Breaking News

Finding Money in the Margins; Carney Dials Guidance Way Down as BOE Sees Future Wide Open; Quant Wars Seen Whipping Up Stock Volatility as Election Nears

First Read

In Honor of a Historic Victory
JLN Staff

The Chicago Cubs victory in the World Series over Cleveland was the beginning of a historic celebration. Since the Cubs nail-biting Game 7 victory came in Cleveland, Chicago Cubs fans have not had the opportunity to celebrate with the newly crowned champs.

Today, there will be a huge parade starting at the Friendly Confines and winding its way to Grant Park. The crowd is likely to be mind boggling. City officials have not even released the full route, rather referring people to soak in the scene at three locations: Addison Street from Sheffield to Pine Grove avenues; North Michigan Avenue from Oak to Ohio streets; Columbus Drive between Monroe Street and Balbo Avenue.

To give the office some time to soak in the atmosphere, an atmosphere that hasn’t been felt in 108 years, we will not be putting out our afternoon newsletter, JLN Options.

We will be back to normal on Monday – though we’re not sure that will be the case for the city of Chicago.

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‘Weekend in Frankfurt?’ – Paris perfects its pitch for London bankers
By Michel Rose | PARIS – Reuters
In the battle to attract Brexit-wary bankers fleeing London, the man in charge of Paris’ charm offensive thinks he has the pitch that rivals can’t match.
“When did you last book a weekend in Frankfurt?” Ross McInnes joked after a cross-party group of politicians put the Oxford-educated Franco-Australian chairman of French engine maker Safran in charge of the come-to-Paris campaign.
/goo.gl/6bV05R

***JB: I nominate myself to go check out the two cities. I’ll report back.

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Why People Stay in Jobs They Hate
Rebecca Greenfield – Bloomberg
Prisoners.
That’s term of art for those stuck in a job they hate but can’t seem to leave, according to an Aon Hewitt survey based on data from 500,000 workers. It seems about 8 percent of the global workforce have no interest in their jobs and no motivation to quit them. Thus did these inert, unhappy workers earn their name, a slightly aggressive term for gainfully employed people suffering from ennui.
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***JB: Sometimes it’s the devil you know…

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This Election Will End. The Mental Damage May Not
Deena Shanker – Bloomberg
More than half of Americans are experiencing election-related stress comparable to that often attributed to work, money, or the economy, the American Psychological Association has said. And while the good news is the presidential contest will end next week, the bad news is that because of the ferocity of the campaign, the mental damage may linger. And for some groups, it may get even worse—depending on who wins.
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***JB: Somehow the two most disliked candidates in history managed to get nominated to run for president. It is no wonder our collective heads hurt.

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Nobody Knows Why Fortysomethings Are Driving U.S. Productivity
Peter Coy – Bloomberg
Dartmouth College economist James Feyrer noticed something odd about a decade ago: Across a large set of countries, an economy’s productivity seemed to be connected to the proportion of fortysomethings in its labor force. The higher the ratio of people age 40-49, the faster the economy tended to increase its output per hour of work. To be precise, Feyrer wrote in a 2005 working paper, “a 5 percent increase in the size of this cohort over a ten year period is associated with a 1-2 percent higher productivity growth in each year of the decade.”
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***JB: As a fortysomething glad to hear I am the engine driving the economy. Take that boomers and millennials!

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Chicago River to Be Dyed Blue Friday Morning
Just hours before the Chicago Cubs’ World Series parade takes over downtown Chicago Friday, the Chicago River will be dyed blue, city officials announced. The river is expected to be dyed just after 7 a.m. CT.
Fans are being asked to watch the parade along Addison Street from Sheffield Avenue to Pine Grove Avenue, along North Michigan Avenue from Oak Street to Ohio Street and on Columbus Drive from Monroe Street to Balbo Avenue.
The parade route will start about 11 a.m.
/goo.gl/HjsH4p

***JB: The river is normally kinda green. Add blue and you get yellow. Maybe someone should think about this longer.

***SR: Not everyone is happy about this.

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Thursday’s Top Three
Leading off Thursday is the Wall Street Journal story, Options Trader Nabs ‘Lottery Ticket’ With Explosive Upside. In second place was a story about the dramatic Chicago Cubs win in game 7 of the World Series, Cubs Win 1st Series Title Since 1908, Beat Indians in Game 7. In third is perhaps a bright spot if you worry about robots taking over the world: Hedge Fund Clients Dump Humans for Computers and Still Lose

