset the political establishment and opted to leave the European Union last week. The surprise decision has left the political system on both sides of the aisle in chaos, and caused panic in financial markets.
/goo.gl/Alt5Il

Brexit Uncertainty Ensures Bond Rally’s Survival
TheStreet
As European Union leaders are gathered in a summit without the U.K. in Brussels on Wednesday, investors can be sure of one thing in all this Brexit-related drama: the bond rally looks set to continue. The president of the European Central Bank (ECB) Mario Draghi said ahead of the EU summit that Brexit could shrink the GDP of the eurozone by around 0.5% over the next three years, according to a document seen by Bloomberg reporters. As investors already know, there’s nothing like the threat of recession to push bond prices up because markets flee to the safety of bonds at the same time as central banks purchase them as part of their quantitative easing efforts.
bit.ly/29d5EwR

Puerto Rico Says It Will Default Even With Congressional Aid
Bloomberg
Two days before a potential historical default, Puerto Rico Governor Alejandro Garcia Padilla made it clear that the commonwealth won’t pay bondholders even as Congress votes on a bill allowing the island to restructure its $70 billion in debt.
bloom.bg/29qbO94

Singapore’s Millionaires Humbled in Local Bond Restructurings
Denise Wee and David Yong – Bloomberg
Singapore’s wealthy investors are discovering they lack clout in negotiations when high-yield bond investments blow up. PT Trikomsel Oke became the first company to default on Singapore dollar debt since 2009 when it failed to repay a bond coupon in November last year, followed shortly afterwards by Pacific Andes Resources Development Ltd. The market faces more tests with Swiber Holdings Ltd.’s July 6 maturity among S$2 billion ($1.5 billion) of notes coming due by year-end.
bloom.bg/29cXF2Q

Indexes & Index Products

U.K. Stocks Are Staying in Europe
Aleksandra Gjorgievska – Bloomberg
The U.K. voted to leave. Its stocks will remain. So say the biggest index providers, who have no plans to alter the composition of their benchmarks after Britain chose to exit the European Union. The nation’s shares will stay in the MSCI Europe Index as membership in the trading bloc has no bearing on the gauge’s make-up, said Remy Briand, MSCI Inc.’s global head of research. They’ll also continue to be eligible for global and regional measures at Stoxx Ltd., overseer of the Stoxx Europe 600 Index, according to a company spokeswoman.
bloom.bg/29q3Rkm

ETFs Gain Ground as Advisors Look to Passive Beta-Index Strategies
Nasdaq
Exchange traded funds have been a huge hit in the investment community, with financial advisors increasingly turning to the index-based tool as their go-to investment option for clients.
goo.gl/uUFwHD

If Warren Buffett Recommends Index Funds, Why Would Anyone Invest in Other Areas?
The Motley Fool
A little over eight years ago, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) CEO Warren Buffett bet hedge fund manager Tom Seides that an investment in a low-cost S&P 500 index fund would outperform a basket of hedge funds chosen by Seides over a 10-year period. So far, Buffett’s index fund has more than tripled the performance of Seides’ hedge funds.
goo.gl/SlKsak

An Index of Uncertainty Surges After ‘Brexit’
NY Times
This morning, my 3-year-old son asked what was going to happen after breakfast. I misheard, and launched into a disquisition on the political disturbances in Britain, the challenge of maintaining an integrated Europe and threats to the world economy in the wake of “Brexit.” Judging by the tenor of recent commentary, it was an understandable mistake.
nyti.ms/29d6GZQ

Gold

Precious metals see continued demand
TradingFloor.com
Gold and silver remain two of the “winners” in the aftermath of the Brexit vote last Thursday. Support from negative bond yields and an increasingly dovish Federal Open Market Committee was already firm before the vote.
/goo.gl/jtihlD

Faber Says Own Gold, Prepare for QE4 as Easing Follows Brexit
Bloomberg
Gold’s investment case has been strengthened by the U.K.’s vote to quit the European Union as the fallout may spur the world’s central banks to step up easing, hurting currencies and favoring bullion, according to Marc Faber, publisher of the Gloom, Boom & Doom Report.
bloom.bg/29d3a1M

Gold smuggling on the rise
Business Standard News
Since February, import of gold for domestic consumption (as opposed to that done for export, after value addition) has taken a big hit. That is, through official channels; ‘unofficial’ imports have increased significantly.
goo.gl/T2p4rO

Miscellaneous

Here’s how Europeans feel about their dismal economic situations
Business Insider
Europe’s economy as a whole and individual European economies have been sort of not good since the global financial crisis. So we decided to take a deeper look at how Europeans feel about this.
read.bi/29cTXX5

The post JLN Financials: The Fed’s Done Hiking Until 2018; Hard-to-Sell Assets Complicate European Banks’ ‘Brexit’ Risks; Fed flags Morgan Stanley, Deutsche Bank, Santander, in stress testing appeared first on John Lothian News (JLN).

Telling the Story
John Lothian – John Lothian News

We need you to tell a story and help us fill up our MarketsWiki Education World of Opportunity events in Chicago and New York.

We love to tell stories. People in this industry are always telling stories about the markets. We replay the day’s trading with our fellow traders or friends. We tell strangers about the amazing things that happen in the markets. Everyone talks about some market event or action – even cab drivers sometimes, according to industry lore.

Those events, that market action and happenings, and the stories, have attracted thousands of young people into our markets over the years. Based on the stories, and the swirl and whirl of the kaleidoscope of the trading floor, there was never a shortage of fresh new talent attracted to our industry.

For the rest of the commentary, go here

Quote of the Day

“I think that the best way to think about this is, a pause button has been pressed on the project of full European integration. I don’t anticipate that there’s going to be major cataclysmic changes as a result of this.”

