We view Q1 2014 as a potential turning point for EM this year, just as the May 22 Bernanke speech on tapering was last year. In recent weeks, EM has digested the start of Fed tapering, devaluations in Argentina and Kazakhstan, the Crimean crisis, a deeper than expected China slowdown coupled with a shift in its FX regime, and now potentially earlier than anticipated Fed rate hikes.
Author: Win Thin
The PBOC announced a band-widening for USD/CNY over the weekend, doubling the allowable band around the fix rate to +/- 2%. Off of Friday’s fix, the new band is 6.01-6.26 vs. 6.07-6.20 previously. The USD/CNY band was last widened in April 2012 from +/- 0.5%, and before that in May 2007 from +/- 0.3%.
By WIn Thin and Ilan Solot 1) The annexation of Crimea by Russia represents an important escalation of the crisis 2) China has re-emerged as a concern for markets 3) Turkish political tensions are rising again ahead of March 30 local elections 4) Brazil consumer inflation is accelerating, making central bank decisions more difficult going forward 5) Thai government may […]
By Win Thin and Ilan Solot The Crimean crisis threatens to escalate again this week. Russian forces in Crimea have been increased and they are consolidating their control of Crimea. This involves neutralizing Ukrainian bases in Crimea and getting control of communication and transportation, as well as securing borders. After the Crimean Parliament last week approved re-joining Russia, it will […]
By WIn Thin Parallels have already been drawn between current events in Ukraine and the Russian-Georgian conflict of 2008. These parallels are unmistakable, yet the one big difference so far is that Ukraine has taken care not to give Russia any excuse to engage in a full-scale invasion to other parts of eastern Ukraine. Another brief history lesson is in […]
By Win Thin A little history lesson about Ukraine and Crimea may help put recent developments into better perspective. What emerges is a very clear understanding of why both Russia and Ukraine feel that they each have historical precedent to support their positions: Russia believes Ukraine is part of Russia, while Ukraine (or at least parts of Ukraine) believes it […]
Spot USD/CNY closed above the fix today for the first time since September 2012. Other factors are at work in China currently, making it even harder to read the true intentions of Chinese policymakers. All of these developments come against a backdrop of slowing growth.
The share of EM-denominated Uridashi bonds has increased steadily from less than 10% in 2006 to nearly 55% in both 2012 and 2013. So far in 2014, that EM share has risen to over 60%. It is clear that the growth in EM Uridashi issuance has really come at the expense of DM stalwarts AUD and NZD. The share of these two currencies of total non-JPY Uridashi issuance was nearly 75% in 2008, but has steadily fallen to less than 30% in 2013 and to nearly 20% so far in 2014. This shouldn’t be too surprising, since AUD and NZD interest rates currently stand at historic lows after aggressive easing cycles in both countries.
By Win Thin and Ilan Solot With their backs against the wall, policy changes are ramping up amongst major EM countries. Yet the positive impact has been limited so far. We do note that countries that tightened aggressively and preemptively last year are seeing their currencies hold up better than those that are late to the game. Indonesia, India, and […]
Russian Economy Minister Ulyukayev proposed a possible delay to the ruble free float from the current 2015 target. Remarks are noteworthy, as most officials have consistently said the float would come in 2015. He added that the ruble float should perhaps be tied to financial stability, suggesting Russia sees continued turmoil in EM this year. Yesterday, the central bank of […]
We appear to be on the cusp of a more serious crisis in Argentina, as things are moving from bad to worse. Spot ARS has dropped as much as 20% earlier today, while the implied “blue chip” FX rate has fallen nearly 10% over the past two days. The central bank does not appear to be intervening by selling dollars, […]
By Win Thin and Ilan Solot Despite the growing tensions in Thailand and the risk of military involvement, equity indices stared off the week higher and THB stable. There is some optimism that a possible delay to the February 2 vote could open up space for some sort of compromise. This will be the key factor to watch this week. […]