Standard Chartered

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40 Central Banks Are Betting This Will Be The Next Reserve Currency





As we have discussed numerous times, nothing lasts forever - especially reserve currencies - no matter how much one hopes that the status-quo remains so, in the end the exuberant previlege is extorted just one too many times. Headline after headlines shows nations declaring 'interest' or direct discussions in diversifying away from the US dollar... and as SCMP reports, Standard Chartered notes that at least 40 central banks have invested in the Yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation central banks diversifiying into 'other currencies' and "a great number of central banks are in the process of adding yuan to their portfolios." Perhaps most ominously, for king dollar, is the former-IMF manager's warning that "The Yuan may become a de facto reserve currency before it is fully convertible."

 


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Guest Post: The Screaming Fundamentals For Owning Gold





The reasons to hold gold (and silver), and we mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:

  1. To protect against monetary recklessness
  2. As insulation against fiscal foolishness
  3. As insurance against the possibility of a major calamity in the banking/financial system
  4. For the embedded 'option value' that will pay out handsomely if gold is re-monetized

The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.

 


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Futures Fade As Chinese Credit Tremors Get Ever Louder





Unlike most trading sessions in the past month, when the overnight session saw a convenient algo assisted USDJPY/AUDJPY levitation, tonight there has been no such luck for the permabullish E-Trade babies who are conditioned that no matter what the news, the next morning the S&P 500 will open green regardless. Whether this is due to ever louder fears that what is happening in China can not be swept under the rug this time will be revealed soon, but as of this moment both the USDJPY, and its derivative, US equity futures, are looking at a sharp lower open, as gold continues to press higher, while the traditional tension points such as Russia-Ukraine, and ongoing capital flight from some of the more "fringe" emerging markets, continues. Expect more of the same today as people finally peek below the Chinese surface to realize just how profoundly bad the situation on the mainland truly is. And while we realize macro news are meaningless, especially in Europe where the ECB is now the sole supervisor of all asset classes, the fact that Cyprus, Greece, Slovakia and Portugal, are all in deflation, and many more countries lining up to join the club, probably means that absent a massive global credit impulse, we have certainly reached the upward inflection point from the most recent $1+ trillion injection of liquidity by the Fed, not to mention the ongoing QE by the BOJ.

 


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Frontrunning: March 6





  • Spot the inaccuracies: Stocks rise on Ukraine diplomacy, ECB easing speculation (Reuters)
  • Bank of England Extends Record-Low Rates Into a Sixth Year (BBG)
  • China's Chaori Solar poised for landmark bond default (Reuters), explained here previously
  • EU leaders meet in Brussels to address Ukraine crisis (FT)
  • Nine-month-old baby may have been cured of HIV, U.S. scientists say (Reuters)
  • China Raises Defense Spending 12.2% for 2014 (WSJ)
  • China Stock Index Rises as Developers Jump on Policy Speculation (BBG)
  • VTB Cancels New York Forum as U.S. Relations Sour (BBG)
  • IBM workers strike in China over terms of Lenovo takeover (FT)
  • College Board Redesigns SAT Exam Making Essay Portion Optional (BBG)
 


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Frontrunning: March 4





  • No need to use military force in Ukraine for now: Putin (Reuters)
  • Russia Orders Drill Troops Back to Bases (WSJ)
  • Ukraine premier agrees to reforms for aid package (FT)
  • Japan Base Wages Rise for First Time in Nearly Two Years (WSJ)
  • Only the algos are trading: Citigroup Joins JPMorgan in Seeing Trading-Revenue Drop  (BBG)
  • Vietnam sends blogger to prison for critical posts (AP)
  • At White House, Israel's Netanyahu pushes back against Obama diplomacy (Reuters)
  • Obama to offer new tax breaks for workers in election year budget pitch (Reuters)
  • China Banks Show Too-Connected-to-Fail Link to Shadow Loans (BBG)
  • Ex-BOK Deputy Lee Named to Head South Korea Central Bank (BBG)
  • No mortgage origination problem in the UK: Mortgage approvals climb to six year high (Telegraph)
 


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Chinese Iron Ore Stockpiles Rise To Record As End Demand Plummets





It may not be one of the core three (somewhat) realistic and accurate econometric indicators of China's economy (which as a reminder according to premier Li Keqiang are electricity consumption, rail cargo volume and bank lending), but when it comes to getting a sense of capacity bottlenecks in China's fixed investment pipeline - be it in ghost cities or the latest skyscraper building spree - nothing is quite as handy as commodity, and particularly iron ore (if not copper, which as we have explained before has a far more "monetary/letter of credit" function in China's markets), stockpiles at China's major ports. The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy. One look at the chart below, which shows how much iron ore has been stockpiled at China's 34 major ports (spoiler alert: it just hit an all time high), should explain at which of these two extremes China currently finds itself.

