At the same time, these economists said, any effort by Trump to exert control over the Federal Reserve would pose a real risk of reigniting price pressures, vexation with which helped get him elected.

With two weeks to go before Trump’s inauguration, the uncertainty about what his second stint in the White House will mean for the U.S. economy was a central focus of discussion over the weekend at the American Economic Association conference in San Francisco, one of the premier annual gatherings of leading economists.

Trump will inherit an economy growing at a brisk pace of around three per cent even as inflation has come way down from its peak, with the unemployment rate at a historically low 4.2 per cent.

His economic agenda includes stiff tariffs, not just on China but on Mexico, Canada and the European Union that could lift prices of imported goods. He also aims to extend expiring tax cuts and possibly offer new tax breaks that could stoke demand just as the Fed is aiming to cool it. An immigration crackdown could dent the primary source of U.S. labor force growth, which some fear could fuel wage inflation.

Nevertheless, former Fed Chair Ben Bernanke told the gathering, “Trump policies, whatever their merits on public finance grounds, probably will be modest in terms of their effect on the inflation rate.”

Most of the expiring tax cuts were expected to be kept in place no matter which presidential candidate was elected, Bernanke and others point out, and congressional appetite for additional cuts against the backdrop of rising national debt may be limited.

Bernanke, an adviser to the second Bush administration before leading the Fed, said that while immigration curbs might push up wages, they also mean fewer people buying goods and services, which could ease price pressures.

And although the effect of tariffs “is very hard to forecast because we don’t know if the president wants to just put them on temporarily for bargaining purposes or whether he wants to keep them permanently,” said Bernanke, “barring some very unusual situation, including perhaps political risks, it doesn’t seem like that’s going to really shift the inflation path radically.”

‘Remain on track’

Some advisers to previous Democratic administrations shared Bernanke’s sanguine view.

Christina Romer, an economics professor at the University of California, Berkeley, and a former Obama administration adviser, offered a similar analysis: “In terms of the overall macro economy … you won’t see a drastic change or things that are terribly frightening.”

Still, she said, there are risks. Trump, for instance, could try to interfere with Fed Chair Jerome Powell’s attempts to bring inflation to heel.

“If there were an attack on Fed independence I think it would be very consequential,” said Romer, though the potential that doing so would undermine confidence and send financial markets into a tailspin makes the scenario unlikely in her view.

Jason Furman, a Harvard economics professor who also advised former President Barack Obama, expressed a bit more worry, noting that even if Trump gains little sway over Fed policy over the next four years, he could pave the way for a successor to use partisan nominations or other means to chip away at Fed independence.

And while he said he agreed that Trump’s policies would have a “relatively small” effect on inflation, he did make the point that even a few tenths of a percentage point on top of the current 2.4 per cent inflation rate could be enough to put Fed rate cuts on hold this year and even prompt some hikes next year if price pressures don’t abate.

Still, the current strength and momentum of the economy won’t easily be knocked off course, others noted.

Karen Dynan, a Harvard economics professor who worked in the Obama administration, told a panel at AEA that while Trump’s proposed tariffs and immigration crackdown could pose headwinds to growth or fuel inflation or both, consumer and business confidence has been strong, bolstered by the prospect of future Fed rate cuts as well as stock market gains.

Adding it all up, she said, “My own guess is there’s a good chance the economy’s going to remain on track, with this solid path forward and continued disinflation.”

The post Trump’s policies may not prove inflationary, Bernanke, others say appeared first on Canadian Cattlemen.

It is CME’s first exchange purchase in five years since it wrapped up a buying spree that put the Chicago Mercantile Exchange, the Chicago Board of Trade (CBOT) and the energy-focused New York Mercantile Exchange (NYMEX) all under its control.

The deal comes as the Chicago-based giant faces one of the biggest challenges yet to its benchmark wheat, soybean and corn contracts: ICE’s renewed efforts to build its agricultural markets business, including the launch this year of look-alike U.S. grain futures that opened a new front in the decade-long battle for commodity derivatives dominance.

