from Global Investing:
The speed of the backlash building against Russia's paramount leader Vladimir Putin following this week's parliamentary elections has taken investors by surprise and sent the country's shares and rouble down sharply lower.
Fed Chairman Ben Bernanke on Wednesday gave a speech on the lessons about sustained growth that can be gleaned from the experience of emerging markets. Bernanke said not all of the “Washington consensus” policies pushed by multilateral lenders in the 1990s had proven fruitful. In particular, he said the Asian financial crisis showed the risks of opening up financial markets to foreign capital flows until a country has implemented measures to strengthen banks and regulation.
from Global Investing:
Food and electricity bills are high. The cost of filling up at the petrol station isn't coming down much either. The U.S. economy is in trouble and suddenly the job isn't as secure as it seemed. Maybe that designer handbag and new car aren't such good ideas after all.
Stop fighting the Turkish central bank. Since a shock interest rate cut earlier this month, the front end of Turkey’s bond yield curve has collapsed over 80 basis points, with two-year yields hitting seven-month lows of 7.84 percent. The curve is flattening as the 10-year sector starts feeling the heat as well. Whether it reflects investors’ faith in the central bank’s ability to safeguard economic growth while bringing down a record wide current account gap is another matter altogether. Bond investors have in fact been uneasy with the central bank’s experiments, fearing that overly loose monetary policy will cause an inflation shock down the road. But with more rate cuts clearly on the cards, investors are finding that Turkish rates, especially at the front end, are too attractive to miss. Especially as the central bank is shoring up the lira with daily dollar sales.
Could the dreaded R word come back to haunt the developing world? A study by Goldman Sachs shows how differently financial markets and surveys are assessing the possibility of a recession in emerging markets.
One part of the Goldman study comprising survey-based leading indicators saw the probability of recession as very low across central and eastern Europe, Middle East and Africa. These give a picture of where each economy currently stands in the cycle. This model found risks to be highest in Turkey and South Africa, with a 38-40 percent possibility of recession in these countries.
On the other hand, financial markets, which have sold off sharply over the past month, signalled a more pessimistic outcome. Goldman says these indicators forecast a 67 percent probability of recession in the Czech Republic and 58 percent in Israel, followed by Poland and Turkey. Unlike the survey, financial data were more positive on South Africa than the others, seeing a relatively low 32 percent recession risk.
Goldman analysts say the recession probabilities signalled by the survey-based indicator jell with its own forecasts of a soft patch followed by a broad sustained recovery for CEEMEA economies.
“The slowdown signalled by the financial indicators appears to go beyond the ‘soft patch’ that we are currently forecasting,” Goldman says, adding: “The key question now is whether or not the market has gone too far in pricing in a more serious economic downturn.”
Pity Hungary’s central bank. If ever there was a country that needed an interest rate cut, here it is. With the euro zone in the doldrums, the Hungarian economy is taking a big hit, with April-June growth coming in at a measly 1.5 percent on an annual basis, well below expectations. Quarter-on-quarter growth was in fact zero. Data last week showed annual inflation at two-year lows last month. Despite a cut to personal income tax rates this year, household consumption is stagnating. Unemployment is running at 11 percent.
from Global Investing:
The debt crises in the euro zone and United States are claiming some innocent bystanders. Investors fleeing for the safety of the Swiss franc have ratcheted up pressure on Hungary, where thousands of households have watched with horror as the franc surges to successive record highs against their own forint currency. In the boom years before 2008, mortgages and car loans in Swiss francs seemed like a good idea --after all the forint was strong and Swiss interest rates, unlike those in Hungary, were low. But the forint then was worth 155-160 per franc. Now it is at a record low 260 -- and falling -- making it increasingly painful to keep up repayments. Swiss franc debt exposure amounts to almost a fifth of Hungary's GDP. And that is before counting loans taken out by companies and municipalities.