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    Hedge funds make billions as India’s options market goes ballistic

    Hedge funds take great pains to hide their inner workings. So a recent court case in which Jane Street sued two former employees and Millennium Management, another fund to which they had jumped ship, was immensely pleasing to the firm’s rivals, since it offered a rare view into one of the industry’s giants. Among the revelations: Jane Street’s “most profitable strategy” did not play out on Wall Street, but in the unglamorous Indian options business, where the firm last year earned $1bn.This news has drawn attention to India’s options market, which is staggeringly large. According to the Futures Industry Association (FIA), a trade body, the country accounted for 84% of all equity option contracts traded globally last year, up from 15% a decade ago. The volume of contracts last year touched 85bn and has more than doubled every year since 2020 (see chart). Most of the frenzy is focused on the National Stock Exchange (NSE), which handles more than 93% of the transactions. More

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    Russia’s gas business will never recover from the war in Ukraine

    When Russia’s leaders stopped most of the country’s gas deliveries to the EU in 2022, they thought themselves smart. Prices instantly shot up, enabling Russia to earn more despite lower export volumes. Meanwhile, Europe, which bought 40% of its gas from Russia in 2021, braced itself for inflation and blackouts. Yet two years later, owing to mild winters and enormous imports of liquefied natural gas (LNG) from America, Europe’s gas tanks are fuller than ever. And Gazprom, Russia’s state-owned gas giant, is unable to make any profits.Russia was always going to struggle to redirect the 180bn cubic metres (bcm) of gas, worth 80% of its total exports of the fuel in 2021, that it once sold to Europe. The country has no equivalent to Nord Stream, a conduit to Germany, that allows it to pipe gas to customers elsewhere. It also lacks plants to chill fuel to -160°C and the specialised tankers required to ship LNG. Until recently, this was only a minor annoyance. Between 2018 and 2023 just 20% of the total contribution of hydrocarbon exports to the Russian budget came from gas, and despite sanctions Russia continues to sell lots of oil at a good price. More

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    Fed keeps rates steady as it notes ‘lack of further progress’ on inflation

    The Federal Reserve held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
    The federal funds rate has been between 5.25%-5.50% since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.
    “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed’s statement said.

    WASHINGTON – The Federal Reserve on Wednesday held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
    In a widely expected move, the U.S. central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%. The federal funds rate has been at that level since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.

    The rate-setting Federal Open Market Committee did vote to ease the pace at which it is reducing bond holdings on the central bank’s mammoth balance sheet, in what could be viewed as an incremental loosening of monetary policy.
    With its decision to hold the line on rates, the committee in its post-meeting statement noted a “lack of further progress” in getting inflation back down to its 2% target.
    “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said, reiterating language it had used after the January and March meetings.
    The statement also altered its characterization of its progress toward its dual mandate of stable prices and full employment. The new language hedges a bit, saying the risks of achieving both “have moved toward better balance over the past year.” Previous statements said the risks “are moving into better balance.”
    Beyond that, the statement was little changed, with economic growth characterized as moving at “a solid pace,” amid “strong” job gains and “low” unemployment.

    Chair Jerome Powell during the news conference following the decision expanded on the idea that prices are still rising too quickly.
    “Inflation is still too high,” he said. “Further progress in bringing it down is not assured and the path forward is uncertain.”
    However, investors were pleased by Powell’s comment that Fed’s next move was “unlikely” to be a rate hike. The Dow Jones Industrial Average jumped after the remarks, and rose as much as 500 points. He also stressed the need for the committee to make its decisions “meeting by meeting.”
    On the balance sheet, the committee said that beginning in June it will slow the pace at which it is allowing maturing bond proceeds to roll off without reinvesting them.

    ‘Quantitative tightening’

    In a program begun in June 2022 and nicknamed “quantitative tightening,” the Fed had been allowing up to $95 billion a month in proceeds from maturing Treasurys and mortgage-backed securities to roll off each month. The process has resulted in the central bank balance sheet to come down to about $7.4 trillion, or $1.5 trillion less than its peak around mid-2022.
    Under the new plan, the Fed will reduce the monthly cap on Treasurys to $25 billion from $60 billion. That would put the annual reduction in holdings at $300 billion, compared with $720 billion from when the program began in June 2022. The potential mortgage roll-off would be unchanged at $25 billion a month, a level that has only been hit on rare occasions.
    QT was one way the Fed used to tighten conditions after inflation surged, as it backed away from its role of assuring the flow of liquidity through the financial system by buying and holding large amounts of Treasury and agency debt. The reduction of the balance sheet roll-off, then, can be seen as a slight easing measure.
    The funds rate sets what banks charge each other for overnight lending but feeds into many other consumer debt products. The Fed uses interest rates to control the flow of money, with the intent that higher rates will dampen demand and thus help reduce prices.
    However, consumers have continued to spend, running up credit indebtedness and decreasing savings levels as stubbornly high prices eat away at household finances. Powell has repeatedly cited the pernicious effects of inflation, particularly for those at the lower-income levels.

