First Impressions

ECB Did Not Blink

The European Central Bank left key interest rates unchanged at today’s meeting, despite widespread concern the eurozone has been flirting with deflation over recent months. “Not to worry,” says ECB President Mario Draghi. He says the eurozone is an “island of stability” and that the news since their last meeting has been “by and large on the positive side.”

Of course, the central bank reiterated the boilerplate declarations of its commitment to a high degree of monetary accommodation and its readiness to act swiftly and decisively if required. He said the bank expects a period of low inflation to be followed by inflation rates closer to 2 percent (up from the current 0.4 percent).

To read a summary of Draghi’s comments, including his views on the developing situation in Ukraine, click the link below.
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Quote of the Day

Annual HICP (EU harmonised) inflation rates are expected to remain at around current levels in the coming months. Thereafter, inflation rates should gradually increase and reach levels closer to 2 percent.

ECB President Mario Draghi at a post-meeting press conference, quoted in the Reuters story “No Policy Shift from ECB Despite Low Inflation.

Lead Stories

No policy shift from ECB despite low inflation
Reuters
The European Central Bank left interest rates on hold and unveiled no other measures to bolster a fragile euro zone recovery on Thursday despite forecasting low inflation for years to come.
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Central Bankers Reach For Atlas as Ukraine Fallout Gauged
Simon Kennedy – Bloomberg
Central bankers are delving into their atlases again. After global monetary policy was shaped in recent years by debt turmoil in southern Europe and an earthquake in northern Japan, the focus is falling on Ukraine, which accounts for just 0.4 percent of the world economy.
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***DA: Is that it? No, that’s Turkey. How about that one? No, that is Kazakhstan. Look. Here is the Black Sea – sitting on top of it is Ukraine. And it’s “Ukraine,” not “the Ukraine.”

China’s 7.5 percent GDP growth target is flexible: finance minister
Reuters
It is all right for China to slightly miss the government’s 7.5 percent economic growth target this year as long as enough jobs are created, the finance minister said on Thursday, stressing that a healthy labor market is more important.
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***DA: In order for adequate job creation, though, there better be GDP growth somewhere. Will the US, EU and emerging markets be importing enough to cover it?

China Targets Spur Speculation of More Credit Loosening
Bloomberg
China’s leaders spurred speculation they will allow the country’s $21 trillion debt mountain to inflate after refraining from cutting their annual economic-growth target.
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Japan’s GPIF pension fund needn’t cling to JGBs, govt panel says
Reuters
Japan’s $1.26-trillion public pension fund need not cling to the safety and paltry yields of government bonds, advisers to the fund said on Thursday, in another sign that it will shift more money into stocks and other risky assets.
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***DA: With its rapidly aging population and zero interest rates, that $1.26 trillion fund could be stretched thin soon. Japan needs a miracle.

Buffett Cuts Bond Allocation as Berkshire Warns on Yields
Zachary Tracer and Noah Buhayar – Bloomberg
Warren Buffett cut the allocation to bonds at Berkshire Hathaway Inc. (BRK/A)’s insurance units to the lowest in more than a decade as the company warns that low yields will hurt results.
Fixed-income assets made up 14 percent of investments at the insurers as of Dec. 31, according to the company’s annual report. The year-end figure has typically been 20 percent to 25 percent since 2002, according to Berkshire documents. The $186.8 billion portfolio included $114.8 billion of stocks.
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Scottish ‘Yes’ vote could force banks south
Martin Arnold, Banking Editor – FT.com
Royal Bank of Scotland and Lloyds Banking Group may have little choice about where they are registered if Scotland becomes independent thanks to a two decades-old European Union law that would force them to move from Edinburgh to London.
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***DA: Can they still be called the Royal Bank of Scotland if they are not based in Scotland?

Central Banks

Fed chair vows to ‘do all that I can’ to boost weak U.S. economy
Reuters
Federal Reserve Chair Janet Yellen vowed on Wednesday to “do all that I can” to boost a U.S. economy where unemployment is too high and inflation is too low.
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***In the article, Dallas Fed chief Fisher views Yellen’s “all I can do” as “more than we should.”

Fisher warns Fed’s bond buying could be distorting U.S. financial markets
Reuters
A U.S. Federal Reserve policymaker who has long criticized its bond-buying stimulus said on Wednesday the program has lasted too long, and there are signs it is now distorting financial markets and encouraging risk-taking.
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The BOE and FX: What’s in the Minutes?
MoneyBeat – WSJ
The Bank of England has found itself at the center of the long-running global investigation into currencies-trading Wednesday, and dusting off some newly-released minutes of meetings of FX industry movers and shakers held under its auspices make for interesting reading. They show the way traders behave around benchmark ‘fixes’, among other trading practices now under investigation, is a topic that has come up in the presence of central bank officials again and again.
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***DA: A flurry of activity around the time of the daily fix is not in and of itself incriminating. Many participants like to be filled at or near the settlement. But it is also an easy place to fly under the radar if one is engaging in bad behavior.

