26th Jan - Best of the Week

Here are the ”best” from my posts of the ending week. Last week’s edition here.

Previously on MoreLiver’s:

Friday: Emerging Market Blues

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EUROPE

Remorseless troikas – euobserver

Blame somebody else. Speak of one’s own impeccable activities. And don’t apologise. And that’s rather the ugly beauty of this whole eurozone bailout set up.

Europe Finally Admits A Monetary Union Leads To "Increased Unemployment And Social Hardship" – ZH

Nordic Government Debt Handbook – Nordea

An overview of the government debt markets of the four Nordic countries: Finland, Denmark, Sweden and Norway. We offer details on the structure of the market, instruments, outstanding volumes, marketplace, auctions, issuance plans, important dates and ownership.

Analysis: Old Europe vs. New Europe in race for Commission chief – Reuters

Two men vying for the top job epitomize the federalist tradition of European integration - Jean-Claude Juncker, the veteran former prime minister of Luxembourg, and Verhofstadt, who advocates a United States of Europe.

BOE’s Carney Suggests Falling Unemployment Doesn’t Mean Rates Will Rise – WSJ

Carney said the U.K. central bank will look at a broad range of economic factors when assessing the need for higher interest rates, a sign that officials may be preparing to play down the link between BOE policy and falling unemployment.

  BANKS

European Banks Face $1 Trillion Gap Before Review, Study Shows – BB

European banks have a capital shortfall of as much as 767 billion euros ($1 trillion) before the ECB’s probe into the financial health of the region’s lenders, according to a study.

Banking union hits another bump in the road – Open Europe

The concerns focuses on the agreement to use an intergovernmental treaty to set up the resolution fund – a move demanded by Germany to provide additional legal safeguards against the pooling of risk and resources… this dispute could delay the adoption of the SRM until after the European elections – a delay which could increase market uncertainty, especially around the bank stress tests.

  EUROPEAN CENTRAL BANK

Great Graphic: Eurosystem's Excess Liquidity – Marc to Market

Both China and the euro area are currently experiencing liquidity squeezes… In part, what is happening is the decline in excess liquidity in the euro area. It was the excess liquidity that kept the EONIA near the floor of the ECB's rate corridor.

Should the ECB go quantitative? – Money Matters

The situation of the ECB is very different from that of the FED and the ECB has much more targeted measures at its disposal if it wants to impart an additional easing bias to its monetary policy.

UNITED STATES
  FEDERAL RESERVE

How bank reserves make the gap between deposits and loans disappear – Sober Look

QE, which is directly responsible for the $2.4 trillion in excess reserves, was not helpful (and possibly harmful) to credit growth in the US.

The QE Weakness That Might Just Bode Well for Unwinding – WSJ

One possible upshot of their findings is that unwinding QE—selling the huge portfolios of assets accumulated in the past few years—might not be as disruptive as many expect now that financial markets are more or less back to normal.

The Week That Was – Tim Duy’s Fed Watch

Policymakers are generally comfortable with the pace of tapering at $10 billion per meeting.  That could be reconsidered if we see sustained weakness in future data, but I don't think that should be the base case… I think it is reasonable to believe the primary conflict at the next FOMC meeting is not over asset purchases, but on the communications strategy.  The direction and nature of "enhanced forward guidance" is becoming a contentious issue now that the unemployment rate is just a breath away from the 6.5% threshold.

EMERGING MARKETS

‘Emerging Markets? Never Heard of ‘Em’ and Other Nuggets from BAML Poll – WSJ

Tapering and emerging-market capital flows – voxeu.org

This column presents the results of recent World Bank research into these effects. In the baseline scenario, the unwinding of QE is predicted to reduce capital inflows by about 10%, or 0.6% of developing-country GDP by 2016. However, if markets react abruptly, capital flows could decline by as much as 80% for several months.

Goodbye BRICS, hello IndoAsia – The Money Illusion

I never really bought into the BRICs concept.  It’s a hodgepodge. Brazil and Russia seem closer to Mexico and Turkey than to India and China.  But it did capture the growth spurt in the emerging markets after 2000. To me the real story was China and to a lesser extent India.

EM: Storm turns into hurricane – EM sell-off escalates – Danske Bank

Your guide to EM compartmentalization – alphaville / FT

Will China's Shadow Banking Craze Slow Down? – BB

There are two ways governments can try to prevent crises: They can guarantee the nominal value of every asset believed to be "safe," or they can try to set investors straight. The Chinese government is maybe experimenting with the latter.

Crunch Escalates as Money Funds Rival Shadow Banks – BB

A doubling in China’s money-market funds in the past six months is draining bank deposits and raising the risk of financial failures during cash crunches, according to Fitch Ratings.

Is China's Historic Credit Bubble About to Pop? – The Atlantic

In five years, China's shadow banks have increased credit from 120 to 190 percent of GDP—a bigger run-up than the U.S. housing bubble.

OTHER
HSBC’s analysis of sovereign CDS – Sober Look

An interesting paper from HSBC on sovereign CDS. They used cluster analysis to show that correlations in CDS spreads are less about geographic proximity and more about related risk profiles of various nations. The researchers also show how the clustering changed over time.

New Financial Forecasts – Nordea

Bloomberg Global Investor Poll – BB

Calling 2014 ahead of the World Economic Forum at Davos.

The 85 Richest People Have The Same Wealth As Half The World's Population – ZH

Stress Indicators: No stress, be happy – TradingFloor

Significantly lower global growth in H2 2014 * Asia growth to be adjusted down 100-200 bps * Abenomics running out of steam before April VAT hike

Macro problems, micro solutions – UBS

‘Maybe the world’s not so austere’ – alphaville / FT
‘We’ve swapped global imbalances for domestic disequilibrium’ – alphaville / FT

How trade, technology and finance can help keep the recovery going, a UBS view on the 2014 World  Economic Forum theme: “The Reshaping of the World”

Energy is gradually decoupling from economic growth – alphaville / FT

According to BP’s Energy Outlook, which was released this week, global energy demand will continue to grow until 2013, but that growth is set to slow, driven by emerging economies — mainly China and India.

FINNISH

Suomen ekonomistit vaativat EKP:ltä lisää elvytystä – TalSa

Suomalaisekonomistit ovat yksimielisiä siitä, että Euroopan keskuspankin (EKP) rahapolitiikan pitäisi olla nykyistä elvyttävämpää. Taloussanomien haastattelemista yhdeksästä ekonomistista kuusi ehdottaa EKP:lle Yhdysvaltain, Japanin ja Englannin keskuspankin tapaisia velkakirjaostoja, neljä negatiivista talletuskorkoa.

Seuraavaksi meitä väijyy deflaatio-mörkö – Jan Hurri / TalSa

Inflaatio-peikko on ilkeä olento, mutta deflaatio-mörkö on vielä ilkeämpi. Näin pelottelevat EKP ja useimmat muutkin keskuspankit Suomen Pankista lähtien. Viime viikolla mörkövaroituksen esitti valuuttarahasto IMF. Mutta ehkä hintojen lasku ei sittenkään ole niin pelottavaa kuin mörkövaroitukset väittävät.

Turha syyttää euroa – Talouden Tulkki

Vakaa valuutta aiheuttaa talouden epävakautta – Tyhmyri

Mitä eurolle pitäisi tehdä kun nykyinen malli ei toimi – Operation Bond Bomber – Tyhmyri