    Prices off peak levels

    Though price increases are well off their peak in mid-2022, most data so far in 2024 has shown that inflation is holding well above the Fed’s 2% annual target. The central bank’s main gauge shows inflation running at a 2.7% annual rate – 2.8% when excluding food and energy in the critical core measure that the Fed especially focuses on as a signal for longer-term trends.
    At the same time, gross domestic product grew at a less-than-expected 1.6% annualized pace in the first quarter, raising concerns over the potential for stagflation with high inflation and slow growth.
    Most recently, the Labor Department’s employment cost index this week posted its biggest quarterly increase in a year, sending another jolt to financial markets.
    Consequently, traders have had to reprice their expectations for rates in a dramatic fashion. Where the year started with markets pricing in at least six interest rate cuts that were supposed to have started in March, the outlook now is for just one, and likely not coming until near the end of the year.
    Fed officials have shown near unanimity in their calls for patience on easing monetary policy as they look for confirmation that inflation is heading comfortably back to target. One or two officials even have mentioned the possibility of a rate increase should the data not cooperate. Atlanta Fed President Raphael Bostic was the first to specifically say he only expects one rate cut this year, likely in the fourth quarter.
    In March, FOMC members penciled in three rate cuts this year, assuming quarter percentage point intervals, and won’t get a chance to update that call until the June 11-12 meeting. 
    Correction: The Federal Reserve kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%. An earlier version misstated the range. The Fed’s next meeting is June 11-12. An earlier version misstated the date.

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    Here’s what changed in the new Fed statement

    U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, D.C., on March 20, 2024.
    Elizabeth Frantz | Reuters

    This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in March.
    Text removed from the March statement is in red with a horizontal line through the middle.

    Text appearing for the first time in the new statement is in red and underlined.
    Black text appears in both statements.

    Arrows pointing outwards More

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    Working from home and the US-Europe divide

    When it comes to economic growth, America comfortably beats Europe. Many factors have fed America’s outperformance, from tech innovation to vast oil reserves. But there is one explanation that seems almost too simplistic: that “Americans just work harder”, as the head of Norway’s oil fund put it in an interview with the Financial Times on April 24th.The numbers do in fact bear out this assertion—a rare case of national stereotypes being empirically provable. On average Americans work 1,811 hours per year, according to data from the OECD, a club of mostly rich countries. That is 15% more than in the EU, where the average is 1,571 hours. And it is not just that Europeans spend a few extra weeks on the beach. The typical working day in Britain, France and Germany is half an hour shorter than in America, according to the International Labour Organisation. More

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    Why hundreds of U.S. banks may be at risk of failure

    Hundreds of small and regional banks across the U.S. are feeling stressed.”You could see some banks either fail or at least, you know, dip below their minimum capital requirements,” Christopher Wolfe, managing director and head of North American banks at Fitch Ratings, told CNBC.
    Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates.

    The majority of those banks are smaller lenders with less than $10 billion in assets.
    “Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed,” Brian Graham, co-founder and partner at Klaros Group, told CNBC. “That means there’ll be fewer bank failures. But it doesn’t mean that communities and customers don’t get hurt by that stress.”
    Graham noted that communities would likely be affected in ways that are more subtle than closures or failures, but by the banks choosing not to invest in such things as new branches, technological innovations or new staff.
    For individuals, the consequences of small bank failures are more indirect.
    “Directly, it’s no consequence if they’re below the insured deposit limits, which are quite high now [at] $250,000,” Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corp., told CNBC.

    If a failing bank is insured by the FDIC, all depositors will be paid “up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.”
    Watch the video to learn more about the risk of commercial real estate, the role of interest rates on unrealized losses and what it may take to relieve stress on banks — from regulation to mergers and acquisitions. More

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    NYCB shares jump after new CEO gives two-year plan for ‘clear path to profitability’

    New York Community Bank on Wednesday posted a quarterly loss of $335 million on a rising tide of soured commercial loans and higher expenses, but the lender’s stock surged on its new performance targets.
    The first-quarter loss, equal to 45 cents per share, compared to net income of $2.0 billion, or $2.87 per share a year earlier.
    When adjusted for charges included merger-related items, the loss was $182 million, or 25 cents per share, deeper than the 15 cents per share loss estimate from LSEG.

