The currency vigilantes

January 24, 2014

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Welcome to what’s possibly “phase one” of the emerging markets rout, Reuters’ Natsuko Waki reports. For no apparent reason, currencies in Argentina, Russia, and Turkey hit record lows on Friday in what Bloomberg called the worst emerging market currency sell-off in five years. This had all sorts of side effects, including sending Spain’s IBEX down about 3.5%.

“The bond vigilantes may have given up the ghost,” The Economist writes of today’s relatively quiet sovereign debt market. “But the currency traders remain on patrol.” Capital Economics’ Neil Shearing, via Sam Ro, has a nice guide to the tiers of emerging markets. On one side of the spectrum, Argentina, Ukraine and Venezuela are rife with “serial mismanagement”. On the other end, in Korea, the Philippines and Mexico, things are looking positively sunny.

Though one analyst said “market participants struggled to identify a catalyst for the moves,” the FT offers suggestions for all this emerging craziness. First, the Fed’s taper, which poses a threat to emerging economies that have been borrowing cheaply in dollars, but find their own currencies weakening as they try to pay back their creditors. Second, “those concerns have been compounded by worries over Chinese economic growth”.

In Argentina things are particularly bad — Shane has some nice charts here. The peso fell 16% against the dollar between Wednesday and Thursday, in the worst drop since the country’s 2002 financial crisis, and it fell another 1.7% on Friday. The Argentine central bank has been supporting the peso for at least a year, but it finally stopped on Thursday.

Investors, the FT writes, think that the lack of support might be an attempt by Argentina to narrow the gap between its official and black market exchange rates, which can differ by 30-40%. Both rates fell on Thursday, Rob Minto writes. Roberto Ferdman writes that Argentina can’t afford to prop up its currency anymore: the country’s foreign exchange reserves are now below $30 billion, the lowest reading in seven years.

Besides blackouts, looting and a possible default, Bloomberg Businessweek writes, Argentina still can’t get access to international debt markets while it fights in the courts over 2001 bonds with hedge fund manager Paul Singer. — Shane Ferro and Ryan McCarthy

On to today’s links:

Right On
Why the Drudge Report is one of the best designed sites on the web – Jason Fried

Davos
What’s wrong with Davos – John Carney
Davos still hasn’t solved its woman problem – Helaine Olen

Remuneration
Jamie Dimon gets a raise – DealBook

Ugh
The Justice Department goes after a for-profit hospital for scheming to inflate bills – NYT

Regulations
No, Washington did not defeat Wall Street in financial reform – Mike Konczal

Startups
“The challenge of venture investing is that the model depends on investing in things that are laughable” – Benedict Evans

Quotable
“When asked if he had seen any hiring that appeared to be a bribe, Blankfein said, ‘Not firsthand’” – Bloomberg

Great Bloomberg Headlines
“Billionaire Braves Bloated Self-Importance for Davos Chat” – Bloomberg

Corrections
“The plantings on the green roof… were native flora, not native fauna” – NYT

Strangely Existential
“I am only a grain of sand, as is Mr Martoma” – Alexandra Stevenson and Matthew Goldstein

Oxpeckers
Study finds that the media is bad at choosing what study findings to cover – PLOS ONE

EU Mess
The US vs European model (of sports ownership) – Stefan Szymanski

Says Science
Chemists have figured out how to clean cash, making it less expensive to produce – Fast Company

Financial Arcana
Are malls dead? Check the CMBS! – Housing Wire

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