(from my colleague, Ilan Solot)
1) Argentina (selectively) defaulted
2) The Philippines central bank hiked its benchmark rate for the first time since mid-2011
3) Israel delivered a surprise rate cut
4) Russia delivered a surprise rate hike; EU and US surprised with coordinated sanctions
5) The Brazilian central bank began backdoor easing
6) Korea’s ruling party got a surprise win in the by-elections; central bank tilts dovish
Over the last week in EM equity market, the main outperformers were China (+4.6%), Korea (+2.4%), while the underperformers were Poland (-2.7%) and Taiwan (-2.2%).
In FX markets, TRY (-2.2%), CLP (-2.2%) and BRL (-2.0%) where the main underperformers. The outperformers were CNY (+0.3%) and KRW (+0.1%).
1) The Philippines central bank hiked its benchmark rate for the first time since mid-2011. The move did not come as a surprise since the bank was already in tightening mode prior to the hike. But the fact that the bank did not raise the Special Deposit Account took some of the punch out of the move. Still, more tightening appears likely ahead, which should help insulate the PHP against the nascent trend of USD strength.
2) Argentina (selectively) defaulted. At least according to S&P, the missed deadline to pay $539 mln in interest meant the country’s rating was placed in “selective default.” It is unclear what will happen from here, but it’s unlikely to be good for Argentina. CDSs will probably be triggered and peso may come under renewed pressure unless signs of an alternative resolution (such as a private deal) emerge soon.
3) Israel delivered a surprise rate cut. The rate was cut by 25 bp to 0.5%, and that may not be the end. Shortly after the decision, the deputy governor said that although there is no immediate need for more action, “there is still more room, particularly given that inflation is so low.” The move was attributed to a combination of the impacts from the war in Gaza and subdued economic data.
4) Russia delivered a surprise rate hike; EU and US surprised with sanctions. The 50 bp hike to 8.0% was the third this year as the Russian central bank tries to contain the fallout from the Ukraine crisis and sanctions. We doubt the action will have any material impact on capital outflows, though higher rates may, on the margin, help discourage speculative short RUB positions. On the geopolitical front, the EU and US are moving more in sync to enact sanctions hitting Russian banks, oil companies and military sectors by curtailing their ability to obtain funding in Europe.
5) The Brazilian central bank began backdoor easing. Recent easing of reserve requirements rules, that came the day after the central bank meeting, is seen as potentially freeing up some R$54 bln into the economy. This represents an unwinding of the macro prudential measures and, in theory, can could be seen as an alternative to rate cuts. Still, the measure left many observers (including us) suspicious since inflation pressures are still very elevated, the bank only just ended its hiking cycle, and the proximity to the October elections.
6) Korea’s ruling party got a surprise win in the by-elections; central bank tilts dovish. President Park’s party won 11 out of 15 seats in this week’s elections, cementing the party’s legislative majority. The victory will ensure that the new $40 bln public spending program will continue without much friction. Separately, the BOK minutes showed that the decision to keep rates unchanged at 2.50% was not unanimously. One member called for a pre-emptive rate cut and another member said BOK has more room for further easing. This is in line with our view that the bank is gearing up for a near-term rate cut, taking advantage of degrees of freedom provided by the stronger KRW and stable JPY.
1) Argentina (selectively) defaulted
2) The Philippines central bank hiked its benchmark rate for the first time since mid-2011
3) Israel delivered a surprise rate cut
4) Russia delivered a surprise rate hike; EU and US surprised with coordinated sanctions
5) The Brazilian central bank began backdoor easing
6) Korea’s ruling party got a surprise win in the by-elections; central bank tilts dovish
Over the last week in EM equity market, the main outperformers were China (+4.6%), Korea (+2.4%), while the underperformers were Poland (-2.7%) and Taiwan (-2.2%).
In FX markets, TRY (-2.2%), CLP (-2.2%) and BRL (-2.0%) where the main underperformers. The outperformers were CNY (+0.3%) and KRW (+0.1%).
1) The Philippines central bank hiked its benchmark rate for the first time since mid-2011. The move did not come as a surprise since the bank was already in tightening mode prior to the hike. But the fact that the bank did not raise the Special Deposit Account took some of the punch out of the move. Still, more tightening appears likely ahead, which should help insulate the PHP against the nascent trend of USD strength.
2) Argentina (selectively) defaulted. At least according to S&P, the missed deadline to pay $539 mln in interest meant the country’s rating was placed in “selective default.” It is unclear what will happen from here, but it’s unlikely to be good for Argentina. CDSs will probably be triggered and peso may come under renewed pressure unless signs of an alternative resolution (such as a private deal) emerge soon.
3) Israel delivered a surprise rate cut. The rate was cut by 25 bp to 0.5%, and that may not be the end. Shortly after the decision, the deputy governor said that although there is no immediate need for more action, “there is still more room, particularly given that inflation is so low.” The move was attributed to a combination of the impacts from the war in Gaza and subdued economic data.
4) Russia delivered a surprise rate hike; EU and US surprised with sanctions. The 50 bp hike to 8.0% was the third this year as the Russian central bank tries to contain the fallout from the Ukraine crisis and sanctions. We doubt the action will have any material impact on capital outflows, though higher rates may, on the margin, help discourage speculative short RUB positions. On the geopolitical front, the EU and US are moving more in sync to enact sanctions hitting Russian banks, oil companies and military sectors by curtailing their ability to obtain funding in Europe.
5) The Brazilian central bank began backdoor easing. Recent easing of reserve requirements rules, that came the day after the central bank meeting, is seen as potentially freeing up some R$54 bln into the economy. This represents an unwinding of the macro prudential measures and, in theory, can could be seen as an alternative to rate cuts. Still, the measure left many observers (including us) suspicious since inflation pressures are still very elevated, the bank only just ended its hiking cycle, and the proximity to the October elections.
6) Korea’s ruling party got a surprise win in the by-elections; central bank tilts dovish. President Park’s party won 11 out of 15 seats in this week’s elections, cementing the party’s legislative majority. The victory will ensure that the new $40 bln public spending program will continue without much friction. Separately, the BOK minutes showed that the decision to keep rates unchanged at 2.50% was not unanimously. One member called for a pre-emptive rate cut and another member said BOK has more room for further easing. This is in line with our view that the bank is gearing up for a near-term rate cut, taking advantage of degrees of freedom provided by the stronger KRW and stable JPY.
Emerging Markets: What has Changed
Reviewed by Marc Chandler
on
July 31, 2014
Rating:
Reviewed by Marc Chandler
on
July 31, 2014
Rating:
