First Impressions

Global Currencies Forecast: 2014
by Dean Popplewell, Director of Currency Analysis and Research, OANDA

More than five years after the onset of the Great Recession, consistent global growth remains elusive, prompting central banks to stick with artificially low interest rates while pumping an unprecedented infusion of cash into the financial system.

As they search for new ways to stimulate liquidity to augment the stimulus measures they’ve enacted, central bank policymakers must also fight deflation, and as expected, these are the themes that will continue to dominate the European Central Bank’s (ECB) train of thought as it has at the Bank of Japan (BoJ). Many foreign exchange (forex) participants and analysts are anticipating fiscal policy to be less of an impediment to U.S. growth in 2014. If so, it should allow the Federal Reserve to carefully navigate away from making asset purchases and reduce its massive $85-billion-a-month bond-buying program.

In 2013, the forex asset class managed to loiter within a contrived trading range policed by various central bank policies that, at times, led to a drop in both currency volume and volatility for painfully long stretches. The post-Lehman Brothers storm has now been replaced by a calmer period that continues to lack a badly-needed injection of global corporate investment to help spur growth (think Japanese Prime Minister Shinzo Abe’s third arrow problems, high unemployment in the Eurozone, and tentative U.S. growth).

To read the rest of Dean’s 2014 outlook, including his views on Fed tapering, China growth, Eurozone woes, and whether the gold slide will continue, click HERE. http://jlne.ws/1c1mbMV

Quote of the Day

“Like Roosevelt, he was the calming influence, the grown-up in the room, during the darkest days of the economic turmoil.”

Mark Gertler, New York University economics professor, in the WSJ article “Bernanke: Successes, Yet Frustrations”

Lead Stories

Why Abenomics will disappoint
Martin Wolf – FT.com
The predominant concern of Shinzo Abe, Japan’s prime minister, is with the decline of his country’s economy relative to China’s. This explains “Abenomics”, which is aimed at economic revitalisation. Can it succeed? The answer is: yes – but only in part. It should be possible to end deflation. But a big upsurge in economic growth is unlikely.
jlne.ws/1fmsRF0

**JK: Interesting take on Japan’s moves.

BOE Warns Further Sterling Gains Could Threaten Recovery
WSJ.com
The Bank of England’s Monetary Policy Committee Wednesday said any further “substantial” appreciation of sterling could slow the U.K.’s economic recovery, as a surprise decline in the unemployment rate pushed the currency higher.
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**JK: A Greenspan-esque word if I ever saw one, “substantial.”

Bernanke: Successes, Yet Frustrations
Jon Hilsenrath – WSJ.com
After a financial crisis he didn’t see coming, Ben Bernanke steered the U.S. away from a potentially devastating panic. Yet five years later, the recovery he helped engineer with extraordinary policies remains frustratingly weak.
jlne.ws/1fmsTNn

**JK: I can’t believe Bernanke would be surprised that the economy hasn’t recovered, given Fed policy.

Stanley Fischer actually agrees with the Fed about forward guidance
Cardiff Garcia | FT Alphaville
Remarks by Stanley Fischer at a conference in Hong Kong earlier this year, reported originally by Real Time Economics, were widely interpreted as reflecting his concerns about the Fed’s use of forward guidance — and as a potential source of tension between him and Janet Yellen.
jlne.ws/1fmsTNp

The repo market as a form of free banking
Izabella Kaminska | FT Alphaville
An interesting byproduct of both the “Is QE deflationary?” and “Does Bitcoin have value?” debates is that many things that have previously been taken for granted are being questioned, re-evaluated or, more pertinently still, remembered. Chief among them is the question of how our money system really operates.
jlne.ws/1fmsRFg

Euro’s resilience gives ECB a headache
Delphine Strauss and Ralph Atkins – FT.com
Can nothing keep the euro down? As recently as 2012, even the survival of the single currency seemed in doubt. But in the past year it has bounced back from the Cyprus bailout, from Italy’s political ructions and most recently from the European Central Bank’s November rate cut, to trade at its strongest in more than two years on a trade-weighted basis.
jlne.ws/1fmsU3C

Chance for contrarians of market thinking to prosper
Jamie Chisholm – FT.com
The latest Bank of America Merrill Lynch global fund manager survey was released this week and it provides a useful guide to underlying market thinking. First, a health warning – this column, and of course the report, was written before Wednesday’s Fed decision.
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**JK: There is always a chance for contrarians.