So far, ICE’s copycat contracts of ICE’s electronic exchange have garnered little volume. But CME has responded swiftly to protect its lucrative grains franchise, a mainstay of global markets for decades, expanding trading hours to keep step with ICE in a move some floor traders have protested.

In Kansas City, a dozen or so traders, many clutching the electronic pads now used to execute most trades, gathered on the red and blue steps of Kansas City’s modest trading floor to watch a single lot of the exchange’s hard red winter wheat futures contract trade the old-fashioned way, with cries and hand gestures, rueing the likely closure of the pit next year.

And at the Minneapolis Grains Exchange (MGEX), which shut its futures floor four years ago, dealers speculated it was only a matter of time before ICE made a bid for the last independently-owned U.S. agricultural marketplace.

"The CME is taking an aggressive stance to firmly establish itself as the world leader in exchange-traded products, so this isn’t a surprise," said Ken Smithmier, market analyst for The Hightower Report, a Chicago-based research and advisory firm.

But one thing did surprise him: "I thought Minneapolis would be the first to be gobbled up."

CME beat out several rivals before clinching the deal, KCBT president Jeff Borchardt told reporters on a conference call.

He did not name the other bidders, but most traders believe ICE was a leading contender. In 2007, ICE lost out to CME in a bidding war for the CBOT.

The deal will be a windfall for the owners of 192 seats on the Kansas City Board of Trade, with the CME paying as much as a 47 per cent premium over their collective value, estimates Thomas Caldwell, CEO of Toronto-based Caldwell Asset Management, which owns 13 seats.

KCBT seats trade in a private market, with one membership recently fetching $480,000. CME’s $126 million purchase price values each seat at $656,000. KCBT will also pay a dividend that Caldwell estimates will be $30,000 to $50,000 each (all figures US$).

"Ripe target"

Several traders gathered in the storied KCBT wheat pit on Wednesday for the closing bell, with many laughing and alternately cursing when only one lot of a December/March spread traded in the open outcry auction while the rest of the action took place off the floor via computers.

"It was inevitable," options trader Markus Groebner said on the KCBT floor. "It is a sign of the times. That is what it is."

Many on the floor were downcast, fearing lost jobs and lost tradition.

The deal will bolster volume in both CME’s and KCBT’s wheat contracts and provide new trading opportunities, CME chairman Terrence Duffy said. Soon to be added are options on spreads between the two contracts, CME’s top commodities executive told reporters.

Kansas City’s wheat contract is for "hard red winter" wheat, a variety that is grown on twice as much U.S. farmland as Chicago’s "soft red winter" brand — but which has long lagged behind its more liquid rival in terms of volume.

Traders said CBOT’s contracts, which are a global benchmark, offer the best approximation of all the different types of wheat varieties that are grown around the world.

In September, CBOT wheat volume rose five per cent from last year to some 1.5 million contracts, while KCBT’s turnover fell more than 30 per cent to under 290,000 lots. Current open interest in CBOT wheat is 462,288 contracts, nearly three times as big as KCBT wheat’s open interest of 158,180 contracts.

The MGEX futures contract is based on a third variety, spring wheat, that is also a major North American crop — but futures trading is even less active than in Kansas City. Unlike the KCBT or CBOT, MGEX wheat is only traded electronically. Both exchanges already use CME’s trading platform.

MGEX CEO Mark Bagan declined to comment on any possible merger talks, but said his exchange will evaluate all opportunities.

An ICE spokeswoman declined to comment on whether it had been in talks with KCBT or was in talks to buy the MGEX.

"You would think that MGEX would look like a ripe target for some type of merger or acquisition, if nothing else because we are essentially a North American spring wheat contract, and the combined North American spring wheat is huge, even bigger than the U.S. hard red winter wheat crop," Austin Damiani, an analyst at Frontier Futures in Minneapolis, said, referring to combined U.S. and Canadian wheat production.

Caldwell, who owns 37 MGEX seats in addition to his KCBT seats, was dismissive of the suggestion that Minneapolis might be next, calling management there "myopic," and adding, "we’re pretty annoyed at the bunch."