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Lead Stories

Finding Money in the Margins
Chris Casey and Gregory Van Droogenbroeck, Bloomberg Enterprise – TABB Forum
The result of new global margin rules, though well-intended, is skyrocketing funding expenses and new administrative burdens that will add to the growing cost of participation in the $493 trillion global over-the-counter derivatives market. But potential relief from the new margining rules could be found by identifying a broader range of eligible collateral.
/goo.gl/rVqYtN

Carney Dials Guidance Way Down as BOE Sees Future Wide Open
Brian Swint and John Ainger – Bloomberg
Mark Carney says he’s staying at the Bank of England. He’s just not saying what he’s going to do. With his forecasting record proving patchy, the governor’s latest message is that the next move could be to tighten or loosen policy. A few months ago, policy makers foresaw a second interest-rate cut after the Brexit vote, while last year he was trying to indicate when rates would start to rise from a record low. The only thing Carney appears sure of now is his own tenure, which he extended this week to steward the economy through its divorce from the European Union.
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Quant Wars Seen Whipping Up Stock Volatility as Election Nears
Dani Burger – Bloomberg
There’s a battle going on, and it’s not for the White House. Computer is fighting computer in a hedge fund tilt that could get messy regardless of the winner. The combatants are professional money managers who throw around billions of dollars each day, taking cues from mathematical models. In one corner are trend-following futures funds known as commodity trading advisers, who use changes in asset prices and volatility as buy and sell signals. They just pushed short sales against U.S. equities to a level that exceeds any time during the bull market other than August 2015.
/goo.gl/spxdJ6

Hedge funds demands up the pressure on derivatives prime brokers
Joe Parsons – The Trade
Derivatives prime brokers are feeling increased pressure from clients to increase their services, as hedge funds pursue strategies targeting multiple asset classes. According to The TRADE Derivatives 2016 Derivatives Prime Brokerage Survey, which surveyed over 1600 hedge fund respondents, around half of respondents make use of derivatives prime broker services.
/goo.gl/pmXupq

Standard Chartered to Close Private-Equity Unit
Margot Patrick – WSJ
For months, Standard Chartered PLC negotiated with managers of its Singapore-based private-equity arm to buy the troubled business.
This week, the plan fell apart. The bank decided instead to sell down the unit’s $5 billion investment portfolio over the next two years and appointed a senior member of the team, Nainesh Jaisingh, to oversee the process, people familiar with the matter said Friday.
jlne.ws/2fKTZrl

Family Feud at Louis Dreyfus, One of the World’s Largest Commodity Traders, Spills Into Court
Sarah McFarlane, Katherine Dunn and Maarten van Tartwijk – WSJ
A battle between the family behind Louis Dreyfus, one of the world’s largest commodities traders, and its chairman, Margarita Louis-Dreyfus, has spilled into court as members of the secretive clan try to exit from a business that has borne their name for 165 years. Dissatisfied with the stewardship of Ms. Louis-Dreyfus, who married into the family, a wider group of relatives wants to whittle down its shareholding from 20% to around 3%, according to people familiar with the matter and documents from a trust that holds her family’s stake.
/goo.gl/VgiIV5

Special Report: U.S. manufacturing economy fails employers and workers
Timothy Aeppel – Reuters
James L. Brown tried to hire a dozen workers for his metal foundry here. Half of them flunked the drug test.
Those results are typical, says the president of Bremen Castings Inc, a family-owned employer of 350 workers who make parts for trucks and other equipment. Drug problems are one factor contributing to a labor shortage that delayed filling orders earlier this year.
“We’ve become a recruiting company,” Brown said of the relentless struggle to maintain a strong workforce.
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World Federation Of Exchanges Names India’s NSE, Switzerland’s Six Group And US’s CBOE As New Board Officers
MondoVisione
At the 56th General Assembly in Cartagena today, the World Federation of Exchanges (“WFE”), which represents more than 200 market infrastructure providers including exchanges and CCPs, appointed three new officers of the Board, in line with the organisation’s customary geographical rotation of officers every two years.The new officers of the Board are: Ms Chitra Ramkrishna, Managing Director & CEO, National Stock Exchange of India Limited – Chairperson, WFE; Dr Urs Rüegsegger, Group CEO, SIX – Vice Chairman, WFE; Mr William Brodsky, Executive Chairman of the Board, Chicago Board Options Exchange (CBOE) – Working Group Committee Chair, WFE.
/goo.gl/gqFwK6

