Posts from January 2014

EM: the kevlar-gloved take

We’re coming to the end of a… multidirectional week for EM rates and currencies. BNP Paribas’ strategist here also pokes the media in the eye for “vying to produce the most bearish story on emerging markets…”

(Who, us?)

So we should note this dose of bullishness from the French bank: Read more

A CoCo Cyprus bank trade

Easy to forget now that the crisis-spotters have moved on to EM from the eurozone… but we’re almost coming to the first anniversary of the Cypriot bank depositor bail-in.

Of course, that time has sure flown by. The Bundesbank isn’t even shy about proposing wealth taxes in similar crises any more. But it’s also worth thinking about, given that recapitalisation (and thus, risk in different parts of a bank’s capital structure) is still very much a theme in European bank investing.

Plus, though ordinary Cypriots are still angry about the implosion of the country’s two biggest banks, in that last year or so the country’s economy has probably contracted by less than the double-digit decline expect. Exchange controls and the deposit freeze at Bank of Cyprus have also been (very gradually) lifted over time.

Which is why it’s interesting to look at a trade recently in a Cypriot bank which didn’t see investors get bailed in: Hellenic Bank. Read more

No, regulatory evasion isn’t ‘disruptive innovation’

Felix Salmon at Reuters sums up the problem with a lot of “disruptive” innovation these days.

It’s not really all that innovative — but rather focused on finding ever cleverer and more subtle ways of dodging established regulations, which, as he also points out, exist for a reason.

Should it therefore be surprising that the likes of Airbnb, Uber and even Bitcoin are more cost effective than established competitors when they’re either cutting out the taxman or costs of compliance altogether? How can regulated industry possibly hope to compete?

Which also confuses, if not exploits, the ethos of the sharing economy in and of itselfRead more

Stress-testing European banks, 2014: now with “additional national sensitivities”

…. are being answered. The European Banking Authority has graced us with the “key features of the 2014 EU-wide Stress Test”. You can find them here and the FAQ hereRead more

Markets Live: Friday, 31st January, 2014

Live markets commentary from 

The (early) Lunch Wrap

Emerging market strife keeps bond issuers at bay || Zynga to buy UK mobile app group || BT reaps benefits from its aggressive pay-TV drive || Microsoft cloud chief Satya Nadella tipped for top role || BBVA chairman sees ‘significantly improved’ outlook for 2014 || LVMH rises most since 2010 || German 30-year yields fall to 5-month Low on slowing inflation || Markets  Read more

Losing his Raghuram

Turkey-like policy action is hypothetical, I would not venture there.

Raghuram Rajan, RBI governor, Jan 29th. We’re assuming he meant he wouldn’t touch the hypothetical…

Anyway, this is how Citi’s David Lubin explains the rupee’s recent fortitude already battered position and, perhaps, Rajan’s aggresive attitude to the Fed’s tapering: Read more

Have EM outflows only just begun?

SocGen’s cross-asset research team believes that when it comes to EM outflows they may have only just begun:

 Read more

Further reading

Elsewhere on Friday,

– The temptation of central bankers.

Public policy gone wrong: Google, Motorola and Lenovo edition.

Istanbearish and talking troubled TurkeyRead more

Trade and financial-channel exposures to emerging markets

Graphs and commentary from Goldman Sachs economists:

DMs not overly exposed to EM through trade channel

It is true that EM’s contribution both to global growth and to DM exports has increased significantly over the last decade or two. But the direct trade linkages to the major DM economies are still relatively small, in part because the major DM economies are still relatively closed economies. Gross exports to EM are a little less than 5% of GDP for the US, for example. Reported sales exposure of S&P 500 companies to EM is around 5% and the BEA estimates profit exposure at around 6%. As Exhibit 4 shows, Europe is somewhat more exposed, although Germany’s high exposure partly reflects its supply chains in Central Europe.

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The 6am London Cut

Markets: A Wall Street rally failed to ignite the few Asian markets not shuttered for the lunar new year holidays. On Friday India’s Sensex opened flat following Thursday’s 0.8 per cent decline, triggered by the US Federal Reserve’s move to taper asset purchases by $10bn per month. Markets were also flat in Japan and Australia. Tokyo’s Nikkei 225 index had shed 2.5 per cent on Thursday. Asia’s other bourses are closed to observe the lunar new year holiday in China, Hong Kong, Taiwan, Indonesia, Singapore, Vietnam and Korea. (FT’s Global Markets OverviewRead more

The Closer


– How much did Goldman rip Libya off? Read more

Not all securitisation bankers are evil – some are just slow

This occasional Alphaville contributor just got back from a prolonged reporting stint in Las Vegas.