Brazil Signals Further Tightening on Persistent Inflation
Matthew Malinowski and Raymond Colitt – Bloomberg
Brazil’s central bank signaled today it will continue tightening monetary policy as above-target inflation remains persistent. Swap rates rose.
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Chair Janet L. Yellen At The Federal Reserve Board, Washington, D.C, March 5, 2014 – Remarks At The Ceremonial Swearing-In
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Currencies

Deutsche, UBS top forex banks by market share in 2013 -Greenwich survey
Reuters
Deutsche Bank, UBS, Citigroup, and Barclays continued their dominance of the global foreign exchange market in 2013, garnering 46.7 percent of top-tier customer trading volume, financial services research firm Greenwich Associates said on Wednesday.
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Asia’s currency rollercoaster creates winners and losers
Josh Noble in Hong Kong – FT.com
Central bank policies in the US and Japan have buffeted Asian currencies in the past 12 months, sending the Indian rupee down 15 per cent, the yen 10 per cent lower and wiping a fifth off the value of the Indonesian rupiah. But they have also created some unlikely winners and losers, from Mickey Mouse to pickled cabbage.
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***DA: Taking the family to Disney World in a few weeks. I hope they don’t try to serve me pickled cabbage.

Forex scandal puts London’s reputation on the line
Daniel Schäfer and Sam Fleming – FT.com
The possible involvement of Britain’s central bank in a global scandal over alleged foreign exchange rate manipulation risks tarnishing London’s international reputation again, undermining City attempts to fight tighter European regulation.
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Goldman Reversal Mirrors Rupee’s Trade Improvement: Currencies
Shikhar Balwani – Bloomberg
Firms from Goldman Sachs Group Inc. to Deutsche Bank AG are putting their faith in India’s rupee as the country looks forward to the biggest improvement in its broadest measure of trade in a decade.
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Online sleuthing by Mt. Gox dispossessed throws up few clues
Reuters
Some of those who have lost bitcoins in the collapse of Mt. Gox have turned to internet sleuthing to find out where their money has gone – but they’re unlikely to have much luck.
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Bitcoin Exchange Mt. Gox Asked by Japan’s Mizuho Bank to Close Account
MoneyBeat – WSJ
A recording of a conversation between Mark Karpeles, the head of bitcoin exchange Mt. Gox, and an official from Japan’s Mizuho Bank in late January indicates that the bank was stepping up a push to disassociate itself from Mt. Gox.
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***DA: Don’t think they got away in time.

Singapore police probe death of virtual currency exchange chief
Jeremy Grant in Singapore – FT.com
Singapore police are investigating the “unnatural” death of Autumn Radtke, a US citizen who was chief executive of one of a growing number of virtual currency exchanges based in the Asian city state.
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***DA: Sounds fishy to me.

Indexes & Index Products

Smart Beta ETFs Beating S&P 500 Index Capture Record Cash
Alexis Xydias – Bloomberg
Index funds became popular over the last four decades because they’re simple, conservative and low cost. A different kind of exchange-traded fund is drawing record cash by promoting better returns with the same stocks.
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Round-the-Clock Ukraine Twists Spur Russia ETF Trading
Lyubov Pronina and Maria Levitov – Bloomberg
Overseas trading of Russian stocks is soaring as investors react to the twists and turns of the military standoff in Ukraine long after the Moscow bourse has closed for the day.
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Money Pours Into Health-Care ETFs Spurred by New Drugs
Drew Armstrong and Lu Wang – Bloomberg
Money is flooding into exchange-traded funds focused on health care at the fastest rate in at least six years, driven by booming biotechnology and pharmaceutical sectors bringing new products to market.
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Euronext Launches PEA PME Family Of Indices
New CAC PME Index – More Indices To Be Added In 2014
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Gold

Gold is now the latest bank price-fixing scandal
Mark DeCambre – Quartz
As if there weren’t enough reasons to cast a jaundiced eye on the banking system, Bloomberg reports that several international banks are now accused of manipulating a key benchmark, known as the gold fix, in the $20 trillion gold market. The charges of fixing gold prices in London are being leveled at Barclays, Deutsche Bank, ScotiaMocatta (the metals-trading division of Canada’s Scotiabank), Société Générale, and HSBC by New York resident Kevin Maher, who filed a lawsuit against the banks in a US federal court yesterday evening (Mar. 4).
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Gold Rebounds, But For How Long?
Alen Mattich – The Wall Street Journal
For all the recent gyrations in other asset classes, gold has been on a steady upward course since the turn of the year. Is the precious metal finally reversing the relentless collapse of the past couple of years, or is this another false dawn?
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Turkey’s gold imports plummet by 93 percent in February
Hurriyet Daily News
A drop in Iran-sourced demand and a rise in gold prices caused Turkey to slash its gold imports by 93 percent last month compared to February of the previous year.
The amount of imported gold was 1.27 tons in February, marking a fall of 93 percent from the same month last year and 79 percent from January, according to Borsa Istanbul data.
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India Current-Account Gap Narrows to Four-Year Low on Gold
Kartikay Mehrotra – Bloomberg
India’s current-account deficit narrowed to a fresh four-year low as gold imports cooled, offering a potential boost for the rupee even as economists said the gap may widen again if the economy improves.
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