President Obama in the story, “Obama says time to chill, hit the pause button over Brexit hysteria”

Lead Stories

Economic implications of Brexit
Ben Bernanke – Brookings Institution
After several days of market upset, a few reflections on last week’s momentous vote in Great Britain. Even more obvious now than before the vote is that the biggest losers, economically speaking, will be the British themselves. The vote ushers in what will be several years of tremendous uncertainty—about the rules that will govern the U.K.’s trade with its continental neighbors, about the fates of foreign workers in Britain and British workers abroad, and about the country’s political direction, including perhaps where its borders will ultimately lie. Such fundamental uncertainty will depress business formation, capital investment, and hiring; indeed, it had begun to do so even before the vote.
brook.gs/299A7vL

Europe’s illusory ‘single capital market’
Nikkei Asian Review
Businesses across sectors and regions are growing wary of the possible wrenches Brexit could throw at them. Financial markets, especially in Europe, could suffer a particularly severe blow. On Saturday, the day after a majority of Britons voted to leave the European Union, Jonathan Hill announced he would resign as a commissioner on the European Commission, the EU’s executive body. Commission President Jean-Claude Juncker regretted the Briton’s departure, calling Hill a “true European.” Hill had been in charge of driving the Capital Market Union, meant to compete with the U.S.’s capital market. Without Hill’s leadership, the goal of integrating Europe’s capital markets will be significantly hampered.
s.nikkei.com/29lKQ2n

Brexit adds to existing troubles faced by banks
Financial Times
As voters went to the polls on Thursday, stock market investor Chris Dyer held precisely zero UK bank stocks. With hindsight, it was an enviable decision. As stock markets have tumbled in the aftermath of the decision to leave the EU, crashing bank stocks have created some of the largest reverberations. The value of Barclays and Royal Bank of Scotland have dropped more than 30 per cent since the vote. Fears were not limited to the UK; the main European banks index lost 23 per cent by the end of Monday, after trading at its lowest level since the eurozone crisis.
on.ft.com/29lLhto

Moody’s cuts outlook on UK banking system, 12 banks after Brexit
Reuters
Moody’s Investors Service cut its outlook on the UK banking system to ‘negative’ from ‘stable’ on Tuesday, citing the referendum vote in favor of the UK leaving the European Union.
reut.rs/29m0rPy

Economic Fears Rising, Britain Hopes to Stay in E.U. Market
NY Times
Four days after a decisive vote to leave the European Union, Britain was consumed on Monday with questions of when and how the country’s departure from the bloc would happen — and increasingly, of whether it would happen at all. The immediate outcome of Thursday’s referendum was not the promised clarity but an epic political muddle and a policy vacuum that invited more confusion and turmoil throughout the day in Britain, on the Continent and in the financial markets.
nyti.ms/299yBdl

Accounting Choices Blur Profit Picture
WSJ
U.S. companies that rely solely on standard accounting to report their financial results are in the minority, and their numbers are shrinking fast. Just 29 companies in the S&P 500 index—or 5.7% of the total—closed their books for 2015 exclusively using U.S. Generally Accepted Accounting Principles, or GAAP. That’s a sharp decline from 25% in 2006, according to research firm Audit Analytics. The purists are dwindling as companies struggle to increase their earnings in the wake of the 2008 financial crisis, analysts and accountants say, and regulators are taking notice.
on.wsj.com/29lDNqw

How Britain Could Exit ‘Brexit’
NY Times
In the days since Britons voted to leave the European Union, the so-called “Brexit” referendum has created such severe turmoil that public attention is increasingly focused on an extreme option: Can they get out of it?
nyti.ms/299EiIl

Soros Wagered Deutsche Bank Would Drop in Brexit Turmoil
Bloomberg
Soros Fund Management took a short position in Deutsche Bank AG of about 7 million shares as turmoil from the U.K.’s decision to leave the European Union sent bank stocks lower.
bloom.bg/299CvCQ

Brexit: Deflationary Now, Inflationary Later
WSJ
Central banks’ efforts to revive economic growth and inflation suffered another blow with Britain’s vote to leave the European Union. The vote has unleashed anxiety and uncertainty that will dampen investment, hiring, wages and prices.
on.wsj.com/294nwIs

Is ‘Brexit’ Europe’s Lehman Brothers Moment?
NY Times
Is this another Lehman Brothers moment? That question has been sometimes whispered, and sometimes shouted, in the aftermath of Britain’s vote to leave the European Union. It has been a turbulent few days on global financial markets, but is this, like the Lehman Brothers bankruptcy announced on Sept. 14, 2008, the trigger of much bigger financial calamities to come? The short answer is “no.” The long answer is “no, but.”
nyti.ms/299EbMA

Central Banks

Draghi Shuns Brexit Debate in Call for Global Policy Alignment
Bloomberg
Mario Draghi took an unusual tack among the world’s major policy makers — giving a speech that had no explicit reference to the U.K.’s decision to quit the European Union. While investors are keen to hear what the European Central Bank president is doing to contain the fallout from Brexit, he decided to use his opening address at the ECB Forum in Sintra, Portugal, to call for global policy alignment. Acknowledging that ultra-loose monetary policies have “inevitably” created potentially destabilizing spillover effects, he said there is a “common responsibility” to address the world’s economic weaknesses.
bloom.bg/29lLJrA

Central Bankers Face Conflicting Pressures From Brexit Vote
WSJ
European Central Bank President Mario Draghi urged central banks to better coordinate policies to confront the problem of ultralow inflation in an era of slow global growth, underscoring the conundrum he and his associates face in the wake of Britain’s vote to leave the European Union. The guardians of the global monetary system face conflicting pressures as they seek to support their economies amid new turbulence. They also run the risk that their efforts will work at odds with each other and destabilize the financial system.
on.wsj.com/299zdPX

Market sees 2 rounds of BOJ easing within a year
Nikkei Asian Review
In the wake of the British vote to exit the European Union, financial markets expect the Bank of Japan to expand its monetary easing program twice within the next 12 months to cope with the potential fallout. The outlook is supported by overnight index swaps, which exchange unsecured overnight call rates for fixed interest rates for certain periods. OIS rates are considered a leading indicator of the BOJ’s monetary policy.
s.nikkei.com/29lKAQU

Federal Open Market Committee announces its tentative meeting schedule for 2017–June 28, 2016
Federal Reserve
The Federal Open Market Committee on Tuesday announced its tentative meeting schedule for 2017:
1.usa.gov/299C3V8

Regulatory News

Congressional watchdog expands probe of lax Wall Street oversight
Reuters
A U.S. congressional watchdog said on Tuesday it has formally added three agencies to its investigation into whether government regulators are too soft on the banks they are meant to police.
reut.rs/299INT7

Bank Stress Tests May Also Test Stockholders
NY Times
Bank stress exams may test investor patience. On Wednesday, the Federal Reserve is scheduled to report how 33 financial institutions fared in a simulated bad economic downturn. Countercyclical factors included this year could mean that even those banks that ace the tests will have to hang on to additional profit rather than return more money to shareholders.
nyti.ms/29m0kmR

Shanghai orders banks to strengthen checks on overseas direct investment to help stem illegal capital outflows
South China Morning Post
The foreign exchange authority in Shanghai has asked banks to strengthen due diligence checks of overseas direct investment by companies to stem illegal capital outflows, three banking sources said.
goo.gl/ty6oBt