On the agenda was not one but two securitisation conferences. Some readers may recall that the American Securitization Forum (ASF) has for many years hosted an annual gathering, most often in the pleasant confines of the Aria hotel in Las Vegas. This year, a bitter schism within the securitisation industry meant there were dueling conferences – one organised by the ASF and the other by the break-away Structured Finance Industry Group (SFIG). Read more

Another look at EM flows

The new capital-flow projections from the IIF begin with impressive understatement: “Emerging market conditions have continued to be quite choppy…”

The report’s main points: Read more

Google, defender of the universe

From Huffington Post’s Bianca Bosker this week regarding Google’s acquisition of DeepMind, with regards to the latter’s concern that artificial intelligence poses an extinction level threat for humanity:

Google’s acquisition of DeepMind came with an estimated $400 million price tag and an unusual stipulation that adds extra gravity — and a dose of reality — to Legg’s warning: Google agreed to create an AI safety and ethics review board to ensure this technology is developed safely, as The Information first reported and The Huffington Post confirmed. (A Google spokesman said that DeepMind had been acquired, but declined to comment further.)

 Read more

The colour of money in Mongolia? Turquoise

Warning! Read the boiler plate here

What follows concerns the likely actions of the government in Ulaanbaatar, which is pretty much the definition of a frontier market and all the perils that go with it. With that warning, come with us to Mongolia.

What we hear, from sources with a record of reliability, is that the government is strongly considering the purchase of a small stake in Turquoise Hill, the mining company controlled by Rio Tinto. Read more

Devaluation stations: Et tu China?

Lombard Street’s Charles Dumas charts the overvaluation of the Chinese currency:

 Read more

On the Blinkx — Update

At pixel time we still await Blinkx’s official response to allegations of questionable practices made by Benjamin Edelman, an associate professor at Harvard Business School and a self-proclaimed sheriff of the internet advertising industry. Blinkx shares traded down as much as 51.6 per cent on the claims, knocking about £400m off its market value.

What we do have is a note from Citigroup, Blinkx’s joint house broker. In the interests of market stability we repeat it in full below, albeit with minimal fiskingRead more

Markets Live: Thursday, 30th January, 2014

Live markets commentary from 

The (early) Lunch Wrap

Mark Carney warns Scotland over currency union hopes || Federal Reserve sticks with $10bn taper || Danish coalition close to collapse || Roche to lead way on corporate governance crackdown || Spanish growth accelerates || Recovery boosts Santander as profits jump 90% || Diageo warns on effect of Chinese crackdown || Shell pledges spending cuts || BSkyB reports rise in sales despite ‘noisy’ competition || Google sells Motorola Mobility to Lenovo for $2.9bn || Markets Read more

The cold outlier

The extreme cold weather in the US is taking its toll on a whole host of energy products.

Most affected so far has been propane, which it turns out was understocked going into the season already:

As JBC Energy noted on Wednesday:

Moving to the light end of the barrel, US energy markets have experienced some unusual developments in recent weeks with severely cold weather leading to massive price fluctuations in propane, natural gas and ethane prices. Since the start of the cold weather in late December, overall propane stocks have declined by 10.6 million barrels to their lowest since June 2011, with a significant portion of these draws coming from the Midwest and as the Gulf Coast redirected flows northwards to supply weather affected areas.

 Read more

Chinese chicken

More macabre farmyard and less ‘where the WMP things are‘ this time…

It’s a matter of canards and Bertrand Russell’s chicken you see. In other words — if you think China can avoid a financial crisis in the future because it has managed to do in the past, you might get your neck wrung. Read more

Further reading

Elsewhere on Thursday,

– What if preferences are unstable?

– How Costco explains Obama’s presidency.

– How much does social mobility ever changeRead more

The 6am Cut

Markets: Volatility is back and so are jitters over emerging markets. Across Asia, equity markets experienced steep losses after the Federal Reserve continued to scale back its stimulus programme, erasing gains from Wednesday’s relief rally. The sharpest losses were in Japan, where the Nikkei 225 dropped 3.3 per cent, on pace for its biggest fall since early August. The Nikkei has suffered an 8.7 per cent loss this month, making it the worst regional performer this year. (FT’s Global Markets OverviewRead more

The Closer


– Do high interest rates defend currencies against speculative attacks? Read more

The Fed’s converging misses on inflation and unemployment

The final FOMC statement of the Bernanke era included nothing unexpected, which didn’t stop markets from expressing disappointment.

But looking ahead, there are at least two reasons why the Yellen Fed might soon consider, or at least should consider, downplaying the unemployment rate threshold in its forward guidance in favour of a greater emphasis on inflation. Read more

FOMC statement, January 2014

Another $10bn taper, as expected, and very few textual changes. There were no dissenting votes.

The full text of the statement: Read more

Burning rubber, Pirelli edition

Warning! Read the boiler plate here

Things are rarely straight-forward in corporate Italy, and what follows is no exception.

According to usually well informed sources, the private equity arm of Goldman Sachs and Pirelli’s chairman and chief executive Marco Tronchetti Provera are looking to unpick Pirelli’s complex ownership structure with a viewing to taking the €6bn company private. Read more

You TRY, you fail…

For what it’s worth, people are blaming paltry action from the South Africans… Read more

Rehabilitation could still hurt, AQR watch

Are you sitting comfortably? Too comfortably, perhaps?

Huw van Steenis isn’t. He’s come back from Davos with the feeling that while banks have got ahead of europe-wide stress tests by raising capital (€25bn, in fact, he calculates) he is far from relaxed about the consequences of the Asset Quality Review. Read more