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from Global Investing:

Emerging Policy-Hawkish Poland to join the doves

All eyes on Poland's central bank this week to see if it will finally join the monetary easing trend underway in emerging markets. Chances are it will, with analysts polled by  Reuters unanimous in predicting a 25 basis point rate cut when the central bank meets on Wednesday. Data has been weak of late and signs are Poland will struggle even to achieve 2 percent GDP growth in 2013.

How far Polish rates will fall during this cycle is another matter altogether. Markets are betting on 100 basis points over the next 6 months but central bank board members will probably be cautious. Inflation is one reason  along with the  the danger of excessive zloty weakness that could hit holders of foreign currency mortgages. One source close the bank tells Reuters that 75 or even 50 bps would be appropriate, while another said:

"The council is very cautious and current market expectations for rate cuts are premature and excessive."

That would appear logical for a central bank whose mindset is essentially hawkish and which raised interest rates just six months ago to combat inflation. Goldman Sachs said in a note that it reckons any cut will be reluctantly made:

from Breakingviews:

Europe, China holding back Asian export recovery

By Wayne Arnold

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

Asia’s export engine could remain stuck in neutral as long as Europe and China are slowing. An uptick in September exports has buoyed hopes for a U.S.-led rebound in regional trade. But in the past decade, Asian economies have shifted focus to Europe and responded to China’s rise by supplying the manufacturing juggernaut. A U.S. upturn alone won’t be enough.

from Global Investing:

Emerging Policy-the big easing continues

The big easing continues. A major surprise today from the Bank of Thailand, which cut interest rates by 25 basis points to 2.75 percent.  After repeated indications  from Governor Prasarn Trairatvorakul that policy would stay unchanged for now, few had expected the bank to deliver its first rate cut since January.  But given the decision was not unanimous, it appears that Prasarn was overruled.  As in South Korea last week,  the need to boost domestic demand dictated the BoT's decision. The Thai central bank  noted:

The majority of MPC members deemed that monetary policy easing was warranted to shore up domestic demand in the period ahead and ward off the potential negative impact from the global economy which remained weak and fragile.

from Global Investing:

Emerging Policy: Rate cuts proliferate

Emerging market central banks have clearly taken to heart the recent IMF warning that there is "an alarmingly high risk"  of a deeper global growth slump.

Two central banks have cut interest rates in the past 24 hours: Brazil  extended its year-long policy easing campaign with a quarter point cut to bring interest rates to a record low 7.25 percent and the Bank of Korea (BoK) also delivered a 25 basis point cut to 2.75 percent.  All eyes now are on Singapore which is expected to ease monetary policy on Friday while Turkey could do so next week and a Polish rate cut is looking a foregone conclusion for November.

from Global Investing:

This week in EM, expect more doves

With the U.S. Fed having cranked up its printing presses, there seems little to stop emerging central banks from extending their own rate cut campaigns this week.

The most interesting meeting promises to be in the Czech Republic. We saw some extraordinary verbal intervention last week from Governor Miroslav Singer, implying not only a rate cut but also recourse to "unconventional" monetary loosening tools. Of the 21 analysts polled by Reuters, 18 are expecting a rate cut on Thursday to a record low 0.25 percent.  Indeed, in a world of currency wars, a rate cut could be just what the recession-mired Czech economy needs. But Singer's deputy, Moimir Hampl,  has muddled the waters by refuting the need for any unusual policies or even rate cuts.  Expect a heated debate (forward markets are siding with Singer and pricing a rate cut).

from Global Investing:

Carry currencies to tempt central banks

Central bankers as carry traders? Why not.

As we wrote here yesterday, FX reserves at global central banks may be starting to rise again. That's a consequence of a pick up in portfolio investment flows in recent weeks and is likely to continue after the U.S. Fed's announcement of its QE3 money-printing programme.

According to analysts at ING, the Fed’s decision to restart its printing presses will first of all increase liquidity (some of which will find its way into central bank coffers). Second, it also tends to depress volatility and lower volatility encourages the carry trade. Over the next 12 months these  two themes will combine as global reserve managers twin their efforts to keep their money safe and still try to make a return, ING predicts, dubbing it a positive carry story.

from Global Investing:

Norwegians piling into Korean bonds

One of the stories of this year has been the stupendous rally on emerging local currency debt, fuelled in part by inflows from institutional investors tired of their zero or negative-return investments in Western debt.  Norway's sovereign wealth fund said last week for instance that it was dumping some European bonds and spending more of its $600 billion war chest in emerging markets.

Quite a bit of that cash is going to South Korea. Regulators in Seoul recently reported a hefty rise in foreigners' bond holdings (see here for the Reuters story) and  Societe Generale has a note out dissecting the data, which shows that total foreign holdings of Korean bonds are now worth around $79 billion -- back at levels seen last July.  Norwegians emerged as the biggest buyers last month,  picking up bonds worth 1.5 trillion won ($1.3 billion) , almost double what they purchased in the entire first half of 2012. Norway's holdings of Korean Treasuries now total 2.29 trillion won, up from just 190 billion won at the end of 2011.

from Global Investing:

Olympic medal winners — and economies — dissected

The Olympic medals have all been handed out and the athletes are on their way home.  Which countries surpassed expectations and which ones did worse than expected? And did this have anything to do with the state of their economies?

An extensive Goldman Sachs report entitled Olympics and Economics  (a regular feature before each Olympic Games) predicted before the Games kicked off that the United States would top the tally with 36 gold medals. It also said the top 10 would include five G7 countries (the United States, Great Britain, France, Germany and Italy), two BRICs (China and Russia), one of the developing countries it dubs Next-11  (South Korea), and one additional developed and emerging market. These would be Australia and Ukraine, it said.

from Global Investing:

Russia: a hawk among central bank doves?

This week has the potential to bring an interesting twist to emerging markets monetary policy. Peru, South Korea and Indonesia are likely to leave interest rates unchanged on Thursday but there is a chance of a rate rise in Russia. A rise would stand out at a time when  central banks across the world are easing monetary policy as fast as possible.

First the others. Rate rises in Indonesia and Peru can be ruled out. Peru grew at a solid  5.4 percent pace in the previous quarter and inflation is within target. Indonesian data too shows buoyant growth, with the economy expanding 6.4 percent from a year earlier. And the central bank is likely to be mindful of the rupiah's weakness this year -- it has been one of the worst performing emerging currencies of 2012.

from David Cay Johnston:

The troubled trade deal with South Korea

SEOUL -- In March, the United States and South Korea implemented a Free Trade Agreement that President Barack Obama touts as more significant than the last nine such agreements combined. He also said it was central to his goal of doubling American exports within five years.

I think the president suffers from irrational trade exuberance, a view reinforced by my reporting in this city of 10 million people.

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