U.S. Questions Whether Futures Markets Can Police Themselves
Bloomberg
A top executive at 3Red Trading LLC reassured his co-founder about the future of the firm, even as federal regulators and two exchanges were investigating them for alleged market manipulation. “Just finished up with the head honchos,” Edwin Johnson wrote about a meeting with Intercontinental Exchange Inc. executives. “We will do a very basic phone interview next week. Then it will all go away,” he texted his partner in the spring of 2013. “I was given their word last night.” Likewise, he texted, top brass at CME Group Inc. “are 100 percent behind us.”
bloom.bg/299Hq6M

Currencies

Brexit Threatens to Knock Pound Off Reserve Currency Throne
WSJ
Britain’s vote to leave the European Union knocked sterling to decade-lows and could now erase a distinction that’s centuries’ old: its status as a reserve currency. In the two days after last Thursday’s Brexit vote, the pound fell 11.2% against the dollar, its steepest two-day decline in nearly 50 years. On Tuesday, the pound edged higher again, but investors see the currency continuing the decline amid political and economic uncertainty in the U.K.
on.wsj.com/299zylE

China’s Li seeks to dissuade yuan bears
Nikkei Asian Review
Britain’s vote to leave the European Union is already having an impact on international financial markets, adding to the uncertainty facing an underperforming global economy, Chinese Premier Li Keqiang told a summer session of the World Economic Forum here Monday. The yuan fell to a five-and-a-half-year low against the dollar in the wake of last Thursday’s U.K. referendum. Speaking to assembled business and finance leaders, Li argued that a long-term decline in the Chinese currency would have no basis in economic reality.
s.nikkei.com/29lKQiR

Japan’s top government spokesman: Extremely nervous moves seen in FX market
Reuters
Japan’s chief cabinet secretary, Yoshihide Suga, said on Tuesday the government would continue to carefully watch currency markets, where “extremely nervous moves” are seen.
reut.rs/29m1zm9

Japan should not give up right to intervene if yen rises sharply
Reuters
Japan should not give up the right to intervene in currency markets if the yen sharply rises as it will threaten the nation’s economy, a key economic adviser to Prime Minister Shinzo Abe said on Tuesday, after Britain’s vote to exit the European Union caused market turmoil.
reut.rs/29m2tiC

FX volumes on EBS platform topped $200 billion on Brexit Friday
Reuters
Currency trading platform EBS saw daily volumes at least double to top $200 billion on Friday in the frenzied market reaction to Britain’s shock decision to leave the European Union, a source close to the company told Reuters on Tuesday.
reut.rs/29m0RVV

Why Does a Weak Pound Matter to the World?
WSJ
Imagine you’re living in London and you want to buy an apartment in New York. You find the right home, agree upon a price, and draw up the documents. And then all of a sudden before the deal is finalized, the value of the British pound drops sharply against the U.S. dollar. Each pound is now worth fewer dollars. For you, who holds your money in sterling and needs to exchange it for the American currency to make your purchase, the cost of your new home just got way more expensive. You became poorer.
on.wsj.com/299yRZD

Brexit vote, soft yuan may be spurring flight to bitcoin
Nikkei Asian Review
The British vote to exit the European Union seems to have benefited bitcoin amid a stampede out of the pound and the euro, though many see Chinese money accounting for much of the digital currency’s rise. Bitcoin surged Friday morning, Japan time, as the Brexit camp was winning in the referendum, data from the CoinDesk cryptocurrency news website shows.
s.nikkei.com/29lKysg

Bonds

Fidelity, JPMorgan Embrace Asia Bond E-Trading to Cut Costs
Bloomberg
JPMorgan says 70% of bond trades electronic, from 20% in 2009
Potential for faster Asia growth due to low adoption: Tradeweb
Fidelity International and JPMorgan Chase & Co. are among bond investors warming to electronic trading systems in Asia.
bloom.bg/299D67K

Making connections
The Trade
Increasing regulatory pressures and bank balance sheet constraints have led to an evolution in the fixed income market over recent years. With MiFID II poised to hit the European market in 2018, market participants had plenty to discuss at the Fixed Income Leaders Summit in Boston this year. The day before the conference officially started, a ‘platform evaluation day’ was held for buy-siders with the aim of providing clarity on the multitude of fixed income initiative offerings. Incredibly, there are now more than 100 platforms available. This number is increasing.
bit.ly/299Gi36

Japan Yields All Drop Below 0.1% First Time in Global Bond Surge
Bloomberg
Bond yields in Australia, U.K., Korea drop to all-time lows
Treasuries slip after yields approached record low last week
Japan’s benchmark bonds are now all yielding less than 0.1 percent for the first time, leading a global surge in sovereign debt, as the U.K.’s decision to leave the European Union threatened to slow growth and keep the Federal Reserve from raising interest rates.
bloom.bg/29lMh0Y

Indexes & Index Products

Fidelity Just Made Buying an Index Fund Vanguard Cheap
WSJ
Money manager Fidelity Investments plans to slash prices on more than two dozen funds, a concession to an industry movement toward cheap products that track the market. The changes will lower Fidelity’s fees below or on par with those at low-cost pioneer Vanguard Group and Charles Schwab, another firm with ultralow customer expenses. Fidelity oversees retirements for millions of Americans.
on.wsj.com/299DbbA

How Much Longer Will S&P 500 Profit Contract?
WSJ
Second-half recoveries since the financial crisis are like Bigfoot — much talked about but rarely seen. This year is liable to bring more of the same — with Brexit only adding to potential pressures.
on.wsj.com/29lYHWA

Gold

Loading Up On Cash And Gold Is The Only Way Out Of This
John Mauldin – Forbes
Looking at the global economy today, you can’t help but notice several worrying developments. On the one hand, we have currency devaluations and negative interest rate policies: on the other, slow-to-no economic growth in both developed and developing economies. Even experienced investors don’t know what to make of today’s financial markets.
bit.ly/299F9IJ

Gold registers first loss in 3 sessions as post-Brexit volatility eases
MarketWatch
Gold futures ended lower after two consecutive days of gains as haven investments lost some traction following a tentative return of risk appetite, three days after the U.K. voted to exit the European Union.
on.mktw.net/299Fifd

