Russian Hackers Moved Currency Rate With Malware, Group-IB Says

Bloomberg | Jake Rudnitsky & Ilya Khrennikov | February 8, 2016 — 5:42 AM EST

Hackers used malware to penetrate the defenses of a Russian regional bank and move the ruble-dollar rate more than 15 percent in minutes, according to a Moscow-based cyber-security firm hired to investigate the attack.

Russian-language hackers deployed a virus known as the Corkow Trojan to infect Kazan-based Energobank and place more than $500 million in orders at non-market rates in February 2015, Group-IB told Bloomberg, without identifying individuals behind the attack. The resulting rate swing prompted a Russian central bank investigation last year into potential market manipulation.

Malicious software of the type used in the attack can open a back door into computers via seemingly legitimate websites or files and then force them to carry out hackers’ orders. Corkow, which regularly updates itself to evade detection by anti-virus programs, has infiltrated 250,000 computers worldwide and infected more than 100 financial institutions, according to Group-IB, which investigated the attack on behalf of Energobank.

“This is the first documented attack using this virus and it has potential to do much more damage,” Dmitry Volkov, the head of Group-IB’s cyber intelligence department, said by phone. “Once the malware has penetrated a local network, it is sophisticated enough to infect computers that are even not connected to the Internet.”

The Moscow Exchange has said its systems were not hacked in the incident on Feb. 27, 2015. In a separate investigation, the central bank said it found no evidence of currency market manipulation, noting the fluctuations could have been caused by traders’ mistakes.

The volatility lasted 14 minutes and caused the exchange rate to swing between 55 and 66 rubles per dollar, which “significantly differed from the prevailing market rate,” the central bank said in a statement on Dec. 17.

The bank claimed losses of 244 million rubles ($3.2 million) due to the trades, Vedomosti newspaper reported last year, citing a suit filed by Energobank in a Kazan court. There is no evidence that the hackers profited from the operation and it may have been a test to prepare for future attacks, according to Group-IB.

Energobank, the exchange and the central bank did not respond to e-mailed queries.

The virus was also used in an attack on a Russian bank card system that resulted in hundreds of millions of rubles being stolen via ATMs in August, Group-IB said.

The Fed Wants to Stress Test Rates Less Than Zero in 2016

Bloomberg | Rich Miller | February 2, 2016 — 11:21 AM EST


As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.

In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.

"The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities," the central bank said in announcing the stress tests last week.

In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.

Three-month bill rates have slipped slightly below zero several times in recent years, including in September after the Fed delayed rate liftoff amid global financial market turmoil, touching a low of minus 0.05 percent on Oct. 2.

But in the stress test, banks would have to handle three-month bill rates entering negative territory in the second quarter of 2016, and then falling to negative 0.5 percent and holding there through the first quarter of 2019.

Not a Forecast

"This scenario does not represent a forecast of the Federal Reserve," the central bank said. It also assumes "that the adjustment to negative short-term rates proceeds with no additional financial market disruptions."

Fed officials have made clear that they are a long way from contemplating a reduction in rates below zero in their benchmark overnight policy rate. Some, though, have suggested they’d be more open to such a move than in the past should the economy deteriorate significantly.

The central bank left its target range for the federal funds rate unchanged at 0.25 percent to 0.5 percent last week after raising it in December for the first time since 2006.

U.S. policy makers decided against pushing rates below zero during the financial crisis partly because of concern it could lead to dangerous dislocations in the money markets.

European Experience

Since then, the European Central Bank and the central banks of Switzerland, Sweden and Denmark have nudged some official lending rates negative without such repercussions, and Fed officials have publicly taken note.

The Bank of Japan became the latest monetary authority push rates into negative territory last week in an effort to spur lagging growth and increase too-low inflation.

Former Fed official Roberto Perli cautioned against drawing conclusions about future Fed actions from the inclusion of negative U.S. rates in the stress test scenario.

"It doesn’t signal anything" about future monetary policy, said Perli, a partner at Cornerstone Macro LLC in Washington.

Nevertheless, it is "another sign that the Fed would not be entirely adverse" to reducing its target rate below zero should economic conditions warrant, he said.

Bill Dudley

New York Fed President William Dudley said last month that policy makers were "not thinking at all seriously of moving to negative interest rates.