U.S. Adds 161,000 Jobs in October; Jobless Rate Ticks Down to 4.9%
Wage growth accelerated to its strongest pace since the recession
By Ben Leubsdorf and Josh Mitchell – WSJ.com
WASHINGTON–Hiring by U.S. employers remained steady in October as the unemployment rate edged down and wage growth accelerated to its strongest pace since the recession, signaling solid momentum in the labor market just days before American voters elect a new president.
/goo.gl/1SS2am

Brexit

The High Court ruling undermines Theresa May’s Brexit approach
David Allen Green – Financial Times
The High Court in London has created a substantial problem for the UK prime minister’s Brexit policy. At last month’s Conservative party conference, Theresa May had announced that the notification under Article 50 would be made no later than March next year. She could say this with confidence as she believed the timing of the decision was down to her.
/goo.gl/jsMqfM

Location, location, dislocation: banks in Brexit office dilemma
Goldman can sublet new City HQ but Crédit Agricole and Deutsche weigh London plans
by: Judith Evans – FT
When Goldman Sachs announced that it would build a sprawling new headquarters in the up-and-coming Farringdon area four years ago, there was no question over London’s status as Europe’s financial capital.
But the UK’s vote to leave the EU has forced banks to rethink their footprint in the city, with several local and overseas lenders now having to decide whether to downgrade their big-ticket property plans.
/goo.gl/YRoAUE

Deutsche Bank News

Fitch puts Deutsche Bank rating on negative watch
Evelyn Chang – CNBC
Fitch Ratings placed the debt ratings of struggling Deutsche Bank on negative watch Thursday given likely challenges for the German lender to implement its restructuring plan.
/goo.gl/DGDz7W

Deutsche Bank stake in China’s Harvest offers some comfort in troubled times
Michelle Price – Reuters
In the checkered history of foreign-sino joint ventures, Deutsche Bank’s (DBKGn.DE) 30 percent stake in Beijing-based Harvest Fund Management has proven a savvy investment – and may provide the German bank with a cushion as it faces a big penalty for allegedly misselling mortgage-backed securities in the United States.
/goo.gl/cndHBk

Exchanges, OTC and Clearing

Bats delivers Q3 beats despite lower trading volumes
Nicole Bullock – Financial Times
Bats Global Markets, the US exchanges operator that recently agreed to tie up with CBOE Holdings, on Thursday beat earnings expectations in the third quarter as higher connectivity fees helped to offset weakness in its European equities business where it is the market leader.
/goo.gl/ycMAzk

Intercontinental Exchange Reports ICE & NYSE October 2016 Statistics; Futures ADV up 17% y/y, interest rate ADV up 44% y/y
Business Wire
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported October 2016 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website at http://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.
/goo.gl/nU5aCy

Politics

Forget Trump And Clinton. These Races Also Matter to Wall Street
Elizabeth Dexheimer – Bloomberg
Wall Street has a lot to lose — or potentially gain — in a handful of political races voters will decide next week. Democrats need to pick up at least four seats to take control of the Senate. Republicans maintaining majorities in both the Senate and House would be the finance industry’s best defense to keep dogged bank antagonists like Elizabeth Warren at bay. A Democratic majority in the Senate could give Warren and other progressives more sway in appointing tough financial regulators and pushing aggressive rules for banks, hedge funds and asset managers.
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Swiss Franc Offers Best of Both Worlds for Hedging U.S. Election
Charlotte Ryan – Bloomberg
The Swiss franc is shaping up to be the perfect hedge for investors wanting to guard against U.S. election volatility.
Brexit shows the currency to be a win-win proposition, according to analysts at UBS Group AG, Switzerland’s biggest bank. If Donald Trump is victorious — a prospect not relished by markets because of his protectionist views — then the franc would likely appreciate. It’s traditionally favored as a port in a storm because of the nation’s current-account surplus.
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‘The FBI is Trumpland’: anti-Clinton atmosphere spurred leaks, sources say
Spencer Ackerman – The Guardian
Deep antipathy to Hillary Clinton exists within the FBI, multiple bureau sources have told the Guardian, spurring a rapid series of leaks damaging to her campaign just days before the election.
/goo.gl/Md719Y

Citi predicts possible 5% drop for S&P 500 if Trump wins, warns on recession
CNBC
A Donald Trump win could spark an immediate sell-off of up to 5 percent for the S&P 500, according to analysts at Citi, who also warn on slower growth or even recession for the U.S.
/goo.gl/ZmVT6o