Gold is sending a dark sign that ‘almost everything has changed’ in the market
Yahoo Finance
Gold and the US dollar are no longer behaving normally and it’s crucial that investors pay attention to this move, Raoul Pal and Grant Williams said during a discussion about the Brexit on Real Vision Television—a subscription financial news service they cofounded. Gold is widely considered a hedge against the US dollar. When the dollar falls in value, gold prices often rise. However, this relationship has been breaking down. Pal, a former macro fund manager and author of the research letter “The Global Macro Investor,” recently said that a dollar rally along with a gold rally is “a sure sign that almost everything has changed.”
yhoo.it/299EWoX

Miscellaneous

Unsold Lots, Empty Seats as Brexit Hits London Art Auctions
Bloomberg
A week of London contemporary art auctions got off to a rocky start at Phillips on Monday as collectors tried to make sense of Britain’s vote to exit the European Union and its fallout.
bloom.bg/29lE3G2

The best-paid bank CEO in America may not be who you think
MarketWatch
The list of top-paid executives in the U.S. banking industry offers few surprises, with one notable exception. The king of the compensation mountain doesn’t work for the most famous nor the biggest bank, but for an institution that’s little known on the national stage. Kevin Cummings, chief executive of Investors Bancorp Inc. ISBC, +1.12% beat bigwigs at more dominant players in the industry to be the top-earning bank CEO in 2015, according to an analysis by S&P Global Market Intelligence.
on.mktw.net/299GvDv

Obama says time to chill, hit the pause button over Brexit hysteria
AP via South China Morning Post
US President Barack Obama cautioned against “hysteria” over the United Kingdom’s vote to leave the European Union last week, saying all of Europe needs to take a breath and reassess how to preserve national identity while taking advantage of political and economic integration.
bit.ly/29lGubB

The Anger Wave That May Just Wipe Out Laissez-Faire Economics
NY Times
Donald J. Trump and Boris Johnson: Is this how the era ushered in by Ronald Reagan and Margaret Thatcher finally ends? It once looked as though the financial crisis of 2008 might even bring about the end of laissez-faire economics. “The idea of an all-powerful market which is always right is finished,” declared Nicolas Sarkozy, then the president of France. And Peer Steinbrück, Germany’s finance minister at the time, predicted that “the U.S. will lose its status as the superpower of the world financial system.”
nyti.ms/299Cyi4

The post JLN Financials: Bernanke on Brexit; Europe’s illusory ‘single capital market’; Brexit adds to existing troubles faced by banks appeared first on John Lothian News (JLN).

Telling the Story
John Lothian – John Lothian News

We need you to tell a story and help us fill up our MarketsWiki Education World of Opportunity events in Chicago and New York.

We love to tell stories. People in this industry are always telling stories about the markets. We replay the day’s trading with our fellow traders or friends. We tell strangers about the amazing things that happen in the markets. Everyone talks about some market event or action – even cab drivers sometimes, according to industry lore.

Those events, that market action and happenings, and the stories, have attracted thousands of young people into our markets over the years. Based on the stories, and the swirl and whirl of the kaleidoscope of the trading floor, there was never a shortage of fresh new talent attracted to our industry.

For the rest of the commentary, go here

Quote of the Day

“I think that the best way to think about this is, a pause button has been pressed on the project of full European integration. I don’t anticipate that there’s going to be major cataclysmic changes as a result of this.”

President Obama in the story, “Obama says time to chill, hit the pause button over Brexit hysteria”

Lead Stories

Economic implications of Brexit
Ben Bernanke – Brookings Institution
After several days of market upset, a few reflections on last week’s momentous vote in Great Britain. Even more obvious now than before the vote is that the biggest losers, economically speaking, will be the British themselves. The vote ushers in what will be several years of tremendous uncertainty—about the rules that will govern the U.K.’s trade with its continental neighbors, about the fates of foreign workers in Britain and British workers abroad, and about the country’s political direction, including perhaps where its borders will ultimately lie. Such fundamental uncertainty will depress business formation, capital investment, and hiring; indeed, it had begun to do so even before the vote.
brook.gs/299A7vL

Europe’s illusory ‘single capital market’
Nikkei Asian Review
Businesses across sectors and regions are growing wary of the possible wrenches Brexit could throw at them. Financial markets, especially in Europe, could suffer a particularly severe blow. On Saturday, the day after a majority of Britons voted to leave the European Union, Jonathan Hill announced he would resign as a commissioner on the European Commission, the EU’s executive body. Commission President Jean-Claude Juncker regretted the Briton’s departure, calling Hill a “true European.” Hill had been in charge of driving the Capital Market Union, meant to compete with the U.S.’s capital market. Without Hill’s leadership, the goal of integrating Europe’s capital markets will be significantly hampered.
s.nikkei.com/29lKQ2n

Brexit adds to existing troubles faced by banks
Financial Times
As voters went to the polls on Thursday, stock market investor Chris Dyer held precisely zero UK bank stocks. With hindsight, it was an enviable decision. As stock markets have tumbled in the aftermath of the decision to leave the EU, crashing bank stocks have created some of the largest reverberations. The value of Barclays and Royal Bank of Scotland have dropped more than 30 per cent since the vote. Fears were not limited to the UK; the main European banks index lost 23 per cent by the end of Monday, after trading at its lowest level since the eurozone crisis.
on.ft.com/29lLhto

Moody’s cuts outlook on UK banking system, 12 banks after Brexit
Reuters
Moody’s Investors Service cut its outlook on the UK banking system to ‘negative’ from ‘stable’ on Tuesday, citing the referendum vote in favor of the UK leaving the European Union.
reut.rs/29m0rPy

Economic Fears Rising, Britain Hopes to Stay in E.U. Market
NY Times
Four days after a decisive vote to leave the European Union, Britain was consumed on Monday with questions of when and how the country’s departure from the bloc would happen — and increasingly, of whether it would happen at all. The immediate outcome of Thursday’s referendum was not the promised clarity but an epic political muddle and a policy vacuum that invited more confusion and turmoil throughout the day in Britain, on the Continent and in the financial markets.
nyti.ms/299yBdl

Accounting Choices Blur Profit Picture
WSJ
U.S. companies that rely solely on standard accounting to report their financial results are in the minority, and their numbers are shrinking fast. Just 29 companies in the S&P 500 index—or 5.7% of the total—closed their books for 2015 exclusively using U.S. Generally Accepted Accounting Principles, or GAAP. That’s a sharp decline from 25% in 2006, according to research firm Audit Analytics. The purists are dwindling as companies struggle to increase their earnings in the wake of the 2008 financial crisis, analysts and accountants say, and regulators are taking notice.
on.wsj.com/29lDNqw

