First Impressions

Argentina and its currency have fallen on hard times. John Lothian News is in the process of putting together a feature story on the peso’s slide and the prospects for the future but, alas, it is time to hit the “send” button on today’s newsletter. Suffice it to say there are several paths Argentina can choose, and none of them are particularly good.

Tomorrow’s newsletter will feature a close look at the past, present and future of Argentina. As an appetizer, please have a look at this story from Reuters.

Argentine peso at new lows as food price controls take effect
Reuters
Argentina’s peso slid to an all-time low on Tuesday as supermarkets froze prices in a deal with the government aimed at shielding poor families from one of the world’s highest inflation rates.
jlne.ws/1fcZ8CE

***DA: I predict that next week there will be a headline that reads “Argentine peso at new lows as supermarket shelves are emptied due to price controls.”

Quote of the Day

“Without meaningful efforts to bring inflation down, especially in terms of reducing fiscal spending, pressures on reserves will likely remain high in 2014”

From a report by consulting firm Eurasia Group, in the Reuters story “Argentine peso at new lows as food price controls take effect”

Lead Stories

Bank of China Chooses London to Sell Yuan-Denominated Bonds
Serena Ruffoni and Neelabh Chaturvedi – MoneyBeat – WSJ
China took another step towards broadening the use of its currency outside its shores Wednesday, with state-run Bank of China set to become the third Chinese lender to sell yuan-denominated bonds in London.
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***DA: The Westernization of China’s financial sector continues.

Mr. Draghi Plays Chicken With Deflation
Alen Mattich – MoneyBeat – WSJ
How close to outright deflation will the euro zone be allowed to go before the European Central Bank blinks?
jlne.ws/1fcZ8Ta

***DA: You don’t blink if your eyes are closed.

EU Puts Banking-Union Credibility on Line in Talks
Jim Brunsden – Bloomberg
The credibility of Europe’s efforts to restore confidence in its financial system hangs in the balance as lawmakers try to broker a deal on a bank-failure authority for the 18-nation euro area.
jlne.ws/Ky1qho

Deutsche Bank Said Set to Weigh Punishing Staff on Libor
Nicholas Comfort – Bloomberg
Deutsche Bank AG (DBK), Europe’s biggest investment bank by revenue, will review whether to punish senior employees including Alan Cloete for their roles in the interest-rate rigging scandal, according to a person with knowledge of the matter.
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***DA: They will be sent to bed without their supper – the one that was sent over by the trader who needed a tweak to the rate submission.

Indonesia drums up solid US demand for $4bn bond
Josh Noble in Hong Kong – FT.com
Indonesia has sold the largest US dollar bond in Asia since 1998, moving to bolster its foreign currency holdings as the Federal Reserve begins to pare back its asset purchases.
jlne.ws/1fcWTiH

***DA: The last sale of 10-yrs in Indonesia were priced at 3.5 percent. This one was 5.95 percent. It is a currency stability thing.

Central banks’ influence set to wane, despite rise in reserves
Delphine Strauss in London – FT.com
Central banks rebuilt foreign currency reserves in the third quarter of 2013 but their influence in currency markets may decline as the US Federal Reserve scales back its exceptional stimulus.
jlne.ws/1fcZ8Co

***DA: Currency Wars II: The Return of Risk

Spain to issue E242bn of debt in 2014
FT.com
Spain will issue about E242bn of debt this year as it plugs a still-hefty budget deficit and services its mounting government debt pile.
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***DA: That is a lot of debt for a country one-fifteenth the size of the U.S.

Where the WMP things are
David Keohane | FT Alphaville
From where this blogger is sitting WMPs do a pretty good job of summing up the different ways of looking at what is going in China at the moment. On the one hand you have those, like Green, who see WMPs more as “off-balance-sheet deposit rate liberalisation, with a twist of risk” which are a useful tool on the liberalisation path, and on the other hand you have the Weapons of Mass Ponzi-focused brigade.
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***DA: WMP, there it is! Seriously, though, the first rule of finance has historically been that higher yields come with higher risk. If you can’t handle the default risk, stop chasing those few extra basis points.

The economy is great and then it’s not and then it is and then…
Cardiff Garcia | FT Alphaville
This seems like a decent time to reiterate our plea that everyone focus less on headline growth numbers and more on the broad trends in the underlying components.
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***DA: No, thank you. The broad trends, as I see them, are too painful to look at.

DCM: A good time for African Eurobonds
Euromoney magazine
Fed tapering will prompt rises in yields for African hard-currency debt, but this doesn’t mean that countries with strong economic fundamentals should hold off issuing.
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***DA: Especially considering that, other stories today (Indonesia and Spain to name two), feature countries with weak fundamentals issuing lots of debt.

Eurozone sovereign convergence redux?
Joseph Cotterill | FT Alphaville
Just to put an already-huge year-end move in Portuguese bond yields into some wider context… Here’s a chart (via Reuters) of the five-year yield since August 2010 — to which levels it’s now, roughly, returned. Click to enlarge.
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***DA: In bailouts we trust.