CME’s purchase is expected to close later this year, subject to approval by KCBT shareholders and regulators.

As part of the deal, CME has agreed to keep the Kansas City market’s trading floor open for at least six months.

CME’s Duffy noted CME has kept its Chicago trading floor open for much longer than many observers had expected and said there were no set plans to shut the floor if it still provides value.

— Ann Saphir and Carey Gillam write for Reuters from Chicago and Kansas City respectively.

The post CME to buy rival Kansas City exchange, head off ICE appeared first on Canadian Cattlemen.

Chicago pit traders are up in arms against a CME Group plan to use electronic trading to set grain and livestock closing prices, a move they fear will drive another nail in the coffin of open-outcry dealing.

CME Group, already under fire from many traders for its delay in getting money returned to customers after the October bankruptcy of brokerage MF Global, said that next March or April it would begin incorporating deals from its electronic Globex trading platform into final prices.

For many, the change appeared an inevitable reflection of the growth in electronic trade, which now accounts for the vast majority of transactions on both the Chicago Board of Trade, the world’s biggest grain exchange, and the Chicago Mercantile Exchange, which offers contracts tied to cattle and hogs.

But to the cadre of pit brokers and dealers who thrive on the final frenetic minute of floor trading used to set the official end-of-day prices, the change was a rallying cry to defend a way of life that is nearly extinct.

"Are we going to sit here and be kicked in the teeth? Or are we going to fight back?" shouted Alan Young, a cattle broker who helped organize a raucous "Occupy the Pits" meeting of about 100 brokers and traders around the cavernous Chicago Board of Trade (CBOT), birthplace of the modern futures markets.

"There will be a snowball effect if this thing goes electronic, and there won’t be any more jobs left."

Dealers say the settlement process has helped preserve the floor, even as other open-outcry pits around the world are shuttered in favour of quicker and cheaper electronic trading. Many pit traders hung up their brightly coloured jackets after CBOT launched side-by-side electronic and open-outcry trading in 2006.

Julie Holzrichter, a managing director at the CME, told the group that with the majority of trade now being conducted electronically, it is not fair that settlements should be made only on the basis of pit trades.

"We have two venues and we have never pushed our customers one way or the other," she said. "Things are done because they are in the best interest of the exchange," she told the group.

The meeting in the cattle pit was drawing to a close as lawmakers in Springfield, Illinois gave the green light to a measure that would cut CME’s annual tax bill by US$85 million in a bid to keep the exchange operator from leaving the state and taking its 2,000 jobs with it.

The exchange said it would release details of the new rules and timelines for the roll-out early in 2012. The transition to the new rules will occur in March and April, subject to review by the U.S. Commodity Futures Trading Commission.

The CME Group’s changes will apply to CBOT corn, soybeans, soyoil, soymeal, oats, wheat and rough rice futures as well as CME live cattle, feeder cattle and lean hog futures.

"Wounded animal"

Some traders said they had been amazed that the floor-based settlement mechanism had persisted so long. With more and more volume being transacted on the "screen" rather than the "floor," the roar from the pits in the final minute of the trading day appeared increasingly anachronistic.

Most of the rest of CME’s contracts are already settled using electronic prices.

"I’m really surprised it’s taken this long to include data from electronic trade," said Sterling Smith, market analyst for Country Hedging at St. Paul, Minn. "I do think this is for the best and I do support this. Pit traders are understandably upset and like any wounded animal it fights back."

The shift toward electronic trading in agricultural contracts has gathered pace this year. In the first 11 months, total open outcry trading in commodity and alternative investment products — including New York oil and metals contracts — fell 18 per cent, while electronic trading rose nearly 38 percent, CME data shows.

In all, "pit" trade was just over a quarter of the total volume, down from almost half in 2010. But it accounts for the vast majority of trading in the last minute of the day.

— Additional reporting for Reuters by Sam Nelson and Theopolis Waters.

The post Chicago traders revolt at change in CME rules appeared first on Canadian Cattlemen.