How Britain Could Exit ‘Brexit’
NY Times
In the days since Britons voted to leave the European Union, the so-called “Brexit” referendum has created such severe turmoil that public attention is increasingly focused on an extreme option: Can they get out of it?
nyti.ms/299EiIl

Soros Wagered Deutsche Bank Would Drop in Brexit Turmoil
Bloomberg
Soros Fund Management took a short position in Deutsche Bank AG of about 7 million shares as turmoil from the U.K.’s decision to leave the European Union sent bank stocks lower.
bloom.bg/299CvCQ

Brexit: Deflationary Now, Inflationary Later
WSJ
Central banks’ efforts to revive economic growth and inflation suffered another blow with Britain’s vote to leave the European Union. The vote has unleashed anxiety and uncertainty that will dampen investment, hiring, wages and prices.
on.wsj.com/294nwIs

Is ‘Brexit’ Europe’s Lehman Brothers Moment?
NY Times
Is this another Lehman Brothers moment? That question has been sometimes whispered, and sometimes shouted, in the aftermath of Britain’s vote to leave the European Union. It has been a turbulent few days on global financial markets, but is this, like the Lehman Brothers bankruptcy announced on Sept. 14, 2008, the trigger of much bigger financial calamities to come? The short answer is “no.” The long answer is “no, but.”
nyti.ms/299EbMA

Central Banks

Draghi Shuns Brexit Debate in Call for Global Policy Alignment
Bloomberg
Mario Draghi took an unusual tack among the world’s major policy makers — giving a speech that had no explicit reference to the U.K.’s decision to quit the European Union. While investors are keen to hear what the European Central Bank president is doing to contain the fallout from Brexit, he decided to use his opening address at the ECB Forum in Sintra, Portugal, to call for global policy alignment. Acknowledging that ultra-loose monetary policies have “inevitably” created potentially destabilizing spillover effects, he said there is a “common responsibility” to address the world’s economic weaknesses.
bloom.bg/29lLJrA

Central Bankers Face Conflicting Pressures From Brexit Vote
WSJ
European Central Bank President Mario Draghi urged central banks to better coordinate policies to confront the problem of ultralow inflation in an era of slow global growth, underscoring the conundrum he and his associates face in the wake of Britain’s vote to leave the European Union. The guardians of the global monetary system face conflicting pressures as they seek to support their economies amid new turbulence. They also run the risk that their efforts will work at odds with each other and destabilize the financial system.
on.wsj.com/299zdPX

Market sees 2 rounds of BOJ easing within a year
Nikkei Asian Review
In the wake of the British vote to exit the European Union, financial markets expect the Bank of Japan to expand its monetary easing program twice within the next 12 months to cope with the potential fallout. The outlook is supported by overnight index swaps, which exchange unsecured overnight call rates for fixed interest rates for certain periods. OIS rates are considered a leading indicator of the BOJ’s monetary policy.
s.nikkei.com/29lKAQU

Federal Open Market Committee announces its tentative meeting schedule for 2017–June 28, 2016
Federal Reserve
The Federal Open Market Committee on Tuesday announced its tentative meeting schedule for 2017:
1.usa.gov/299C3V8

Regulatory News

Congressional watchdog expands probe of lax Wall Street oversight
Reuters
A U.S. congressional watchdog said on Tuesday it has formally added three agencies to its investigation into whether government regulators are too soft on the banks they are meant to police.
reut.rs/299INT7

Bank Stress Tests May Also Test Stockholders
NY Times
Bank stress exams may test investor patience. On Wednesday, the Federal Reserve is scheduled to report how 33 financial institutions fared in a simulated bad economic downturn. Countercyclical factors included this year could mean that even those banks that ace the tests will have to hang on to additional profit rather than return more money to shareholders.
nyti.ms/29m0kmR

Shanghai orders banks to strengthen checks on overseas direct investment to help stem illegal capital outflows
South China Morning Post
The foreign exchange authority in Shanghai has asked banks to strengthen due diligence checks of overseas direct investment by companies to stem illegal capital outflows, three banking sources said.
goo.gl/ty6oBt

U.S. Questions Whether Futures Markets Can Police Themselves
Bloomberg
A top executive at 3Red Trading LLC reassured his co-founder about the future of the firm, even as federal regulators and two exchanges were investigating them for alleged market manipulation. “Just finished up with the head honchos,” Edwin Johnson wrote about a meeting with Intercontinental Exchange Inc. executives. “We will do a very basic phone interview next week. Then it will all go away,” he texted his partner in the spring of 2013. “I was given their word last night.” Likewise, he texted, top brass at CME Group Inc. “are 100 percent behind us.”
bloom.bg/299Hq6M

Currencies

Brexit Threatens to Knock Pound Off Reserve Currency Throne
WSJ
Britain’s vote to leave the European Union knocked sterling to decade-lows and could now erase a distinction that’s centuries’ old: its status as a reserve currency. In the two days after last Thursday’s Brexit vote, the pound fell 11.2% against the dollar, its steepest two-day decline in nearly 50 years. On Tuesday, the pound edged higher again, but investors see the currency continuing the decline amid political and economic uncertainty in the U.K.
on.wsj.com/299zylE

China’s Li seeks to dissuade yuan bears
Nikkei Asian Review
Britain’s vote to leave the European Union is already having an impact on international financial markets, adding to the uncertainty facing an underperforming global economy, Chinese Premier Li Keqiang told a summer session of the World Economic Forum here Monday. The yuan fell to a five-and-a-half-year low against the dollar in the wake of last Thursday’s U.K. referendum. Speaking to assembled business and finance leaders, Li argued that a long-term decline in the Chinese currency would have no basis in economic reality.
s.nikkei.com/29lKQiR

Japan’s top government spokesman: Extremely nervous moves seen in FX market
Reuters
Japan’s chief cabinet secretary, Yoshihide Suga, said on Tuesday the government would continue to carefully watch currency markets, where “extremely nervous moves” are seen.
reut.rs/29m1zm9

Japan should not give up right to intervene if yen rises sharply
Reuters
Japan should not give up the right to intervene in currency markets if the yen sharply rises as it will threaten the nation’s economy, a key economic adviser to Prime Minister Shinzo Abe said on Tuesday, after Britain’s vote to exit the European Union caused market turmoil.
reut.rs/29m2tiC

FX volumes on EBS platform topped $200 billion on Brexit Friday
Reuters
Currency trading platform EBS saw daily volumes at least double to top $200 billion on Friday in the frenzied market reaction to Britain’s shock decision to leave the European Union, a source close to the company told Reuters on Tuesday.
reut.rs/29m0RVV

