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ETFS Precious Metals Weekly: US Loses AAA Rating, Gold Above $1700/oz
August 9, 2011--Gold spot price hits record high above $1700/oz as US government debt
downgrade sparks gold buying. Standard & Poor’s unprecedented downgrade to
the US government debt rating on Friday, despite the US debt deal, has driven the gold price to a new record level as investors have poured assets into perceived safe havens.
Investor concerns about potential currency debasement were exacerbated
by the ECB’s renewed bond buying program and Japan and Swiss central bank
intervention in foreign exchange markets to weaken their currencies.
COMEX Gold and NYMEX palladium speculative futures positioning hit their highest levels in over 1 year. The rise of long gold futures positions likely reflects market expectations of further price gains for ‘store of value’ assets and as a hedge for long risk asset positions, whereas palladium investment may reflect bargain hunting amongst the most cyclically sensitive precious metals. Exchange Traded Product (ETP) gold holdings climbed to a new record high of 2,182 tons last week according to Bloomberg data.
Risk aversion pushes platinum and palladium prices down by 4% and 13% over the past week. A general decline in the price of many cyclical assets was likely the main factor driving prices lower, though news of a new wage deal for striking workers at the world’s No. 2 platinum producer, Impala Platinum, also likely weighed on prices. Rising US car sales in June had little market impact, offset by reports of weakness in the Japanese automotive sector.
visit www.etfsecurities.com for more info
The Global ETF Market is Coming of Age
August 9, 2011--The market for Exchange Traded Funds (ETF) has grown rapidly in the past decade, tilting the balance of power in favor of investors. ETFs are now utilized by a growing number of fund managers for tactical asset allocation, completion strategies, and as a liquid cash substitute, their attractiveness underpinned by their relatively lower costs, speed of execution, and transparency.
The expansion of the ETF market has reduced costs for asset managers and squeezed full-service brokerage commissions. The market is now entering a new phase of growth as ETF trading expands globally. Meanwhile, there is controversy over some of the newer ETF products that employ leverage and active management to enhance potential returns, but may have higher tracking errors and debatable outperformance compared with the older passive ETF structures. Studies have shown that the returns of active and passive structures aren’t significantly different, and in some cases, actively managed ETFs have posted a worse performance than their passive equivalents.
NYSE Euronext Announces Trading Volumes for July 2011
August 8, 2011-NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for July 2011[1]. Global derivatives average daily volume (“ADV”) of 8.0 million contracts in July 2011 increased 12.6% versus the prior year driven by a 33.7% increase in U.S. options ADV partially offset by a 6.2% decrease in European derivatives.
Cash equities ADV in July 2011 was mixed, with European cash ADV increasing 15.8% and U.S. cash trading ADV decreasing 23.9% from July 2010 levels.
NYSE Euronext outage due to messaging problems
August 8, 2011--NYSE Euronext has confirmed that a breakdown in the outbound messaging system from its trading engine was behind Thursday’s 90-minute outage on Liffe, Europe’s second-largest derivatives platform.
The group described the breakdown as a “serious incident” and it came amid heavy volumes as stock markets plunged. It puts further pressure on NYSE Euronext to ensure the reliability of its platforms at its European operations after Thursday’s problem became the sixth glitch in two months.
Possible Unintended Consequences of Basel III and Solvency II
August 8, 2011--Summary: In today’s financial system, complex financial institutions are connected through an opaque network of financial exposures. These connections contribute to financial deepening and greater savings allocation efficiency, but are also unstable channels of contagion.
Basel III and Solvency II should improve the stability of these connections, but could have unintended consequences for cost of capital, funding patterns, interconnectedness, and risk migration.
view the IMF Working paper-Possible Unintended Consequences of Basel III and Solvency II
Capital Regulation and Tail Risk -IMF Working paper
August 8, 2011--Summary: The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk asserts. We show that this undermines the traditional result that high capital reduces excess risk-taking driven by limited liability.
Moreover, higher capital may have an unintended effect of enabling banks to take more tail risk without the fear of breaching the minimal capital ratio in non-tail risky project realizations. The results are consistent with stylized facts about pre-crisis bank behavior, and suggest implications for the optimal design of capital regulation.
view IMF working paper-Capital Regulation and Tail Risk
OECD composite leading indicators continue to point to slowdown in economic activity
August 8, 2011--Composite leading indicators (CLIs) for June 2011, designed to anticipate turning points in economic activity relative to trend, continue pointing to a slowdown in activity in most OECD countries and major non-member economies.
Compared to last month’s assessment, stronger signs of turning points in growth cycles have emerged in the United States, Japan and Russia. The CLIs for Canada, France, Germany, Italy, the United Kingdom,
Brazil, China and India continue pointing to slowdowns in economic activity.
Emerging markets stock exchange M&A activity to accelerate – PwC report
August 8, 2011--The emerging markets will drive the next wave of transformational change and deal-making in the exchanges sector. This is according to a new report by PwC, ‘Trading blocs – what next for the stock exchanges?’. The report suggests the most viable growth options for Western exchanges are to focus on developing post-trade clearing and settlement capabilities or fostering ties with emerging market players.
High operating leverage and heightened competition have suppressed margins across the sector and will continue to provide a compelling economic rationale for consolidation. Much of the new competition in Europe has been enabled by regulatory changes, such as Europe’s Market in Financial Instruments Directive (MiFID), allowing new entrants with low-cost business models to seize market share.
Shamshad Ali, partner at PwC, said:
“Talk of an end to consolidation in the stock exchange sector may be largely true for the more mature Western European markets, but Asia and Latin America are likely to see significant M&A in the future - if regulatory hurdles can be overcome.
view the Trading blocs - What next for the stock exchanges? report
UBS Launches UBS-MISTRAL Family of Innovative Active Interest Rate Indices
August 8, 2011--This week, UBS launches the Multi Indicator Short Term Rate Algorithm (UBS-MISTRAL) indices. Going beyond traditional trend following, UBS-MISTRAL identifies the underlying fundamental drivers of trends in interest rates, using a diversified set of leading indicators to take positions in interest rate futures. The indices are transparent to participating clients and will be published on a daily basis.
Over the past 50 years most of the developed world has seen one big "megacycle" in interest rates and several pronounced mini-cycles.
Quick View: What next for DB-NYSE probe?
August 7, 2011-- No surprises.
That’s how most people reacted to last week’s decision by the European Commission’s competition authorities to move its probe of the Deutsche Börse-NYSE Euronext merger to a deeper, second phase.
It had been widely flagged that Brussels was concerned about how the combination of Eurex and Liffe would create a dominant player in European derivatives. Also that there would be issues with the consolidation of the “vertical silo” and perhaps with the index business as well.