"But I suppose if the economy were to unexpectedly weaken dramatically, and we decided that we needed to use a full array of monetary policy tools to provide stimulus, it’s something that we would contemplate as a potential action," he said on Jan. 15.

Fed Vice Chairman Stanley Fischer said Monday that foreign central banks that had resorted to negative interest rates to stimulate their economies had been more successful than he anticipated.

“It’s working more than I can say I expected in 2012,” he told the Council on Foreign Relations in New York. "Everybody is looking at how this works," he added.

Fed’s December hike was a major mistake, former Bank of England official says

Greg Robb | MarketWatch - JANUARY 28, 2016

IMAGE CREDITS: IMF / FLICKR.

Weak data, such as Thursday’s durable-goods-orders report, signal that the Federal Reserve made “a major macro mistake” raising interest rates in December, said Danny Blanchflower, a Dartmouth College economist.

See: Durable-goods-orders decline could mean economy shrank in fourth quarter.

In December, not only did the Fed raise rates for the first time in nine years, but they signaled there would be four more hikes this year.


Now, “there’s a 50/50 chance the next move is a cut...as with all the other rate hikes since 2009 this one will have to be reversed,” Blanchflower, who leans dovish, said in an interview.

Traders who bet on rate hikes using fed funds futures contracts are now wagering that the Fed will next hike rates in September, according to CME FedWatch.

“The Fed has seriously lost credibility. No one believes them,” Blanchflower added.

The Fed’s ‘classic” mistake has been to underestimate the negative spillovers from the slowing of China, the worlds number-two economy, he said.

The Dartmouth economist, who was a former member of the Bank of England’s monetary policy committee, said the situation reminded him of 2008 when the U.K. thought it could avoid the subprime housing slowdown in the U.S. economy.

Blanchflower cited new figures in a Bloomberg article pointing to a steep slowdown in global trade.

In addition, the U.S. central bank doesn’t yet grasp that the decline in oil prices is not a positive supply shock but a signal of weak global demand, he said.

In its dovish policy statement released Wednesday, the Fed took out any reference to the balance of risks facing the economy, after saying in December that the risks were balanced.

“That’s a big admission of a mistake,” Blanchflower said.

See: The Fed says sorry for its rate-hike forecast

In its statement, the Fed said it “is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”

Economic indicators are now pointing in the direction of a recession, Blanchflower said.

Fed Back-Pedals Hawkishness, Hints At Policy Error: "Monitoring Global Developments", Admits "Growth Slowed Last Year"

Zero Hedge | by Tyler Durden on 01/27/2016 14:01

Surging bonds and bullion and slumping stocks was not what Janet had in mind so she had some 'splaining to do. Hopes for a "passive hawkish" note appear to be met as confirmation of dismal data dependence offers just enough dovishness for the stock bulls and just enough hawkishness for economy bulls.
*FED REPEATS ECONOMY EXPECTED TO WARRANT ONLY GRADUAL RATE RISES
*FED ASSESSING GLOBAL DEVELOPMENTS FOR ITS BALANCE-OF-RISK VIEW
*FED CLOSELY MONITORING GLOBAL ECONOMIC, FINANCIAL DEVELOPMENTS

Treading a fine line between losing all credibility and exposing their total devotion to the stock market, it appears The Fed is maintaining its delusion that everything will be fine as they unwind the largest and most experimental monetary policy of all time, and yet for the first time we get proof that the Fed admits it made an error by hiking into a slowing economy: "labor market conditions improved further even as economic growth slowed late last year.

Pre-Fed: S&P Futs 1901.75, 10Y 2.04%, Gold $1115, WTI $31.95, EUR1.0875

Before the statement hit, rate odds this year were as follows:





Since the last meeting - and the historic rate hike - things have not panned out for The Fed...





Nanex explains the liquidity situation right before the statement:





Further headlines:
FOMC: REMOVES 'REASONABLY CONFIDENT' RE 2% MED-TERM INFL
*FED: MKT-BASED INFLATION COMPENSATION MEASURES DECLINED FURTHER
*FED: SURVEY-BASED INFLATION EXPECTATION MEASURES LITTLE CHANGED

Except that is a total lie..




*FED SAYS INVENTORY INVESTMENT HAS SLOWED

Here's why!!



* * *

Full Redline Statement below:



There was some verbal "normalization" in the statement, which at 558 words had the fewest words since the July statement:



* * *

Even Steve Liesman knows it's over...





... Bringing us to the many faces of Yellen: