Week InReview

Friday | Nov 17, 2023

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Oil tanks.

Oil plummeted to the lowest since July as trend-following trades accelerated losses that were kicked off by swelling inventories and the failure of key technical support levels. Algorithms were partly behind the move along with several selling programs, causing a vicious cycle.

Relationship. Managed. US President Joe Biden said the world expects the US and China to better manage their competition, making the case for sustained US involvement in the Asia-Pacific region, a day after his high-profile meeting with Chinese leader Xi Jinping.

Spinoff. Scrapped. An escalating fight between the US and China for technological dominance has triggered one of the most stunning reversals of corporate strategy yet: On Thursday, Alibaba Group Holding Ltd. walked back plans to spin off and list its $11 billion cloud business.

let's recap...

Federal Reserve Vice Chair for Supervision Michael Barr expresses concern about hedge funds’ basis trades. Source: Bloomberg

Fed's Barr joins chorus warning on hedge funds' basis trades

The Federal Reserve’s top banking regulator on Thursday joined a chorus of US officials expressing concern about highly leveraged trading by hedge funds in the Treasury market. Michael Barr, the Fed’s vice chair for supervision, said the government needed more information about these trades. In the past several months, regulators have been homing in on risks that could stem from one strategy known as the basis trade, which involves the use of leverage to profit from the price gap between Treasury futures and the underlying cash market. (Bloomberg Markets | Nov 16)

Big banks saddled with steep tab for SVB, Signature depositors

The US government overrode industry objections and approved a plan to saddle the biggest banks with much of the tab for refilling the nation’s bedrock deposit insurance fund. The Federal Deposit Insurance Corp. greenlit the key parts of a proposal the regulator made in May to replenish the fund. It typically only covers as much as $250,000 in an account but was used to make whole uninsured depositors who were hit by banking turmoil this year. (Bloomberg Industries - Finance | Nov 16)

As inflation cools, traders see Fed pivoting to rate cuts in May

Cooling inflation will allow the Federal Reserve to forgo any more interest rate hikes and indeed to start cutting rates by May, traders bet on Tuesday, after a US government report showed consumer prices for October were unchanged compared with the prior month. The report, which showed the consumer price index rose just 3.2% from a year earlier, after rising 3.7% in September, "looked pretty good," Chicago Federal Reserve Bank President Austan Goolsbee said at the Detroit Economic Club. (Reuters | Nov 15)

Asset managers warn of more failed trades as US market speeds up

Global investment houses are bracing for more failed trades as a result of plans to halve the time it takes to settle American stock transactions to just one day. Around 60% of asset managers fear a higher rate of settlement failures will be the consequence of regulations coming into force in May that will speed up the time it takes to complete a US security trade. That’s according to SIX Group’s Future of Finance report, which polled 343 C-Suite executives at financial institutions from around the world. (Bloomberg Markets | Nov 14)

The clearest sign yet that commercial real estate is in trouble

Foreclosures are surging in an opaque and risky corner of commercial real estate finance, offering one of the starkest signs yet that turmoil in the property market is worsening. Lenders this year have issued a record number of foreclosure notices for high-risk property loans, according to a Wall Street Journal analysis. Many of these loans are similar to second mortgages and commonly known as mezzanine loans. (The Wall Street Journal | Nov 13)

FSB Plenary meets in Basel

(Nov 14) — The Financial Stability Board Plenary met on Monday and Tuesday in Basel, Switzerland to discuss the outlook for global financial stability, preliminary lessons from the recent banking-sector turmoil, and issues of particular relevance to emerging market and developing economies (EMDEs). Members also established the FSB’s work program for 2024, including deliverables to Brazil’s G20 Presidency. The finalized work program will be published in early 2024.

The FSB will continue to work on the lessons from the March turmoil and to monitor macro-financial vulnerabilities in a higher interest rate environment. The priorities for the FSB’s work include:

  • enhancing the resilience of the non-bank financial intermediation (NBFI) sector
  • advancing work on the global regulatory and supervisory framework for crypto-asset markets and activities
  • addressing financial risks from climate change
  • enhancing cross-border payments
  • strengthening cyber and operational resilience
  • financial innovation

Read more.

a little bit of cyber

An exterior view of MGM Grand hotel and casino, after MGM Resorts shut down some computer systems due to a cyber attack in Las Vegas, Nevada, US, September 13, 2023. Photo: Bridget Bennett | Reuters

FBI warns on Scattered Spider hackers, urges victims to come forward

The FBI warned organizations to guard against the Scattered Spider hacking group, which has breached dozens of American organizations over the past year, stealing their sensitive data for extortion. The FBI alert follows a Reuters report this week that said the agency had struggled to stop these hackers who are known to be skilled at using fake profiles and impersonations to trick a victim organization's help desk into giving them access.

— Reuters

Cyber experts worry AI could create a world of haves and have-nots

Cybersecurity experts said that the growing sophistication of artificial intelligence systems could create a new poverty line for cyber, where companies that can afford to research and develop the technology end up better protected against hackers than those that cannot. Security chiefs and vendors say AI systems, and in particular generative AI, may offer significant benefits for defending against hacks. Yet, experts worry that the promise of AI won’t be available for everyone, especially those without deep pockets.

— The Wall Street Journal

Cyber attack shines light on role of China’s largest lender in US Treasury market

As they patch up their bond trading operations following the hack of the Industrial and Commercial Bank of China, brokers are also piecing together how China’s largest lender became such a significant player in US Treasuries that the attack on its systems could disrupt the $26 trillion market.

— Financial Times

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binge reading disorder

Kelsi Foutz was a bank examiner at the FDIC until last year. The federal agency’s hotel, left, where employees stay during training, has been a party hub. Photo illustration: Allison Pasek | WSJ. Photos: Haiyun Jiang & Lindsay D'Addato | WSJ

Strip clubs, lewd photos and a boozy hotel: The toxic atmosphere at bank regulator FDIC

A male Federal Deposit Insurance Corp. supervisor in San Francisco invited employees to a strip club. A supervisor in Denver had sex with his employee, told other employees about it, and pressed her to drink whiskey during work. Senior bank examiners texted female employees photos of their penises. All of the men remained employed at the agency. see also FDIC chair, known for temper, ignored bad behavior in the workplace

— The Wall Street Journal

The 4% rule for retirement is back

Thanks to higher interest rates and bond yields, it is likely safe for new retirees to spend 4% of their nest eggs in their first year of retirement and then adjust that amount for inflation in subsequent years, according to a new analysis from Morningstar released Monday.

— The Wall Street Journal

Whatever happened to NFTs?

When Homer Simpson comes up with a get-rich-quick scheme it usually ends badly. In the latest episode of The Simpsons the hapless dad turns his son Bart, and then himself, into NFTs to make millions. It all goes wrong when Homer finds out from a floating pizza cat that “the NFT craze is over”. The episode has been widely applauded by NFT fans and skeptics alike for successfully poking fun at a side of the crypto world that exploded a couple of years ago but has now gone very quiet.


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