Why Does a Weak Pound Matter to the World?
WSJ
Imagine you’re living in London and you want to buy an apartment in New York. You find the right home, agree upon a price, and draw up the documents. And then all of a sudden before the deal is finalized, the value of the British pound drops sharply against the U.S. dollar. Each pound is now worth fewer dollars. For you, who holds your money in sterling and needs to exchange it for the American currency to make your purchase, the cost of your new home just got way more expensive. You became poorer.
on.wsj.com/299yRZD

Brexit vote, soft yuan may be spurring flight to bitcoin
Nikkei Asian Review
The British vote to exit the European Union seems to have benefited bitcoin amid a stampede out of the pound and the euro, though many see Chinese money accounting for much of the digital currency’s rise. Bitcoin surged Friday morning, Japan time, as the Brexit camp was winning in the referendum, data from the CoinDesk cryptocurrency news website shows.
s.nikkei.com/29lKysg

Bonds

Fidelity, JPMorgan Embrace Asia Bond E-Trading to Cut Costs
Bloomberg
JPMorgan says 70% of bond trades electronic, from 20% in 2009
Potential for faster Asia growth due to low adoption: Tradeweb
Fidelity International and JPMorgan Chase & Co. are among bond investors warming to electronic trading systems in Asia.
bloom.bg/299D67K

Making connections
The Trade
Increasing regulatory pressures and bank balance sheet constraints have led to an evolution in the fixed income market over recent years. With MiFID II poised to hit the European market in 2018, market participants had plenty to discuss at the Fixed Income Leaders Summit in Boston this year. The day before the conference officially started, a ‘platform evaluation day’ was held for buy-siders with the aim of providing clarity on the multitude of fixed income initiative offerings. Incredibly, there are now more than 100 platforms available. This number is increasing.
bit.ly/299Gi36

Japan Yields All Drop Below 0.1% First Time in Global Bond Surge
Bloomberg
Bond yields in Australia, U.K., Korea drop to all-time lows
Treasuries slip after yields approached record low last week
Japan’s benchmark bonds are now all yielding less than 0.1 percent for the first time, leading a global surge in sovereign debt, as the U.K.’s decision to leave the European Union threatened to slow growth and keep the Federal Reserve from raising interest rates.
bloom.bg/29lMh0Y

Indexes & Index Products

Fidelity Just Made Buying an Index Fund Vanguard Cheap
WSJ
Money manager Fidelity Investments plans to slash prices on more than two dozen funds, a concession to an industry movement toward cheap products that track the market. The changes will lower Fidelity’s fees below or on par with those at low-cost pioneer Vanguard Group and Charles Schwab, another firm with ultralow customer expenses. Fidelity oversees retirements for millions of Americans.
on.wsj.com/299DbbA

How Much Longer Will S&P 500 Profit Contract?
WSJ
Second-half recoveries since the financial crisis are like Bigfoot — much talked about but rarely seen. This year is liable to bring more of the same — with Brexit only adding to potential pressures.
on.wsj.com/29lYHWA

Gold

Loading Up On Cash And Gold Is The Only Way Out Of This
John Mauldin – Forbes
Looking at the global economy today, you can’t help but notice several worrying developments. On the one hand, we have currency devaluations and negative interest rate policies: on the other, slow-to-no economic growth in both developed and developing economies. Even experienced investors don’t know what to make of today’s financial markets.
bit.ly/299F9IJ

Gold registers first loss in 3 sessions as post-Brexit volatility eases
MarketWatch
Gold futures ended lower after two consecutive days of gains as haven investments lost some traction following a tentative return of risk appetite, three days after the U.K. voted to exit the European Union.
on.mktw.net/299Fifd

Gold is sending a dark sign that ‘almost everything has changed’ in the market
Yahoo Finance
Gold and the US dollar are no longer behaving normally and it’s crucial that investors pay attention to this move, Raoul Pal and Grant Williams said during a discussion about the Brexit on Real Vision Television—a subscription financial news service they cofounded. Gold is widely considered a hedge against the US dollar. When the dollar falls in value, gold prices often rise. However, this relationship has been breaking down. Pal, a former macro fund manager and author of the research letter “The Global Macro Investor,” recently said that a dollar rally along with a gold rally is “a sure sign that almost everything has changed.”
yhoo.it/299EWoX

Miscellaneous

Unsold Lots, Empty Seats as Brexit Hits London Art Auctions
Bloomberg
A week of London contemporary art auctions got off to a rocky start at Phillips on Monday as collectors tried to make sense of Britain’s vote to exit the European Union and its fallout.
bloom.bg/29lE3G2

The best-paid bank CEO in America may not be who you think
MarketWatch
The list of top-paid executives in the U.S. banking industry offers few surprises, with one notable exception. The king of the compensation mountain doesn’t work for the most famous nor the biggest bank, but for an institution that’s little known on the national stage. Kevin Cummings, chief executive of Investors Bancorp Inc. ISBC, +1.12% beat bigwigs at more dominant players in the industry to be the top-earning bank CEO in 2015, according to an analysis by S&P Global Market Intelligence.
on.mktw.net/299GvDv

Obama says time to chill, hit the pause button over Brexit hysteria
AP via South China Morning Post
US President Barack Obama cautioned against “hysteria” over the United Kingdom’s vote to leave the European Union last week, saying all of Europe needs to take a breath and reassess how to preserve national identity while taking advantage of political and economic integration.
bit.ly/29lGubB

The Anger Wave That May Just Wipe Out Laissez-Faire Economics
NY Times
Donald J. Trump and Boris Johnson: Is this how the era ushered in by Ronald Reagan and Margaret Thatcher finally ends? It once looked as though the financial crisis of 2008 might even bring about the end of laissez-faire economics. “The idea of an all-powerful market which is always right is finished,” declared Nicolas Sarkozy, then the president of France. And Peer Steinbrück, Germany’s finance minister at the time, predicted that “the U.S. will lose its status as the superpower of the world financial system.”
nyti.ms/299Cyi4

The post JLN Financials: Bernanke on Brexit; Europe’s illusory ‘single capital market’; Brexit adds to existing troubles faced by banks appeared first on John Lothian News (JLN).

Good Evening
By John J. Lothian

Good evening! I say that with all earnestness.

Friday the world changed, or so it seemed. Brexit happened, markets fell and journalists went to work to cover this story from every conceivable angle. The newsletter below is an aggregation of that news. You will find only two stories on the LSE-Deutsche Boerse merger and the CME Group did something in Palm risk management. There are a few other non-Brexit stories, but they were hard to come by.

