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from Counterparties:

MORNING BID – Emerging Markets, Apple, Ma Bell, and whatever else one can think of

In the words of Inigo Montoya, let me explain. No, there is too much. Let me sum up.

The market's most immediate issues remain tied specifically to what's going on overseas, particularly in Turkey. There, monetary authorities are meeting on a potential interest rate hike as a way of getting on top of the inflation problem (inflation's at 7.5 percent, and the central bank's lending rate is, uh, 7.75 percent).

So that's a problem: Inflation is running real hot, the lira is in free-fall, and as Reuters' Mike Peacock in London points out, the consensus view for a rate hike puts it at about 10 percent for when the bank announces its decision at midnight Istanbul time, 5:00 p.m. Eastern time (1000 GMT). Will that be enough to put a floor under the lira? Perhaps.

Now, U.S. companies don't exactly have a lot of exposure to Turkey, and in this emerging markets rout we're in the midst of right now, there's a real question as to whether we've reached that "contagion" level. Sure, everything is selling off, but that's not quite the definition, and it will take a little bit more time and effort - that is, more wholesale selling, liquidation of positions across various countries - to really call this a contagious effort. There are worrisome signs on that front, though. An analysis by Reuters' Sujata Rao-Coverley, Dan Bases and Vidya Ranganathan points out that the increased funding through publicly traded fixed-income markets rather than bank lending means these markets are more intertwined, leading to the possibility of more selloffs that feed on each other.

from Breakingviews:

China falls prey to its own capital magnetism

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Capital is flooding into China, and central bankers are worried. It’s easy to see why: such problems aren’t supposed to happen in countries with strict capital controls. But China’s monetary magnetism is of the authorities’ own making. In trying to slow reckless lending growth, planners have created a huge arbitrage opportunity.

from MacroScope:

Davos Day Two — Rouhani, Lew and Lagarde

Day one in Davos showed the masters of the universe fretting about Sino-Japanese military tensions, the treacherous investment territory in some emerging markets and the risk of a lurch to the right in Europe at May’s parliamentary elections which could make reform of the bloc even harder.

Today, the focus will be on Iranian President Hassan Rouhani (and his main detractor, Israel’s Netanyahu). Presumably he’s there to woo the world of commerce now sanctions are to be relaxed in return for Tehran suspending enrichment of uranium beyond a certain level. Anything he says about Syria’s peace talks, which have so far been more hostile than conciliatory, will instantly be headline news.

from Breakingviews:

Audit spat pokes hole in China’s financial edifice

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s legal grey areas have been a source of enormous wealth for investors. Now a U.S. judge is threatening to poke a hole in the entire edifice. The Chinese units of the world’s biggest four auditors face a six-month suspension from auditing U.S.-listed companies after the judge decided they wilfully refused to hand over documents on Chinese clients to U.S. regulators. It’s hard to fault his logic, but upholding the rules could bring a huge cost.

from Breakingviews:

Loeb wrestles Sotheby’s over new art paradigm

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By Richard Beales
Thea author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Dan Loeb is wrestling Sotheby’s over a new art paradigm. The Third Point founder reckons, essentially, that the listed auctioneer should be more like privately held arch-rival Christie’s. The $3.5 billion Sotheby’s, whose stock is up more than 40 percent over the past year, is hardly a basket-case. Its total auction sales increased 19 percent in 2013 to top $5 billion, outgrowing the larger Christie’s. Unusually for an activist investor – typically an analytical breed focused on the here and now – Loeb’s main beef with the company seems to be over the direction and pace of broad art market trends.

from Breakingviews:

China’s capital flight may be banks’ next headache

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By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Western banks’ next regulatory headache could be made in China. Most of the recent scrutiny of financial institutions’ business practices has come from the developed world – particularly the United States. But as Chinese citizens become more aware of the offshore wealth held by the country’s elites, banks are increasingly at risk of a regulatory backlash.

from Breakingviews:

China’s growth slower but no more believable

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China’s GDP growth may be getting more sustainable, but it’s no more believable. The country’s 31 provinces are on course to report aggregate nominal GDP far in excess of the total central figure for 2013 – and not for the first time. Big numbers are getting less reliable, which strengthens the case for new ones.

from Breakingviews:

Quitting China is all about knowing how to go

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By Ethan Bilby

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

An increasing number of foreign businesses are folding their tents in China. Multinationals used to be desperate to get into the People’s Republic. Now, as easy growth vanishes, leaving China is becoming less unusual. While some have kept a foot in the door, others have made a show of slamming it.

from Breakingviews:

China trust default is least painful option

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Much about China’s financial system is fuzzy, particularly when it comes to so-called trust companies. But when push comes to shove the case for letting an investment product fail is pretty clear.

from Breakingviews:

Hong Kong can’t build away high house prices

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By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Hong Kong’s plan to cool an overheated housing market by increasing supply sounds like repeating past mistakes. Even if the territory is able to boost construction as much as it intends, the expansion is modest. Property prices remain at the mercy of external forces.

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