 


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Frontrunning: February 13





  • Comcast Agrees to Buy Time Warner Cable for $45.2 Billion (BBG)
  • Italian leadership squabble weighs as shares halt hot run (Reuters)
  • Russia says Syria aid draft could open door to military action (Reuters)
  • China trust assets rise 46% in 2013  (WSJ), China Trust Assets Surge to $1.8 Trillion Amid Default Risks  (BBG)
  • Australian Unemployment Jumps to 10-Year High (BBG)
  • Tea Party Scorns Republicans as House Lifts Debt Ceiling (BBG)
  • Peso plunge forces Argentine soya hoarding (FT)
  • BNP Paribas Net Falls After $1.1 Billion U.S. Legal Charge (BBG)
  • Hacking Joins Curriculum as Businesses Seek Cyber Skills (BBG)
  • Android's 'Open' System Has Limits (WSJ)
  • Blackstone-Fueled Single-Family Home Boom Lifts Chicago (BBG)
 


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Frontrunning: February 6





  • Draghi as ECB Master of Suspense Keeps Investors on Edge (BBG)
  • Abe lays out detailed plan for expanding defense powers (Nikkei)
  • Inflation Fuels Crises in Two Latin Nations (WSJ)
  • Obama walks into crossfire of Asian tensions (FT)
  • Harvard Makes Professor Disclose More After Blinkx Slides (BBG)
  • Hedge Funds Rework Currency Positions in Market Drop (BBG)
  • Canada, U.S. Strike Tax-Information Sharing Deal (WSJ)
  • Indonesia calls for greater clarity from Fed on tapering (FT)
  • Sony to cut 5,000 jobs, split off PC, TV operations (Reuters)
 


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Citi, Goldman FX Heads Leaving In "Entirely Unrelated To FX Probe" Departures





When Reuters reported earlier today that Anil Prasad, the global head of foreign exchange at Citigroup, the world's second largest currency trader, is leaving the bank, our ears perked up. The reason is the news overnight that according to the British financial watchdog, Martin Wheatley, the allegations for FX manipulation, "are every bit as bad as they have been with Libor" which supposedly means they are taking them seriously. Could this departure have anything to do with a probe that has already snared head FX trades at JPM, Deutsche and countless other banks? Well, Reuters promptly clarified that Prasad's departure is not related to the global investigation into allegations of currency market manipulation, a source familiar with the matter said. "Anil's decision is his own and entirely unrelated to the on-going FX investigations," the source said. So we had little reason to believe that Prasad's departure is tied to the probe... Until we read this: GOLDMAN SACHS HEAD OF FX TRADING STEVEN CHO TO LEAVE, DJ SAYS

 


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The $3 Trillion Hole - Why EM Matters To European Banks





How many times in the last few days have we been told that Turkey - or Ukraine or Venezuela or Argentina - are too small to matter? How many comparisons of Emerging Market GDP to world GDP to instill confidence that a little crisis there can't possible mean problems here. Putting aside this entirely disingenuous perspective, historical examples such as LTCM, and ignoring the massive leverage in the system, there is a simple reason why Emerging Markets matter. As Reuters reports, European banks have loaned in excess of $3 trillion to emerging markets, more than four times US lenders - especially when average NPLs for historical EM shocks is over 40%.

 


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Overheard In A Gold Vault In Singapore: "We Need Additional Capacity", China's Appetite Is "Insatiable"





Yesterday we covered the supply side of the gold market from the perspective of global mints, which were kind enough to advise that they "can’t meet the demand, even if we work overtime." Today, courtesy of Bloomberg, we take a closer look at the demand aspect of the physical gold market, which as most know by now can be described with just one word: China.

 


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Davos And Polar Vortex 2 Unleashed As Hilsenrath Says "More Taper" - The Complete Overnight Preview





One of the bigger stories overnight is Hilsenrath's latest communication from the Fed which once again simply paraphrases the status quo opinion, namely which is that the Fed will taper by another $10 billion on January 29, reducing the total monthly flow to $65 billion. "The Federal Reserve is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank's expectations for solid U.S. economic growth this year, according to interviews with officials and their public comments." Of course, should the Fed not do that, as the Hilsenrath turned to Hilsen-wrath after all those Taper rumors in September ended up being one giant dud, one can once and for all completely ignore the WSJ reporter, who will have lost all his Fed sources and is now merely an echo chamber of consensus. What is notable is that the result of the latest mouthpiece effort, the USD is stronger, which means USDJPY is higher, which means US equity futures are flying.... on less QE to be announced. We eagerly await for this particular correlation pair to finally flip. The other big story, of course, is the already noted well-telegraphed in advance PBOC liquidity injection ahead of the Chinese Lunar New Year, and ahead of a potential January 31 Trust default which will certainly shake the foundations of the Chinese shadow banking system to the core. Not helping nerves was last night's announcement by Zhang Ming, a researcher and director of the international investment department at the Chinese Academy of Social Sciences, that "trusts and shadow banking will see defaults this year, and this is a good thing." Let's circle back in 6 months to see just how good it is.

 


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Frontrunning: January 10





  • From the guy who said the market is not overvalued: Q&A with Fed’s Williams on Upbeat 2014 Outlook and What Keeps Him up at Night (Hilsenrath)
  • Obama Readies Revamp of NSA (WSJ)
  • Indian envoy leaves U.S. in deal to calm diplomatic row (Reuters)
  • China overtakes US as largest goods trader (FT)
  • Wall Street Predicts $50 Billion Bill to Settle U.S. Mortgage Suits (NYT)
  • Low-End Retailers Had a Rough Holiday: Family Dollar, Sears Struggle as Lower-Income Customers Remain Under Pressure (WSJ)
  • ECB charts familiar course as Japan, US and UK begin to diverge (FT)
  • Housing experts warn of hiccups as new U.S. mortgage rules go live (Reuters)
  • It's a HFT eat HFT world: Infinium ex-employees sue over $4.1m loss (FT)
  • Slowing China crude imports to challenge exporters (FT)
 


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Frontrunning: December 17





  • Fed’s $4 Trillion Assets Draw Lawmaker Ire Amid Bubble Concern (BBG)
  • Ex-Goldmanite Fab Tourre fined more than $1 million (WSJ)
  • EU Banks Shrink Assets by $1.1 Trillion as Capital Ratios Rise (BBG)
  • Japan to bolster military, boost Asia ties to counter China (Reuters)
  • China condemns Abe for criticizing air defense zone (Reuters)
  • Insider-Trading Case May Hinge on Phone Call (WSJ)
  • Republicans Gird for Debt-Ceiling Fight (WSJ)
  • Mario Draghi pushes bank union deal (FT)
  • German Coalition Plans More Pension Money (WSJ)
  • Oil Supply Surge Brings Calls to Ease U.S. Export Ban (BBG)
 


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Frontrunning: December 16





  • Tough Question for Fed: Time to Act? (Hilsenrath )
  • Merkel Begins Third Term Strengthened by SPD Partner Backing (BBG)
  • Wary of Roma, Europe cold-shoulders its new eastern workmates (Reuters)
  • New Medicines Emerge, but Few Blockbusters (WSJ)
  • SIP in the crosshairs: U.S. Exchanges Near Deal for Infrastructure Upgrade (WSJ)
  • Secret Inside BofA Office of CEO Stymied Needy Homeowners (BBG)
  • AIG Said to Near Sale of Plane Unit to AerCap (BBG)
  • Inside the Saudi 9/11 coverup (NYPost)
  • Russian Bank Chief Weighs Firings as Costs Absorb Revenue (BBG)
  • Video Boom Forces Verizon to Upgrade Network (WSJ)
  • Chinese Manufacturing Slows (AP)
 


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