New York Fed to launch U.S. Libor contender, slow takeup seen

Global Stock Markets

The New York Federal Reserve will launch a benchmark U.S. rate on Tuesday to potentially replace Libor, and market participants hope it will prove more reliable after a long and complex switchover. 

The New York Fed will begin publishing the Secured Overnight Financing Rate (SOFR), the first step in a multi-year plan to transition more derivatives away from the London interbank offered rate (Libor), which regulators say poses systemic risks if it ceases publication.

Analysts have struggled to explain a recent jump in Libor, which has reached nine-year highs USD3MFSR=X even as bank credit quality is seen as solid.

Increased short-term Treasury issuance and declining demand for credit due to tax reforms are deemed the most likely factors. A decline in interbank lending has reduced the robustness of the rate, which is sometimes estimated rather than based on actual transactions.

SOFR is based on the overnight Treasury repurchase agreement market, which trades around $800 billion in volume daily.

A move away from Libor, however, is expected to be gradual and complicated.

One issue is that there is not yet a market for term loans such as one and three months, as in Libor.

It will take time to develop liquidity in derivatives based on the rate. The CME Group will launch futures trades based on SOFR on May 7, while major dealers will enable swaps trading on the rate this year.

Investors will also need to adjust to the day to day volatility of the repurchase market, where rates typically increase ahead of monthly and quarterly closings.

U.S. oil industry set to break record, upend global trade

Surging shale production is poised to push U.S. oil output to more than 10 million barrels per day - toppling a record set in 1970 and crossing a threshold few could have imagined even a decade ago.

And this new record, expected within days, likely won’t last long. The U.S. government forecasts that the nation’s production will climb to 11 million barrels a day by late 2019, a level that would rival Russia, the world’s top producer.

The economic and political impacts of soaring U.S. output are breathtaking, cutting the nation’s oil imports by a fifth over a decade, providing high-paying jobs in rural communities and lowering consumer prices for domestic gasoline by 37 percent from a 2008 peak.

Fears of dire energy shortages that gripped the country in the 1970s have been replaced by a presidential policy of global “energy dominance.”

U.S. energy exports now compete with Middle East oil for buyers in Asia. Daily trading volumes of U.S. oil futures contracts have more doubled in the past decade, averaging more than 1.2 billion barrels per day in 2017, according to exchange operator CME Group.

The U.S. oil price benchmark, West Texas Intermediate crude, is now watched closely worldwide by foreign customers of U.S. gasoline, diesel and crude.

Wall St higher despite weak December hiring data

Wall Street’s main indexes rose on Friday as investors looked beyond weaker-than-expected U.S. job additions in December and took support from signs of a pick-up in wage growth. 

Nonfarm payrolls increased by 148,000 jobs last month, the Labor Department said, while economists had forecast a rise of 190,000.

Stock futures pared gains briefly after the report, which was also in sharp contrast to Thursday’s data that showed private employers added a stronger-than-expected 250,000 jobs in December.

Monthly wage gains was a bright spot that pointed to labor market strength and could strengthen the chances of the Federal Reserve increasing interest rates in March.

The odds of a March rate hike stood at 67.5 percent, according to CME Group’s Fedwatch tool, nearly unchanged from before the release of the report.

Average hourly earnings rose 0.3 percent in December after gaining 0.1 percent in the prior month. That lifted the annual increase in wages to 2.5 percent from 2.4 percent in November.

US futures rise sharply as tax plan optimism boosts sentiment

Global Stock Markets

Expectations that the tax bill will be approved has boosted markets both Stateside and in other regions. Data and earnings will also be of key importance.

U.S. stock index futures are set for a strong positive open on Monday, on the back of optimism surrounding an overhaul of the U.S. tax system.

In markets overseas, stocks traded sharply higher during each of their Monday sessions. Investor sentiment was lifted on growing confidence that a U.S. tax cut plan is nearing approval.

On Friday, Republicans released their final proposal to overhaul the American tax system, which would slash corporation taxes, while trimming rates for individuals and modify tax deductions. The House and Senate GOP are looking to pass the measure this week.

Expectations that the tax bill will be approved boosted U.S. stocks on Friday, with markets closing higher, while markets overseas rallied on Monday — leading Dow Jones industrial average futures to leap more than 100 points in premarket trading in New York.

Another area that's shaking up market sentiment is the moves in bitcoin. On Sunday the world's largest futures exchange, CME, launched its own bitcoin futures contract, using the ticker "BTC."

Tax Bill, Bitcoin Futures, Hershey and Amplify - 5 Things You Must Know

Global Stock Markets

Here are five things you must know for Monday December 18th.