Lots of rich people lost money, but so did poor people; they just don’t have as good portfolio measurement tools to show them their balances. It was the $2.08 billion dollar loss in the global equity markets that garnered a headline below.

Our friends at the FIA have set up a Brexit page on their website here

Changing themes from global financial destruction to building for the future, please sign up your interns and newer employees for our MarketsWiki Education World of Opportunity series in Chicago and New York. Please help get the word out. A recommendation from an experienced colleague or supervisor goes a long way.

We have added the lineups of speakers for each session in Chicago to the event page

We are asking you to Tell The Story about our industry and help recruit the next generation of market participants and professionals. After Friday’s action, you should have no problem telling stories.

Quote of the Day

“As of now, this doesn’t look like an end-of-the-world event. It looks bad, but it’s not a cataclysmic game-changer similar to Lehman. Yet.”

Ian Shepherdson, chief economist at Pantheon Macroeconomics in the story, “After ‘Brexit’ Vote, Investors Are Gripped by a Panic Last Seen in 2008”

Lead Stories

Brexit sparked biggest 1-day global stock rout ever
MarketWatch
The carnage Friday following Britain’s vote to leave the European Union was the worst on record, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
on.mktw.net/2963pM9

Odey and Soros make big wins on Brexit vote
Investment Week
Hedge funds, including prominent leave supporter Crispin Odey, have made millions from the UK’s decision to leave the European Union after taking short equity positions and backing safe havens like gold ahead of the vote.
bit.ly/29hEmlg

S&P strips UK of last top-notch credit rating after Brexit vote
Reuters
Ratings agency Standard & Poor’s stripped Britain of its last remaining top-notch credit rating on Monday, slashing it by two notches from AAA and warning more downgrades could follow after Britons voted to leave the European Union last week.
reut.rs/29hM9zh

Fitch cuts UK credit rating by one notch to AA after Brexit vote
Reuters
Fitch Ratings cut Britain’s credit rating on Monday and warned more downgrades could follow, joining Standard & Poor’s in judging that last week’s vote to leave the European Union will hurt the economy.
reut.rs/29hLJJg

‘Brexit’ Is Locking In the Forces That Already Haunt the Global Economy
NY Times
Sometimes, something bad happens and it creates huge financial market swings and long economic ripples. The Sept. 11 terrorist attacks were an example, as was the 2011 Japanese nuclear disaster.
But “Brexit” is different.
nyti.ms/295T9mQ

Why Some Big Insurers Lack ‘Brexit’ Cover
WSJ
Just like the financial crisis, Brexit threatens to deliver a one-two punch to the finance industry.
Banks and financial markets take the first blow; the second lands on insurers and fund managers as owners of stocks and bonds. Both have suffered big stock price falls in the past two days as investors anticipated this.
on.wsj.com/29hMClh

After ‘Brexit’ Vote, Investors Are Gripped by a Panic Last Seen in 2008
NY Times
First came the shock. Then fear seized world markets. As frenzied selling accelerated in Tokyo, Hong Kong and London, unfathomable amounts of wealth vanished in a matter of hours.
In crudest outlines, the panic that followed Britain’s vote to quit the European Union traced the 2008 collapse of Lehman Brothers, an event that turned an unfolding financial crisis into the bleakest economic downturn since the Great Depression. The similarities hung uneasily over markets on Friday, presenting a grim question: How ugly might things get?
nyti.ms/295X4A6

This Is Just the Start of the Brexit’s Economic Disaster
NY Times
A few weeks before Britons voted on whether to remain part of the European Union, Michael Gove, one of the leaders of the Leave campaign, was asked why he should be trusted over the overwhelming number of economists and international authorities who opposed Brexit. “People in this country have had enough of experts,” he replied.
nyti.ms/295Xerc

Gross Says U.S. Recession Odds May Be 30% to 50% Post-Brexit
Bloomberg
The odds of a U.S. recession may be as high as 50 percent following last week’s vote in the U.K. to exit the European Union, according to Bill Gross, manager of the Janus Global Unconstrained Bond Fund.
bloom.bg/29607bq

U.S. banks’ stress tests may offer comfort in Brexit tumult
Reuters
The stress tests created for banks by U.S. regulators after the 2008 financial crisis may prove their worth this week, providing a timely message on banks’ hardiness in the midst of turbulence over last week’s vote by Britain to leave the European Union.
reut.rs/29hM7Yd

Banks pull stocks lower as Brexit continues global rout
Reuters
Britain’s shock vote to leave the European Union roiled global markets for a second day on Monday, hammering U.S. and European banks, lifting bond and gold prices, and dragging the British pound to a 31-year low.
U.S. stocks were sharply lower, following European markets, pulled down by banking stocks amid uncertainty over London’s future as the region’s financial capital.
reut.rs/29hMFxh

Central Banks

Yellen and Carney pull out of ECB conference
Financial Times
The heads of the Bank of England and the US Federal Reserve have pulled out of the European Central Bank’s flagship economics conference this week, which will still likely be attended by Mario Draghi.
on.ft.com/29hFAww

Fed Will Eye Dollar and Bond Yields for Signs of Deeper Trouble
Bloomberg
Federal Reserve Chair Janet Yellen skipped out of an engagement in Europe to jet back home, the Fed said Monday, a sign the U.S. central bank is on high alert amid financial market turmoil following Britain’s vote to leave the European Union.
bloom.bg/2960Qtr

Are central banks ‘powerless’ to handle Brexit fallout?
CNN Money
But this time, it appears they might not have an answer — or an audience — following Brexit and its fallout.
It’s a key shift. Since the global financial crisis, central banks have led the rescue effort for nearly every major economic or financial shocker. From extra low interest rates to buying bonds to communicating super sensitive information in a timely manner — central banks have pulled out all the stops. And global investors have held on to their every word.
cnnmon.ie/29hPmyX

Draghi Says Sadness Best Describes Sentiment on U.K.’s Brexit
Bloomberg
European Central Bank President Mario Draghi set a melancholic tone over the U.K.’s decision to leave the European Union.
“I try to find the word which describes our feelings,” he said at the opening of the ECB’s annual forum on Monday in Sintra, Portugal. “Probably the best word would be sadness.”
bloom.bg/2960HGs