Yeah, I said it…
The Reformed Broker
The phrase “Tapering isn’t tightening” sounds like the desperate plea of a high school boy on prom night.
jlne.ws/1fmsU3N

Central Banks

Carney Lays Out Bank of England Exit Strategy
Jason Douglas – MoneyBeat – WSJ
A question preoccupying many central bankers is how to successfully reverse their emergency easy-money strategies when their economies are in better health. Bank of England Governor Mark Carney set out some of his thinking on the matter in testimony to the U.K. parliament on Tuesday .
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A Look Inside the Fed’s Balance Sheet
Phil Izzo – MoneyBeat – WSJ
As the Federal Reserve debates whether to keep buying $85 billion of bonds a month, the assets on its balance sheet are on the cusp of surpassing $4 trillion for the first time.
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Indian Central Bank Leaves Rates Unchanged
NYTimes.com
India’s central bank surprised economists on Wednesday as it held interest rates steady, citing an expected reduction in food prices and a struggling domestic economy.
jlne.ws/1fmsRVA

Swedish, Hungarian Central Banks Cut Interest Rates
WSJ.com
The central banks of Sweden and Hungary became the latest in Europe to cut interest rates Tuesday, seeking to support an economic recovery and keep deflation risks at bay.
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Eurozone agrees ‘backstop’ for failing banks
Peter Spiegel and Alex Barker in Brussels – FT.com
Eurozone finance ministers have reached a tentative agreement to provide a common backstop, by at least 2025, to the EU’s new bank rescue system in case it runs out of money in an emergency and requires taxpayer support.
jlne.ws/1fmsvyh

Currencies

Australia steps up the currency-war rhetoric; inadvertently puts floor in FX market
Euromoney magazine
Australia has stepped up its assault on a perceived overvaluation of its currency, but might well have inadvertently set up a soft floor in its currency.
jlne.ws/1fmsRVE

Money Managers Use Weaker Yen to Fund Asian Bets
Fiona Law – MoneyBeat – WSJ
The weakening Japanese yen is gaining allure among top money managers as the funding currency of choice for investing in Asian assets.
jlne.ws/1fmsvyd

U.S. Treasury cautions Bitcoin businesses on legal duties
Reuters
The U.S. Treasury Department’s anti money-laundering unit is warning businesses linked to the digital currency Bitcoin that they may have to comply with federal law and regulation as money transmitters, a Treasury spokesman said.
jlne.ws/1fmsuu4

China bans new Bitcoin deposits
Simon Rabinovitch in Shanghai – FT.com
China has blocked the country’s Bitcoin exchanges from accepting new inflows of cash, a move that imperils the much-hyped virtual currency in its biggest market. The head of BTCChina, the world’s largest Bitcoin exchange by trading volume, said he had received word at midday on Wednesday that his platform would no longer be able to accept renminbi from would-be Bitcoin buyers.
jlne.ws/1fmsudF

China Bitcoin Exchange Ends Third-Party Yuan Cooperation After Worries of Government Intervention
WSJ.com
Prices of virtual currency bitcoin fell 20% Wednesday and are now down more than 50% from their record high hit two weeks ago amid worries that China is moving to block the purchase and use of the currency by its citizens.
jlne.ws/1fmsRVH

Indexes & Index Products

Results Of The Seventh Edition Of The RESPECT Index Project
Warsaw Stock Exchange has announced the new portfolio of the responsible companies index: the RESPECT Index. Four new index participants include Warsaw Stock Exchange. The new index portfolio is effective as of 23 December 2013.
jlne.ws/1fmsuKT

New ETF offers the cream of the dividend crop
Reuters
There are investors who couldn’t care less about dividends, and there are those who love them with an unbridled passion. Count Steve Weiss among the latter.
jlne.ws/1fmsvyp

Asian index providers face hurdles meeting European equivalence regime
Garima Chitkara – Risk.net
Third-country recognition under the proposed European regulation on financial indexes is “too demanding”, creating uncertainty for the sale of indexes with Asian underlyings in Europe, according to market participants.
jlne.ws/1fmsUk9

Chaikin Bows Desktop App, ETF Data
WatersTechnology
Chaikin Analytics has adapted its Chaikin Analytics for iPad app to create a desktop workstation, incorporating its Chaikin Power Gauge alpha model of 20 fundamental and technical factors that provides a bullish or bearish rating, and six pairs of buy/sell signals, as well as custom watchlists and proprietary indicators, such as the Chaikin Money Flow and Chaikin Bands indicators.
jlne.ws/1fmsUka

Gold

Barrick Gold announces departure of two more directors
Reuters
Barrick Gold Corp said in a surprise announcement on Tuesday that two long-time directors, Donald Carty and Robert Franklin, have resigned from the company’s board with immediate effect.
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