1. -- Wall Street looked set to open with strong gains on Monday, Dec. 18, and European shares were up sharply as global investors prepped for passage of a U.S. tax reform bill that is expected to boost corporate profits and increase share buybacks.

 

An anticipated vote on Capitol Hill this week could put the proposed $1.5 trillion tax cut on Donald Trump's desk, where he is expected to sign it. The legislation would give Trump his first major victory in Congress.

The Dow Jones Industrial Average, the S&P 500 and the Nasdaq closed at record highs on Friday, Dec. 15, as the GOP hammered out the details of the tax bill, which was released after markets closed.

2. -- Bitcoin prices began to converge slowly on Monday as the launch of a second futures contract linked to the cryptocurrency looks to have smoothed some of the gaps around global trading benchmarks as regulators set their sights on the $500 billion market.

The CME Group's debut of its 5-to-1 bitcoin futures contract, which is linked to a reference rate taken from a range of cryptocurrency exchanges, appears to have brought some level of convergence to the market, with its front-month product trading at $19,770 against a $19,670 price quoted for the similar week-old contact trading on the Cboe.

Spot bitcoin prices, which denote immediate purchases of the digital currency, were quoted at around $19,215 on the bitstamp trading platform, one of the main exchanges that feeds prices into the CME Group's calculation of its futures contract.

3. -- Hershey Co. reached a deal to acquire Amplify Snack Brands Inc.  , the maker of SkinnyPop, for $12 a share, or a total of $1.6 billion including debt.
News of the possible deal was first reported by CNBC.
The price of $12 a share values Amplify at a 71% premium to its closing price of $7 on Friday, Dec. 15.

The deal is one of the first big initiatives led by Hershey CEO Michele Buck, who took over earlier this year, CNBC noted.

4. -- In other acquisition news: Humana Inc. is reportedly in advanced talks with two private-equity firms in a deal to acquire home-care provider Kindred Healthcare Inc. The Wall Street Journal reported.  The deal would advance the trend of combining consumer health and insurance, the biggest being CVS Health Corp.'s  $69 billion acquisition of Aetna Inc.

Meanwhile, Oracle Corp.  said it would buy Australia's Aconex Ltd., a maker of cloud-based construction management software, for $1.2 billion.

5. -- "Star Wars: The Last Jedi," the blockbuster from Walt Disney Co., racked up $220 million over the weekend at the North American box office, landing the second-best opening ever and slotting it behind only its predecessor, "The Force Awakens," which was released in 2015, according to studio estimates. "The Last Jedi" sold $450 million in tickets worldwide.

Bitcoin futures trading just got a lot bigger

European Stock Markets

The red hot digital currency hit new highs over the weekend -- and it's now got the weight of the world's biggest exchange operator behind it. 

Financial market giant CME Group (CME) launched bitcoin futures trading on Sunday evening in the U.S., a week after a similar move by its smaller rival Cboe Global Markets (CBOE). 

The involvement of top financial institutions in the bitcoin market underscores its growing mainstream acceptance even as government officials, business leaders and economists continue to warn people against investing in it.  

The CME launch "adds considerable legitimacy" to bitcoin trading, said Shane Chanel, an adviser at Australian investment services firm ASR Wealth Advisers.

Bitcoin's price (XBT) hit a record high earlier Sunday before the futures trading started on CME. It climbed to within a few hundred dollars of the $20,000 mark before slipping back. By early Monday, it was trading around $19,000.

Investors were betting it will go higher. The January futures price on CME was about $19,500 Monday morning, down from an earlier high of $20,650.

Futures are contracts that let investors buy or sell something at a specific price in the future. But unlike traditional commodities such as oil or agricultural products, bitcoins aren't physical assets.

And unlike traditional currencies, there isn't a central bank that backs bitcoin. The virtual coins are created on computers using complex algorithms and recorded in a digital ledger.


Bitcoin has had an incredible year. Its price has skyrocketed more than 1,700% since the start of January, partly on the expectation that more and more mainstream investors will begin trading it.

That's prompted some high-profile figures in finance and economics to sound the alarm, cautioning that the currency's boom is simply a huge, speculative bubble.
But their warnings contrast with moves like those of CME and and Cboe to start bitcoin futures trading.

CME is home to about three times as much trading per day than Cboe. With CME's futures contracts, investors have to trade bitcoin in blocks of five, versus just one at a time with Cboe.

The two also price their bitcoin contracts in different ways. Cboe bases its price on one exchange, Gemini, whereas CME takes an average from multiple exchanges.


ASR's Chanel said that the launch of futures on CME should eventually help iron out some of the wild gyrations in the price of bitcoin.


And more big names in finance are also planning to get involved.New York's Nasdaq is expected to launch its own bitcoin futures trading sometime next year.