Central Banks

Bundesbank May Gain ECB Ally as Latvian Joins Policy Team
Aaron Eglitis and Jana Randow – Bloomberg
The euro area’s newest entrant may give Bundesbank President Jens Weidmann an ally in his battle against monetary policy that he considers too risky.
jlne.ws/1fcZ99y

Council Of The European Union Recommends The Nomination Of Sabine Lautenschläger To The Executive Board Of The ECB
The Council today adopted a recommendation on the nomination of Sabine Lautenschläger to the executive board of the European Central Bank, to succeed Jörg Asmussen, who has announced his resignation.
jlne.ws/1fcZ99B

Having dissented, Fed’s Rosengren gets comfortable with QE cuts
Reuters
The lone Federal Reserve official to dissent against the U.S. central bank’s decision to cut stimulus said on Tuesday he is nonetheless comfortable with the current approach of reducing bond-buying by $10-billion increments at each policy meeting.
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***DA: Or until weakness prompts a ramp-up.

Currencies

Euro to Surpass Consensus With 6% Drop by April: Market Reversal
Neal Armstrong – Bloomberg
The euro has peaked against the dollar for now and is set to drop more than 6 percent in the first quarter alone, trading patterns suggest, as the European Central Bank’s monetary policy diverges from that of the U.S.
jlne.ws/Ky1wpm

Chinese Yuan Iron-Ore Contract Faces Hurdles
MoneyBeat – WSJ
China’s Bohai Commodity Exchange hopes to increase its influence on the pricing of iron ore with a plan to make yuan-denominated contracts available to overseas investors, but the latest effort to capitalize on the internationalization of the Chinese currency faces daunting hurdles.
jlne.ws/1fcZ99E

Forex trading shrinks sharply in dismal end to 2013
Delphine Strauss – FT.com
A slump in foreign exchange spot trading deepened at the end of 2013 despite greater clarity on US monetary policy, with investors unwilling to take fresh risks at the end of a punishing year.
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Bitcoin faces fresh hurdle as Alibaba bans its use
Simon Rabinovitch in Shanghai – FT.com
Chinese ecommerce group Alibaba is banning Bitcoin from its shopping websites, a move that further consigns the virtual currency to the margins of the world’s second-biggest economy.
jlne.ws/1fcWSvd

Bundesbank warns over ‘highly speculative’ Bitcoin
Alice Ross in Frankfurt – FT.com
The Bundesbank has become the latest big central bank to warn about the risks of Bitcoin, amid rising concerns from regulatory authorities around the world as the virtual currency grows in popularity.
jlne.ws/1fcWRal

Bundesbank May Gain ECB Ally as Latvian Joins Policy Team
Aaron Eglitis and Jana Randow – Bloomberg
The euro area’s newest entrant may give Bundesbank President Jens Weidmann an ally in his battle against monetary policy that he considers too risky.
jlne.ws/1fcZ99y

Bitcoin: 4 Steps Before Wall Street Buys In
Ty Danco – TabbFORUM
The internet-based protocol behind Bitcoin has the power to disrupt and transform the fintech industry, and the crypto-currency’s recent endorsements from well-respected investors provide a critical first step toward legitimacy.
jlne.ws/1fcWQTX

***JM: Good: more analysis. Maybe it’s just semantics, but I’d leave the name “bitcoin” off the article; I’d say, whatever an online currency/payment system is called that cleans itself up and puts on a tie, and has the backing to survive the initial startup, is more likely to win the disruption war. …IF, of course, after cleaning up for the party, a virtual system provides enough value over a currency.

Indexes & Index Products

Capita Asset Services And Clearstream Make Cross-Border Transactions More Secure And Efficient For Exchange Traded Funds
Capita Asset Services and Clearstream – the post-trade services provider of Deutsche Börse Group – have joined forces to establish a more streamlined, efficient and more secure issuance process for Exchange Traded Funds (ETFs) on the German market.
jlne.ws/1fcWT23

Gold

10 Reasons the Gold Bugs Lost Their Shirts
Barry Ritholtz – Bloomberg
This column is not an “I told-you-so” or an exercise in “Goldenfreude” (describing a “delight in gold bugs’ collective pain”). Rather, it is an attempt to learn some investing lessons from the epic rise and horrific fall of gold.
jlne.ws/Ky1OfY

Gold Mining Deals Seen Rebounding on Price Discount
Liezel Hill – Bloomberg
Investment bankers see gold-mining deals rebounding this year from a near-decade low as producers target assets at fire-sale prices after the metal plunged.
jlne.ws/Ky1ZrH

Strong Asian demand gives gold a boost
Neil Hume and Xan Rice – FT.com
Gold continued its strong start to 2014, rising to its highest level in three weeks on the back of strong physical demand for the precious metal in Asia and hedge funds unwinding short positions.
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