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(CME Group Company) Credit Market Analysis Ltd (CMA) Global Sovereign
Credit Risk Report - 3rd Quarter 2010
CMA's Global Sovereign Credit Risk Report for the third quarter, 2010, focuses on changes in the risk profile of sovereign debt issuers, identifying trends and drivers of change. In addition it highlights themes within global regions, together with macro trends across the sovereign debt sector as a whole. Includes a special report on key states in the USA.
See the entire report here: (CMA) Global Sovereign Credit Risk Report (Large PDF)
***CN: Very thorough report by CMA.
Lead Stories
IMF chief says global cooperation falling
By Robert Schroeder, MarketWatch
Cooperation on the global economy is “decreasing,” the head of the International Monetary Fund said Thursday, as he warned countries about the risks of a so-called currency war.
http://jlne.ws/aB1NFy
***CN: "I'd like to buy the world a Coke..."
IMF says sovereign risk a threat to recovery
By Alan Beattie in Washington, Financial Times
The rising threat of instability from sovereign debt problems has worsened conditions in the global financial system over the past six months despite a reduction in writedowns of assets, according to the International Monetary Fund.
http://jlne.ws/bRxdVI
Goldman Sachs Says U.S. Economy May Be `Fairly Bad'
By Wes Goodman, Bloomberg
Goldman Sachs Group Inc. said the U.S. economy is likely to be “fairly bad” or “very bad” over the next six to nine months.
http://jlne.ws/93DAcP
Treasury Releases Two-Year Retrospective Report On The Troubled Asset Relief Program
Press Release
On the heels of the recent expiration of the Troubled Asset Relief Program (TARP) on October 3, the U.S. Department of the Treasury today announced the release of a "Two-year Retrospective" report on TARP.
http://jlne.ws/cxgbC5
Roubini: 40% chance of double-dip recession
By Ronald D. Orol, MarketWatch
There is a 40% probability of a double-dip recession, but you don't need one for the global economy to feel like it is in a deep, continuing recession, said Nouriel Roubini, the famous pessimist and economics professor at New York University on Wednesday. He said external shocks, such as another Greek credit crisis, perhaps with problems in Spain, Portugal or Ireland, could trigger the shock needed for a double-dip recession. "You don't need another Lehman story, you don't need a major loss," said Roubini at an American Enterprise Institute event. "You can have death by a thousand cuts."
http://jlne.ws/bjTUWJ
Fed's Dudley Says More Easing Warranted Unless Outlook Changes
By Scott Lanman and Caroline Salas, Bloomberg
Federal Reserve Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that more monetary easing is probably needed to spur growth and avert deflation.
http://jlne.ws/bDPXyy
Fed Official Evans Calls for Aggressive Action
BY JON HILSENRATH, WSJ.com
CHICAGO—Charles Evans, president of the Federal Reserve Bank of Chicago, called for the Fed to do more to charge up the economy, including a new program of U.S. Treasury bond purchases and possibly a declaration that it wants inflation to rise for a time beyond its informal 2% target.
http://jlne.ws/afZzGW
Q&A: Chicago Fed’s Evans Elaborates on His Call for Aggressive Fed Action
By Jon Hilsenrath, WSJ.com
Charles Evans, president of the Federal Reserve Bank of Chicago, is calling for strong action by the Fed to charge up the economy, including a new program of U.S. Treasury bond purchases and possibly an audacious public declaration by the central bank that it wants inflation to rise for a time beyond its informal 2% target.
http://jlne.ws/c1wq1R
Fed's Evans: More policy accommodation "desirable"
Reuters
The Federal Reserve should take further action to stimulate the economy, or risk letting it fall into a vicious cycle of joblessness and deflationary pressures, top Fed official said on Friday. Chicago Federal Reserve President Charles Evans framed the debate over further monetary policy accommodation by the U.S. central bank as one of "how much" and "how," rather than whether it should take steps in the first place.
http://jlne.ws/cKaept
Fed Official Defends Effectiveness of More Action - Real Time Economics
By Michael S. Derby, WSJ.com
Expanding the Federal Reserve balance sheet would have a real and positive impact on the U.S. economy, should officials decide to follow that path, the man responsible for implementing central bank monetary policy goals said Monday
http://jlne.ws/bVBzEn
Report: Fed reduces auto bailout loss forecast to $17B
Autoblog
The federal government spent roughly $86 billion in taxpayer money to bail out the auto industry. That's a lot of Monopoly money, folks, and when the industry we know and love was at its weakest point, early projections suggested that that the U.S. government and American taxpayers would never see $30 billion of that money. But as the economy slowly crawls back to life and cars and trucks are beginning to move with greater regularity, those forecasts are being adjusted downward.
http://jlne.ws/dsUCx4
Banks Pile Into Safe Bets
By CARRICK MOLLENKAMP, LIZ RAPPAPORT and AARON LUCCHETTI, WSJ.com
Tighter regulatory requirements are compelling giant investment banks in the U.S. and Europe to tone down their risk-taking and shift to more staid strategies. Now hot on Wall Street: trading securities for clients, processing trades, exchanging currency, managing assets and advising clients on deals and financing.
http://jlne.ws/bNkoeC
Wall Street Sees World Economy Decoupling From U.S.
By Simon Kennedy, Bloomberg
Wall Street economists are reviving a bet that the global economy will withstand the U.S. slowdown. Just three years since America began dragging the world into its deepest recession in seven decades, Goldman Sachs Group Inc., Credit Suisse Holdings USA Inc. and BofA Merrill Lynch Global Research are forecasting that this time will be different. Goldman Sachs predicts worldwide growth will slow 0.2 percentage point to 4.6 percent in 2011, even as expansion in the U.S. falls to 1.8 percent from 2.6 percent.
http://jlne.ws/b3uEIf
Statement by CFTC Chairman Gensler and SEC Chairman Schapiro on the Joint Report Regarding the Market Events of May 6th
Press Release
Washington, DC– The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) today released a joint report presenting their findings regarding the market events of May 6, 2010. The report will be presented to the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues. Twelve days after May 6th, the staffs of the Commissions released a preliminary report on the events of that day.
http://jlne.ws/9PrpuQ
Details of three new swaps rules proposed by CFTC
Reuters
The Commodity Futures Trading Commission proposed its first three of dozens of new rules on Friday that will police the $615 trillion over-the-counter derivatives market.
http://jlne.ws/92IkiY
Even Higher Capital Levels Proposed for Biggest Banks
CNBC
Finance ministers and central bankers from the Group of 20 nations are considering raising capital levels for the world's biggest banks by two to three percentage points above what was agreed to recently under the Basel III accord, CNBC has learned. Should this proposal be adopted, it could affect between 20 and 25 banks around the world, said a senior official.
http://jlne.ws/bQq9WB
Events
Institute for Financial Markets: Introduction to Treasury Futures: Factoring the Risks
When: Oct. 8, 2010, 9 a.m.-12 p.m.
Where: Chicago
Full info: http://www.theifm.org/
Details: Treasury futures are one of the most popular future contracts for both hedging and speculating. Some of the factors that influence value in the Treasury complex include: interest rate risk, inflation risk, and the willingness of investors to continue buying Treasury debt. These factors lead to volatility in the underlying value of debt instruments as interest rates move up or down. If your business borrows money, you can mitigate the effects of higher or lower interest rates by trading the Treasury future complex. Moreover, with Treasury interest rate levels at multi generational lows, a robust case can be made for hedging the threat of higher interest rates in the future now –before interest rates return to ‘normal’ levels.
Institute for Financial Markets: Treasury Futures Basis: Beyond the Risks
When: Oct. 8, 2010, 2 a.m.- 5 p.m.
Where: Chicago
Full info: http://www.theifm.org/
Details: This short course extends the knowledge gained from the IFM's Introduction to Treasury Futures: Factoring the Risks, and explores the important yet subtle nuances of the fixed income future contracts. We start by defining and calculating the gross basis, net basis, implied repo-rates, and the synthetic duration of a hedged position. We next consider how high or low interest rates must move to precipitate a cross-over in the CTD bond/note.
An Overview of On-The-Run U.S. Treasury Futures: Concepts and Opportunities
When: Oct. 14, 2010, 3 p.m., CT
Where: Online
Full info: http://www.cmegroup.com/education/events/2010-10-14-an-overview-of-on-the-run-us-treasury-futures.html
Details:The introduction of On-The-Run (OTR) U.S. Treasury Futures on October 25, 2010 will provide the marketplace with a tool for gaining direct and capital-efficient exposure to on-the-run Treasury yields—the most liquid points on the Treasury yield curve. 2-Year, 5-Year, and 10-Year OTR Treasury futures allow market participants to gain synthetic exposure to the Treasury cash market, but with the added benefit of cross-margining with other interest rate products at CME Group exchanges. These contracts will also add an array of intriguing new spread trading strategies with cash securities, Eurodollar, Interest Rate Swap, and traditional Treasury futures, as well as OTR yield curve spreads. This webinar will examine the key aspects of OTR Treasury futures, including contract design, pricing and settlement, and trading strategies. Speakers include James Boudreault, Associate Director, Financial Research and Product Development at CME Group and John Brosnan, Head of U.S. Yield Curve Trading at XR Trading.
Making Sense of Credit Default Swaps
When: Oct. 21, 2010, 9 a.m. to 5 p.m., CT
Where: Chicago
Full info: http://www.theifm.org/
Details: This one-day course will provide an overview of the CDS markets and how market participants use this product to express a view on a credit, or to hedge an undesirable credit risk.
Economic News
U.S. Consumer Sentiment Index Reading of 68.2 Exceeds Estimates
By Courtney Schlisserman, Bloomberg
The Thomson Reuters/University of Michigan final index of U.S. consumer sentiment for September fell to 68.2 from 68.9 in August. The gauge was projected to fall to 67, according to the median forecast in a Bloomberg News survey of economists, and compares with a preliminary reading of 66.6 issued last month. The index averaged 89 in the five years leading up to the recession.
http://jlne.ws/bflBCq
ISM U.S. Manufacturing Index Decreased to 54.4 in September
By Bob Willis, Bloomberg
Manufacturing expanded in September at the slowest pace in 10 months, underscoring the Federal Reserve’s forecast of “modest” U.S. growth in coming months. The Institute for Supply Management’s factory index dropped to 54.4 from 56.3 in August, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth and economists forecast a decline to 54.5, according to the median estimate in a Bloomberg News survey. Measures of orders and production fell to the lowest level since June 2009.
http://jlne.ws/a3SXG3
Purchasing Managers Index Isn't Sign of General Weakness
By Gene Epstein, Barron's
In a recovery that has so often been subpar, it's reassuring to find a trend that is about par for the course. In this case, it's the recent trend in the Institute for Supply Management's composite index of manufacturing.
http://jlne.ws/av4E6k
U.S. Holiday Sales to Climb 3% to 3.5%, ICSC Says
Bloomberg
U.S. retailers’ sales will climb 3 percent to 3.5 percent this holiday season, the best performance since 2006, as the economy improves, the International Council of Shopping Centers said.
http://jlne.ws/bjMSWQ
Unemployment claims drop for fourth time in 5 weeks
USA Today
Applications for unemployment benefits in the U.S. fell last week for the fourth time in five weeks and job openings rose in August for the second straight month as layoffs dropped sharply.
http://jlne.ws/duVL3C
Exchanges, Clearing Houses & MTFs
ELX Questions CME's Conduct In Treasury Futures Market In Letter To CFTC
By Sarah N. Lynch, Dow Jones
ELX Futures LP told regulators in a letter released Monday that it believes CME Group is acting anti-competitively in the Treasury futures market and urged them to look into the matter.
http://jlne.ws/cp4Ks1
***CN: Don't expect this issue to go away soon.
CME Eurodollar Futures Fade, Treasurys Thrive On Fed Rate Policy
Dow Jones
The volume of Eurodollar futures traded on the Chicago Mercantile Exchange trailed Treasury contracts for the sixth straight month in September, marking a symbolic shift in the benchmark for interest-rate products.
http://jlne.ws/9eUi2Q
LCH.Clearnet Group €100+ trillion of bonds and repos cleared to end September
Press Release
LCH.Clearnet group has cleared bond and repo trades with a notional value of €101 trillion in the first nine months of the year, an increase of 31% on the same period last year. Notional volumes in September were up 21% on 2009. This growth has been driven by an increase in demand for both the Euro and Sterling clearing services.
http://jlne.ws/b4ZL5H
Firms & Banks
HSBC ordered to beef up money laundering program
By Steve Goldstein, MarketWatch
The Federal Reserve has issued a cease-and-desist order against HSBC North America Holdings, a unit of HSBC Holdings /quotes/comstock/13*!hbc/quotes/nls/hbc (HBC 52.43, -0.24, -0.46%) /quotes/comstock/23s!a:hsba (UK:HSBA 661.90, -1.80, -0.27%) , over the lender's anti-money laundering compliance program. Within 30 days, HSBC needs to submit a written plan setting out how it will improve compliance, which will include funding for personnel and systems, policies to ensure the compliance function has the appropriate status within the organization and measures to integrate compliance risk management into existing risk management policies. The order came after an examiniation of HSBC by the Chicago Fed found deficiencies
http://jlne.ws/cnmB5v
U.S. bank industry entering new crisis: analyst
By Ronald D. Orol, MarketWatch
The U.S. banking industry is entering a new crisis where operating costs are rising dramatically due to foreclosures and defaults, a well-known analyst said Wednesday afternoon.
http://jlne.ws/9XXiy1
RBS Chairman Says Many Bankers Are Overpaid
NPR
The chairman of the Royal Bank of Scotland made a remarkable admission before a conference of fellow bankers Monday. Sir Philip Hampton said many of his top employees are not worth their extravagant salaries and bonuses, which totaled $2 billion last year. But he said not rewarding top staff with fat bonuses, could drive employees to work for rival banks.
http://jlne.ws/99ZHD6
Sidney J. Weinberg Jr., Former Goldman Investment-Banking Head, Dies at 87
By Christine Harper and Ambereen Choudhury, Bloomberg
Sidney J. Weinberg Jr., a senior director at Goldman Sachs Group Inc., the Wall Street firm once led by his father and his younger brother, has died. He was 87.
http://jlne.ws/9W0dpW
Regulators
There's 'a Bit of a Bond Bubble': FDIC's Bair
CNBC.com
In the short term, the US needs to deleverage the financial system and restore market discipline and must keep the effects of protracted low interest rates in mind, as a bubble seems to be developing in bond markets, Federal Deposit Insurance Corporation Chairwoman Sheila Bair told CNBC Tuesday.
http://jlne.ws/bee8Dm
IMF Lifts Euro-Zone Growth Forecast
BY GEOFFREY T. SMITH, WSJ.com
The International Monetary Fund Wednesday raised its forecast for economic growth in the euro area this year and next, but warned that Europe in general is still facing a "gradual and uneven" economic recovery.
http://jlne.ws/ddjVMH
ECB's Trichet wary of financial transaction tax
Pan Pylas, AP
European Central Bank president Jean-Claude Trichet said Friday it would be a big mistake if the European Union decided to go it alone on taxing financial transactions, arguing that its introduction would cause banks to flee elsewhere.
http://jlne.ws/bIlEkT
Global News
Eurozone interest rate still 1%
BBC News
The European Central Bank (ECB) has kept interest rates on hold at 1% as was widely expected. It is the 17th consecutive month the rate has stayed at the record low, amid concerns over the economic outlook.
http://jlne.ws/afHWk8
Bank of Japan Cuts Key Rate
BY MEGUMI FUJIKAWA AND TOMOYUKI TACHIKAWA, WSJ.com
The Bank of Japan caught financial markets by surprise Tuesday, announcing a 35 trillion yen ($418 billion) monetary easing program to spur economic growth while cutting interest rates to virtually zero. It also launched a 5 trillion yen program to buy private- and public-sector assets.
http://jlne.ws/ddJh9m
Norway to announce new money market measures
Reuters
The Norwegian central bank said it would announce on Wednesday measures to enhance the efficiency of Norwegian money markets.
http://jlne.ws/dpWc0L
Japan Considers Stimulus, Wealth Fund
BY TAKASHI NAKAMICHI, WSJ.com
TOKYO—Japan's ruling party unveiled an economic stimulus plan Wednesday totaling more than $57.6 billion that also calls for Japan to consider making use of its $1.07 trillion in foreign reserves to create a sovereign wealth fund.
http://jlne.ws/bG2kdh
China Stiffens Opposition to Rapid Yuan Appreciation
By Zijing Wu and James G. Neuger, Bloomberg
China stiffened its opposition to a rapid appreciation of the yuan, setting the stage for a confrontation over exchange rates at this week’s international monetary meetings in Washington.
http://jlne.ws/9Oj01d
Greece announces new austerity measures
Bloomberg
The Greek government has announced new, tougher, austerity measures in its 2011 draft budget. The government said it would reduce the budget deficit below the target set by the International Monetary Fund (IMF) and eurozone countries earlier this year when they bailed Greece out.
http://jlne.ws/aiQNSq
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