    A New York Community Bank stands in Brooklyn, New York City, on Feb. 8, 2024.
    Spencer Platt | Getty Images

    New York Community Bank on Wednesday posted a quarterly loss of $335 million on a rising tide of soured commercial loans and higher expenses, but the lender’s stock surged on its new performance targets.
    The first-quarter loss, equal to 45 cents per share, compared to net income of $2.0 billion, or $2.87 per share a year earlier. When adjusted for charges included merger-related items, the loss was $182 million, or 25 cents per share, deeper than the 15 cents per share loss estimate from LSEG.

    “Since taking on the CEO role, my focus has been on transforming New York Community Bank into a high-performing, well-diversified regional bank,” CEO Joseph Otting said in the release. “While this year will be a transitional year for the company, we have a clear path to profitability over the following two years.”
    The bank will have higher profitability and capital levels by the end of 2026, Otting said. That includes a return on average earning assets of 1% and a targeted common equity tier 1 capital level of 11% to 12%.
    Otting took over at the beleaguered regional bank at the start of April after an investor group led by former Treasury Secretary Steven Mnuchin injected more than $1 billion into the lender. NYCB’s troubles began in late January with a disastrous fourth-quarter earnings report when it shocked analysts with its level of loan loss provisions. The bank’s stock plunged amid multiple management changes and rating agency downgrades.
    Shares of the bank jumped 20% in premarket trading.
    NYCB has “identified an opportunity” to sell $5 billion in assets to boost the company’s liquidity levels, Otting told analysts during a conference call. That transaction could close within 60 to 70 days and may be announced soon, he added.
    This story is developing. Please check back for updates. More

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    Bitcoin nosedives below $57,000 to two-month low ahead of U.S. Fed decision

    Bitcoin dropped as low as $56,757.93, falling below $57,000 for the first time since Feb. 28, according to data from CoinGecko.
    Rival cryptocurrencies ether, solana, and XRP fell 4.5%, 5.9%, and 1.4%, respectively.
    Geoff Kendrick, Standard Chartered’s head of digital asset research, said bitcoin’s drop below $60,000 “has now re-opened a route to the 50-52k range.”

    The logo of the cryptocurrency Bitcoin (BTC) can be seen on a coin standing in front of a Bitcoin chart.
    Silas Stein | Picture Alliance | Getty Images

    Bitcoin on Wednesday plunged sharply to its lowest level in over two months amid broader risk-off sentiment in markets, as investors kept an eye on the U.S. Federal Reserve’s upcoming interest rate decision.
    The world’s top digital currency by market value dropped as low as $56,757.93, falling below $57,000 for the first time since Feb. 28, according to data from CoinGecko.

    Bitcoin was last down 6.3% Wednesday to a price of $57,505.24.
    Rival cryptocurrencies ether, solana, and XRP fell 4.5%, 5.9%, and 1.4%, respectively.
    Crypto market participants are eyeing the upcoming interest rate decision from the U.S. Federal Reserve. The Federal Open Market Committee is due to meet on Wednesday afternoon to discuss its latest policy on interest rates.
    Markets have become more shaky lately, as investors fret over the prospect of a longer path toward interest rate cuts. Investors are looking for clues from Fed Chair Jerome Powell on what needs to happen before rates can come down. 
    Bitcoin has been known to trade more akin to traditional risk assets, such as stocks. Its backers have described it as a hedge against rising inflation — but the token’s track record here has been mixed.

    Geoff Kendrick, Standard Chartered’s head of digital asset research, said in a note out on Wednesday that bitcoin’s drop below $60,000 “has now re-opened a route to the 50-52k range.”
    “The driver seems to be a combination of crypto specific and broader macro,” Kendrick said.
    He noted the primary factors impacting the token were five days of consecutive outflows from the U.S. spot bitcoin exchange-traded funds, as well as a deterioration in the macro backdrop and worsening market liquidity.
    Kendrick added that the reaction to the launch of spot bitcoin ETFs in Hong Kong earlier this week was “poor,” focusing on small first-day turnover volume from the ETFs in the millions of dollars, despite the net asset positions of the ETFs being solid.
    “Of course liquidity matters when it matters, but with a backdrop of strong US inflation data and less likelihood of Fed rate cuts it matters at the moment,” Kendrick said in the note.
    The downward price action in crypto markets also comes a day after the former CEO of Binance, Changpeng Zhao, was sentenced to four months in prison over money laundering charges. More