Jobs Friday Is More Important for the Election Than the Fed
October’s reading on the labor market will be the focus for traders on Friday, but for very different reasons than usual.
By Chris Dieterich – WSJ
Global stocks fell Friday ahead of the U.S. jobs report, with Wall Street poised to extend its longest stretch of declines since the financial crisis.
Investors globally have been cutting down on assets perceived as risky in recent sessions while adding to positions in gold, the yen and the Swiss franc as polls have tightened ahead of next week’s U.S. presidential election.
/goo.gl/2vTsfY

The New York Times to Offer Open Access To NYTimes.com November 7-9
NY Times
The New York Times is inviting readers to take advantage of its reporting, analysis and commentary from the lead-up through the aftermath of the 2016 election. Readers will have unlimited access to NYTimes.com for 72 hours from 12:01 a.m. ET on Monday, November 7 until 11:59 p.m. ET on Wednesday, November 9.
/goo.gl/dPc86E

Investing and Trading

S&P 500 in longest losing streak in 8 years
USA Today
Stocks shifted into malaise mode Thursday afternoon with the looming election, sending the S&P 500 down for an eighth straight day.
/goo.gl/haAPDt

Investors Are Pouring Into an ETF That Protects Against Higher Inflation
Luke Kawa – Bloomberg
It’s the tail end of 2016, but one of Wall Street’s favorite trades—inflation-protected Treasuries—heading into this year is finally back in vogue. Investors’ appetites for an exchange-traded fund that provides exposure to bonds whose principal and coupon payments are adjusted for inflation have soared in recent sessions. Weekly inflows into the iShares Treasury Inflation Protected Securities Bond ETF (TIP) reached their highest level on record as investors brace for the possibility of a sustained upturn in price pressures.
/goo.gl/hZKST6

Index IDEA: UK equities keep calm and carry on after UK referendum
FTSE Russell Blog
Despite well publicized fears about the future viability of the UK market and economy after UK citizens voted to leave the European Union on June 23, UK equity markets as measured by the FTSE 100 and FTSE 250 Indexes have proven resilient in the four months since the referendum results were announced.
/goo.gl/kMZSAS

Sustainability: Why Does the “Social” Category Matter?
Emily Ulrich – S&P Indexology
When it comes to sustainable investing, three factors are typically used as measurements: social, environmental, and governance. For most of us, the benefit to reducing our environmental impact is obvious. The importance of governance has also been well researched by S&P Dow Jones Indices—just look at the S&P LTVC Global Index.
/goo.gl/JVrnt1

U.K. Firms Brush Off Pension Deficit Problems
Gaps in pension schemes remain more of an accounting problem than a real one
By Jon Sindreu – WSJ
Ultralow interest rates have opened gaping deficits in many U.K. companies’ pension schemes. And yet this gulf has left their investment plans and share prices mostly unruffled.
This suggests that, for most British companies, corporate pension deficits are still more of an accounting problem than a real one.
/goo.gl/J7jQ1q

Institutions

Banking Villains and Trading Computers
By Matt Levine – Bloomberg View
Wells Fargo. One of the most frustrating things about modern bank scandals is that they are not particularly good human dramas, lacking small casts of easily identifiable heroes and villains doing obviously heroic or villainous things. The Wells Fargo & Co. scandal, for instance, involved 5,300 mostly low-level bankers fired for creating fake accounts. They make bad villains: You couldn’t get all of them on a stage, or even remember all of their names, and their misdeeds are mitigated by the fact that they were making $12 an hour, afraid of losing their jobs, and faking accounts because they thought it was expected of them.
/goo.gl/eOh5rK

FX: Thinking outside the broker in a box
Paul Golden – Euromoney
Broker in a box is promoted as a means of taking the pain out of establishing a regulated FX brokerage, but choosing the wrong approach and/or provider runs the risk of limiting the growth potential of the business from the outset.
/goo.gl/2WzajG

Goldman to sell ETF based on its VIP hedge fund data
Asset management arm seeks to capitalise on closely watched research
by: Mary Childs in New York – The Financial Times
Goldman Sachs is seeking to capitalise on its most popular research publication by offering a new exchange-traded fund based on its data on hedge fund positions.
The US bank’s “Very Important Positions” index, which highlights the 10 stock bets that appear most frequently as bullish bets in hedge fund portfolios, is heavily scrutinised by investors as a window into what hedge funds are doing.
/goo.gl/6bPKrU