The Fed’s lack of diversity is hurting its judgement
CNBC
Federal Reserve Chair Janet Yellen found herself in the hot seat at the recent bi-annual Humphrey Hawkins testimony as members of Congress challenged her over the lack of diversity among the Fed’s ranks.
cnb.cx/29hQ67c

Currencies

Sterling dips below Friday’s 31-year low amid Brexit uncertainty
CNBC
Currency markets faced more upheaval on Monday, with traders raining new pain on Britain’s pound and the yuan falling to a nearly six-year low against the dollar. This followed a weekend of contemplation after the Brexit vote, which failed to alleviate political and economic uncertainty.
cnb.cx/29hQyT5

How China’s yuan could be the currency whipping boy of Brexit
MarketWatch
Given its limited exposure to Europe, China should have been well-positioned to weather the upheaval after British voters dramatically decided to quit the European Union last week. But the Asian country is finding itself at the center of currency market volatility as renewed strength in the U.S. dollar stoked expectations for a sharp depreciation in the yuan.
on.mktw.net/29hQrXq

Boris Johnson, Future PM and Currency Analyst?
Bloomberg
The mystery of how Boris Johnson spent the weekend has been solved. While his allies in the Brexit campaign have been defending, if occasionally rolling back, their pre-referendum pledges in a series of TV interviews, the man seen as most likely to succeed David Cameron as leader of the Conservative Party remained conspicuously silent.
bloom.bg/29hQUci

‘Brexit’ and China: Currency Calculus Just Got More Complicated
WSJ
On first blush, Chinese markets have gotten through the U.K.’s vote to leave the European Union relatively unscathed. But “Brexit” will eventually put Beijing to the test.
on.wsj.com/28X0Cjp

Japan PM Abe tells finance minister to take needed FX steps post-Brexit vote
Reuters
Japanese Prime Minister Shinzo Abe on Monday instructed Finance Minister Taro Aso to watch currency markets “ever more closely” and take steps if necessary, in the wake of Britain’s historic vote to leave the European Union.
reut.rs/29hMke9

Indexes & Index Products

Dow closes down more than 250 points at lowest since mid-March
CNBC
U.S. stocks closed about 1.5 percent lower or more Monday, extending Friday’s post-Brexit sell-off with materials leading decliners. The Dow Jones industrial average and S&P 500 ended at their lowest since mid-March.
cnb.cx/2962NGd

Brexit Is a Boon for Volatility Traders
WSJ
The havoc unleashed by Britain’s vote to leave the European Union has benefited some investors: volatility traders.
The U.S. stock market’s swoon Friday and Monday, after Thursday’s Brexit vote, sent the CBOE Volatility Index, or VIX, to a four-month high.
on.wsj.com/2964fs6

Why Index Fund Investing Isn’t Always the Answer
Fortune
Investment guides are as numerous as swallows. Very few have lasting appeal, because most are written under the influence of whatever is the pervasive market trend or approach of the day.
This is one explanation for the extraordinary endurance of what is still the best investment guide, Security Analysis, written by Benjamin Graham and David Dodd and published in 1934. Graham, the primary author, then an obscure professor and money manager, chose the Great Depression as the time to assert his faith in patient security analysis and long-term investing. Given that the market was in the throes of an epochal collapse, very few folks were interested in investing.
for.tn/2964d3m

Osborne calms markets as FTSE 100 only down 0.8% in early trading; Decision delayed on Emergency Budget
Investment Week
Yields on benchmark US 10-year treasuries fell by 7.3 basis points to 1.487%, which is their lowest level since August 2012.
The rush for safe havens also saw 10-year gilt yields drop below 1% for the first time ever in their history, sliding to 0.93% by 10.30 this morning.
bit.ly/295SmlX

Gold ETFs Shine on Brexit Woes – June 27, 2016
Zacks
Time and again, gold has been a safe harbor when uncertainties loom. The weakness in the global financial markets had helped gold to recover its sheen in 2016. A tumultuous global economy including pressing growth issues and the global oil market turbulence lifted its safe-haven demand (read: Gold ETF Investing: 10 Facts Investors Need to Know).
bit.ly/2964kvX

Gold

Investors Keep Piling Into Gold Funds
MoneyBeat – WSJ
As the price of gold has soared, funds that track the precious metal are also reaching new heights.
The two largest gold funds, SPDR Gold Trust and iShares Gold Trust, now own more physical gold combined than all but seven nations, according to analysis from Convergex. With about 1,037 metric tons altogether, the amount of gold in the two funds outpaces reserves of notable holders such as the European Central Bank and Saudi Arabia.
on.wsj.com/29641RV

Should You Buy Treasury Bonds, Gold, Utility Stocks on Brexit?
The Street
Investors want safety now. But how should they go about finding it?
The yield on the 30-year U.S. bond rose to 2.563% on June 23 as citizens of the United Kingdom were voting to stay or leave the European Union. Odds of staying were good, so when the “leave” vote beat the “stay” vote by four percentage points, the bond yield declined to a 52-week low of 2.280% overnight. That nearly tested my downside target for 2016 of 2.265%. This week’s pivot is 2.374%.
bit.ly/2964ofh

Big GLD Inflows Suggest Gold Will Continue To Strengthen – SPDR Gold Trust ETF (NYSEARCA:GLD)
Seeking Alpha
One of the features of investment money flows so far this year has been the enormous flows of gold into the world’s major gold ETFs. This has been exemplified by the biggest of them all – the SPDR Gold Trust ETF (NYSEARCA:GLD) – which has taken just under 300 tonnes of gold into its vaults since the beginning of the year. Indeed at the recent rate it may well have exceeded 300 tonnes by the time you get to read this article.
bit.ly/2964P9n

Barrick Gold: Brexit is a Gold Miner’s Best Friend – Stocks to Watch
Barron’s
For gold bugs, the Brexit vote has been mana from heaven. And for gold miners like Barrick Gold (ABX) and Newmont Mining (NEM), it’s just what they needed to extend their recent advances. Goldman Sachs analyst Andrew Quail and team explain why:
on.barrons.com/2964XFT

Miscellaneous

Brexit Casts Uncertainty on Art Market
NY Times
As the world’s leading auction houses prepared for their big-ticket contemporary sales in London this week, the question was on everybody’s mind: What will the shock and confusion following Britain’s vote to leave the European Union — not to mention the plunging world financial markets — mean for the art market?
nyti.ms/295Tx4Y

The post JLN Financials: Brexit sparked biggest 1-day global stock rout ever; Odey and Soros make big wins on Brexit vote; S&P strips UK of last top-notch credit rating after Brexit vote appeared first on John Lothian News (JLN).