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from Global Investing:

More EM central banks join the easing crew

Taiwan and Philippines have joined the easing crew. Taiwan cut interbank lending rates for the first time in 33 months on Friday while Philippines lowered the rate it pays banks on short-term special deposits. Hardly surprising. Given South Koreas's shock rate cut on Thursday, its first in over three years, and China's two rate cuts in quick succession, the spread of monetary easing across Asia looks inevitable. Markets are now betting the Reserve Bank of India will also cut rates in July.

And not just in Asia. Brazil last week cut rates for the eighth straight time  and Russia's central bank, while holding rates steady,  amended its language to signal it was amenable to changing its policy stance if required.

Worries about a growth collapse are clearly gathering pace. So how much room do central banks have to cut rates? Compared with Europe or the United States, certainly a lot.  And with the exception of Indonesia and Philippines, interest rates in most countries are well above 2009 crisis lows.  But Deutsche Bank analysts, who applied a variation of the Taylor rule (a monetary policy parameter stipulating how much nominal interest rates can be changed relative to inflation or output), conclude that in Asia, only Vietnam and Thailand have much room to cut rates. Malaysia and China have less scope to do so and the others not at all (Their model did not work well for India).

Deutsche said of Korea:

After this week's rate cut, our model suggests rates are essentially in line with the rule as defined by the past behaviour of the Bank of Korea

from Global Investing:

Korea shocks with rate cut but will it work?

Emerging market investors may have got used to policy surprises from Turkey's central bank but they don't expect them from South Korea. Such are the times, however, that the normally staid Bank of Korea shocked investors this morning with an interest rate cut,  the first in three years.  Most analysts had expected it to stay on hold. But with the global economic outlook showing no sign of lightening, the BoK probably felt the need to try and stimulate sluggish domestic demand. (To read coverage of today's rate cut see here).

So how much impact is the cut going to have?  I wrote yesterday about Brazil, where eight successive rate cuts have borne little fruit in terms of stimulating economic recovery. Korea's outcome could be similar but the reasons are different. The rate cut should help Korea's indebted household sector. But for an economy heavily reliant on exports,  lower interest rates are no panacea,  more a reassurance that, as other central banks from China to the ECB to Brazil  ease policy, the BoK is not sitting on its hands.

from Breakingviews:

Bond market misses Korea’s youthful monetary tilt

By Wayne Arnold

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

Bond buyers in South Korea are ignoring the youthful tilt in the country’s monetary policy. In Seoul these days, policymakers are more concerned with younger citizens’ job prospects than with GDP growth. As long as unemployment keeps falling, the Bank of Korea may well leave rates alone.

from Breakingviews:

Samsung investors should worry less about Apple

By Wayne Arnold

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

Samsung investors are worrying too much about Apple. The company’s shares have slid on concern the iPhone’s maker might be buying Japanese memory chips to cut its dependence for parts on its South Korean rival. But Apple’s diversification only reflects how smartphone demand is outpacing parts supply. Apple still needs Samsung and Samsung’s valuation has fallen too far.

from Breakingviews:

Samsung moves on from Japan to nibble at Apple

By Wayne Arnold

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

The Japanese may have pioneered the model of a vertically integrated electronics manufacturer, but Samsung looks to have perfected it. The Korean company started by pulling apart Japanese TV sets, then reverse-engineered the manufacturers’ business model. By avoiding their missteps, it’s driving them out of TVs and carving up the smartphone market with Apple. Now, as more business is coming from emerging markets, Apple needs to watch out for Samsung’s still-growing appetite.

from Global Investing:

Where will the FDI flow?

For years the four mighty BRIC nations have grabbed increasing shares of world investment flows. But the coming years may not be so kind.  These countries bring up the bottom of the Economic Freedom Index (EFI) for 2012. Compiled by Washington D.C.-based think-tank The Heritage Foundation the EFI measures 10 freedoms --  from property rights to entrepreneurship -- and according to a note out today from RBS economists, there is a strong positive link between a country's EFI score and the amount of FDI (foreign direct investment) it can secure. So the more "free" a country, the more FDI inflows it can expect to receive -- that's what an RBS analysis of 2002-2008 investment flows shows.

So back to the BRICs. Or BRICS if you add in South Africa (part of the political grouping though not yet included in the BRIC investment concept used by fund managers). The following graphic shows Russia languishing at the bottom of the EFI, China just above Russia and India third from bottom.  Brazil is sixth from bottom while South Africa ranks two places higher.

from Ian Bremmer:

The hope and beauty of a North Korean stalemate

President Obama’s recent trip to South Korea may have gained attention for his “open mic” slipup with outgoing Russian President Medvedev over missile defense, but that’s just a media distraction from the importance of Obama’s visit to the Korean peninsula. After Kim Jong Il’s death in December, the U.S. took an early lead in negotiations with North Korea doing so because Obama and his team thought it could be an easy diplomatic win. With the promise of aid and food, the U.S. could let new leader Kim Jong-un quietly drop the consistently belligerent stance the country has taken in what passes for its foreign policy.

It’s now clear that easy win is not going to happen. Despite Kim’s titular status, we still don’t really know who is in charge in North Korea. While there have been no major coups, protests, or blowups, there have been plenty of smaller events, like military executions due to insubordination, that point to a high likelihood of purges happening in the regime. Now factor in that North Korea has gotten decidedly more, rather than less, militant on the nuclear arms front. Its announcement of a satellite test is a thinly veiled attempt to launch a long-range ICBM. The global community is perceiving it as such with South Korea threatening to shoot the missile down. The vitriol coming out of the North Korean propaganda machine is as hardline and aggressive as we’ve seen in many years.

from Global Investing:

The haves and have-nots of the (energy) world

Nothing like an oil price spike to bring out the differences between the haves and have-nots of this world. The ones who have oil and those who don't.

With oil at $124 a barrel,  the stock markets of big oil importers India and South Korea posted their first weekly loss of 2012 on Friday.  But in Russia, where energy stocks make up 60 percent of the index, shares had their best day since November, rising more than 4 percent. The rouble's exchange rate with the dollar jumped 1.5 percent but the lira in neighbouring Turkey (an oil importer) fell.

from Global Investing:

The missing barrels of oil

Where are the missing barrels of oil, asks Barclays Capital.

Oil inventories in the United States rose sharply last week, with demand for oil products  such as gasoline at the lowest in 15 years and crude stockpiles at the highest since last September. Americans, pinched in the wallet, are clearly cutting back on fuel use.

But worldwide, the inventories picture is different -- Barclays calculates in  fact that oil stocks are around 50 million barrels below the seasonal average. And sustainable spare capacity in the market is less than 2 million barrels per day. What that means is that the world has "extremely limited buffers to absorb any one of the series of potential geopolitical mishaps." (Barclays writes)

from Global Investing:

Interest rates in emerging markets – - harder to cut

Emerging market central banks and economic data are sending a message -- interest rates will stay on hold for now.  There are exceptions of course.

Indonesia cut rates on Thursday but the move was unexpected and possibly the last for some time. Brazil has also signalled that rate cuts will continue.  But South Korea and Poland held rates steady this week and made hawkish noises. Peru and Chile will probably do the same.

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