Big Hit on Drug Stocks Caps $26 Billion Decline for John Paulson
Gregory Zuckerman – WSJ
John Paulson’s subprime trade led to historic fortune. His drug-company investments? Big losses and plunging assets. Mr. Paulson’s hedge-fund firm, Paulson & Co., is suffering painful losses this year, extending a period of uneven performance that has left the firm managing about $12 billion, down from $38 billion in 2011. Behind the recent difficulties: A big, faulty bet on pharmaceutical companies, as well as excessive caution about the broader market, according to people close to the matter.
/goo.gl/3gUop7

Fintech

Blockchain Could Solve Capital Markets Firms’ Internal Struggles
TABB Forum
Capital markets firms have long accepted the need to continually replicate and reconcile data across internal systems as a cost of doing business – industry assessments estimate that more than 70% of reconciliations occurring at financial firms are internal in nature. But the discrepancies that arise due to an inefficient infrastructure and unsuccessful internal reconciliation processes can have multiple – all damaging – consequences. So why are firms so accepting of internal reconciliations as a normal part of daily business?
/goo.gl/i2abuO

Regulation

Goldman Sachs, Paulson settle fraud lawsuit over Abacus
Karen Freifeld – Reuters
Goldman Sachs Group Inc (GS.N) has settled a 2011 lawsuit claiming the investment bank fraudulently induced a bond insurer to guarantee payments on the doomed Abacus collateralized debt obligation ahead of the financial crisis. ACA Financial Guaranty Corp claimed Goldman and the hedge fund headed by John Paulson tricked it into insuring the CDO, which was tied to subprime mortgage securities.
/goo.gl/EjW3ft

SEC Announces Agenda, Panelists for Nov. 14 Fintech Forum
SEC Press Release
The Securities and Exchange Commission today announced the agenda and panelists for its Nov. 14 forum to discuss fintech innovation in the financial services industry.
The Fintech Forum, announced in September, will begin at 9 a.m. ET, and will be divided into four panels. Participants on the first panel will discuss the impact of recent innovation in investment advisory services. The second panel will discuss the impact of recent innovation on trading, settlements, and clearance activities. Participants on the third panel will discuss the impact of recent innovation in capital formation. The final panel will discuss investor protection in the fintech era.
/goo.gl/7Z0ZPQ

Regions

Spain Shows It’s on Ireland’s Path as Rajoy Forms Government
Charles Penty and Macarena Munoz Montijano – Bloomberg
The debt market is betting Spain may start moving in Ireland’s direction as its new government takes shape.
Spain’s borrowing costs have fallen to their lowest level compared with Italy’s since early 2012 as Mariano Rajoy reprises his role as prime minister. The formation of a new government this week and robust economic growth may help the nation’s financing costs drop even further, said Andrew Bosomworth, head of portfolio management in Germany for Pacific Investment Management Co.
jlne.ws/2fKT8Hc

A Cashless Economy in Zimbabwe? With Little Cash, There’s Little Choice
Jeffrey Moyo and Norimitsu Onishinov – NY Times
The time came for worshipers to surrender their tithes on Sunday morning. But instead of dropping bills into a collection plate, the congregants at a large Pentecostal church rose and filed toward the deacons clutching hand-held card-reading machines. With a swipe, they were done.
/goo.gl/yTrDv5

Miscellaneous

Weisberg steps down as Thomson Reuters head of trading
Philip Stafford – FT
Philip Weisberg is to step down as head of Trading at Thomson Reuters after more than four years, the data and information provider has confirmed. He joined the Canadian group when it bought FXall, the currency trading platform he helped to found, for $625m in 2012.
/goo.gl/F8JA8i

NFL Was a Sure Thing for TV Networks. Until Now
Felix Gillette – Bloomberg
From the broadcast booth at Nissan Stadium in Nashville, Jim Nantz is talking bedding. It’s midway through the fourth quarter of the Oct. 27 NFL game between the Tennessee Titans and Jacksonville Jaguars on Thursday Night Football. Along with his colleague Phil Simms, Nantz is calling the game for the NFL Network. The game’s a disaster—except for Titans fans—full of miscues, muffed punts, questionable coaching, and personal fouls. By halftime the Titans are up 27-0, and the game meanders through the second half toward a blowout. With 45 drama-free minutes of airtime left to fill, Nantz tries telling a story.
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About Author

Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.