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from MacroScope:

Shock now clearly trumps transparency in central bank policymaking

The days of guided monetary policy, telegraphed by central banks and priced in by markets in advance, are probably coming to an end if recent decisions around the world are any guide.

From Turkey, which hiked its overnight lending rate by an astonishing 425 basis points in an emergency meeting on Tuesday, to India which delivered a surprise repo rate hike a day earlier, central banks are increasingly looking to "shock and awe" markets into submission with their policy decisions.

A wide sample of economists polled by Reuters on Monday already expected a massive rise of 225 basis points by Turkey's central bank to stop a sell-off in the lira. Instead it doubled the consensus and opted for the highest forecast.

Gizem Oztok Altinsac, chief economist at Garanti Securities in Istanbul, who correctly called the size of the Turkish rate hike said:

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 MacroScope:

Iran and Japan in focus at Davos

Lots of action in Switzerland today with the annual get-together of the great and good at Davos getting underway and Syrian peace talks commencing in Montreux.

On the latter, few are predicting anything other than failure, a gloom that Monday’s chaotic choreography did nothing to dispel.
U.N. chief Ban Ki-moon Ban first offered Iran a seat at the table, prompting a threat to pull out by Syrian opposition groups which led to Washington demanding the invitation to Tehran be withdrawn. In the end, Ban did just that.

from Breakingviews:

Japan index: Rising wages, prices add to optimism

By Andy Mukherjee

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

The Breakingviews Abenomics Index rose for a third straight month in November, buoyed by increasing consumer prices and improved household earnings. Equity and bond markets remain hopeful that Prime Minister Shinzo Abe’s war on deflation will move closer to its target in 2014.

from Breakingviews:

Suntory lives up to motto with $16 bln Beam bid

By Rob Cox

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

For a Japanese corporation, Suntory Holdings has an especially aggressive corporate slogan: “Yatte Minahare,” which roughly translates as “Go For It.” That sums up Suntory’s willingness to pay $16 billion, or a hefty 20 times EBITDA, for the U.S. distiller of Jim Beam, Maker’s Mark and other tipples. That number won’t be lost in translation for Diageo, Pernod Ricard or others who might also covet Beam.

from Anatole Kaletsky:

Five predictions for financial markets in 2014

Happy New Year! For the first time since 2008, we investors, economists and businesspeople say these words without irony. While last year was statistically disappointing, with global growth slowing slightly from 2012 and apparently belying the optimism expressed here last January, the verdict of financial markets and business sentiment has been much more consistent with my predictions. Despite the apparent slowdown, stock markets enjoyed their best performance since the 1990s, long-term interest rates soared and consumer confidence all over the world ended 2013 much higher than it started. This apparent paradox is easily explained: the statistical weakness of 2013 was due entirely to a very weak period last winter, connected with the U.S. presidential election and leadership transition in China. By the second quarter, growth had revived in the U.S. and China and accelerated strongly in Britain and Japan.

That conventional wisdom last January was far too pessimistic about the economic outlook is evidenced by the subsequent behavior of financial markets, where equities outperformed bonds by the biggest annual margin on record. But today almost everyone is optimistic. So what unexpected developments could surprise financial markets and business sentiment in 2014? Below are five personal guesses -- some possibly far-fetched and others are seemingly obvious, but none yet fully reflected in market prices:

from The Great Debate:

China’s air defense zone: The shape of things to come?

China’s announcement of an air defense identification zone (AIDZ) that covers substantial portions of the East China Sea has unleashed a storm of concern among China’s neighbors -- as well as in the United States.

For China’s action reflects the deeper challenge now posed by its growing military capability and international activism. Vice President Joe Biden was on solid ground when he objected strenuously to this new air defense zone during his recent trip to the region.

from Breakingviews:

Japan index: Abenomics momentum masks weakness

By Andy Mukherjee

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

A second straight gain in October pushed the Breakingviews Abenomics index to its highest since the 2008 crisis. But Prime Minister Shinzo Abe must worry about the durability of the recovery. Wage gains aren’t yet large enough to compensate households for rising prices.

from Breakingviews:

Narendra Modi could be India’s Shinzo Abe

By Andy Mukherjee

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

Narendra Modi could be India’s Shinzo Abe. If the recent state polls are any indicator of the electorate’s mood, the opposition politician will be prime minister of the world’s largest democracy by May next year. Just like his Japanese counterpart, Modi would oversee higher asset prices and revive growth, but struggle with structural reforms.

from Ian Bremmer:

China’s air zone announcement was just the beginning

When China announced its decision to claim a wider air zone that encompassed the disputed Senkaku/Diaoyu Island territories, the East China Sea erupted into conflict reminiscent of the Cold War era. In response, the United States and Japan declared the zone illegitimate and flew military aircraft through it, while China deployed fighter jets to identify them.

But this was not a simple instance of China overstepping and getting burned -- nor was it as sudden and unexpected as headlines suggest. Rather, it was the manifestation of a longstanding Chinese regional strategy that is only just beginning. And China is likely quite pleased with how it is playing out thus far.

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