Argentina’s currency has all but collapsed as the emerging markets crisis gathers steam:
“Argentina is struggling to cope with yet another financial crisis.
“Investors are increasingly concerned Latin America’s third-largest economy could soon default as it struggles to repay heavy government borrowing. This comes after Argentina’s government unexpectedly asked for the early release of a $50 billion loan from the International Monetary Fund (IMF) on Wednesday.
“The Argentine peso crashed to record lows on the news. It saw steep losses in the previous session and collapsed another 15 percent to hit 39 pesos against the U.S. dollar on Thursday morning.
“The peso is down more than 45 percent against the greenback this year, exacerbating pre-existing fears over the country’s weakening economy while inflation is running at 25.4 percent this year.
“On Thursday, the central bank said it was increasing the amount of reserves that banks have to hold, in a bid to tighten fiscal policy and shore up the currency. It hiked rates by 15 percentage points to 60 percent from 45 percent and promised not to lower them at least until December.”
“Turkey’s currency plunged on Thursday following a report suggesting that the deputy governor of its central bank would resign. The lira was down 5% to 6.7719 against the dollar at 8:45 a.m. ET. It has lost more than one-third of its value this month…”
“Recently, Iranians have been flooding local banks to acquire dollars so much that exchanges have been forced to shut their doors to prevent long and chaotic lines. The problem for the Iranian government is mounting as average citizens fed up with both a weak economy and a plunging currency have taken to the streets in several cities across the country in protest.”
“The Indian rupee breached the 71 mark for the first time in the morning trade Friday. It has opened at a fresh record low of 70.95 per dollar versus previous close 70.74.”
“Indonesia’s rupiah slid to a two-decade low, spurring intervention from the central bank as the meltdown in Argentina and Turkey raises scrutiny on emerging markets with current account deficits. The rupiah fell to 14,750 per dollar, the weakest level since the 1998 Asian financial crisis…”
“The world-beating slump on Chinese equity markets may have more room to run, if the number of companies with stock prices below either their 200-day moving averages or book values is anything to go by. Of the 1,478 stocks on the benchmark Shanghai Composite Index, 93.3 per cent have fallen below their average prices for the past 200 days, according to Bloomberg data… At the same time, the number of stocks with prices below book values indicates that there is more gloom to come.”
“China’s private equity industry is cooling, with fundraising on course for one of its worst years since the global financial crisis and returns under pressure, hurt by tighter domestic liquidity following Beijing’s war on debt and Sino-U.S. trade tensions.”
“South Korea’s central bank on Friday left its benchmark interest rate unchanged for the ninth consecutive month amid the worsening of recent economic indicators. Bank of Korea Governor Lee Ju-yeol and six other policy board members decided to freeze the policy rate at 1.50 percent. The BOK refrained from altering the rate since it raised its target rate to the current level from an all-time low of 1.25 percent in November last year.”
“Japan’s factory output fell for a third straight month in July due to slowing exports of cars and steel and flooding that disrupted production, compounded by global trade tensions that cloud the export-reliant economy’s outlook… Factory output has levelled off in recent months due in part to a slowdown in exports. Natural disasters, including early July’s heavy rains and flooding in western Japan, temporarily halted production at some companies such as carmakers.”
“As Canada’s yield curve sits on the cusp of inverting for the first time in more than a decade, the nation’s central bank believes there’s little cause for alarm. The world’s largest money manager isn’t so sure. Bank of Canada Governor Stephen Poloz says overwhelming demand for long-dated bonds is distorting the curve’s recession signaling mechanism. Yet BlackRock Inc. says banks will become increasingly reluctant to lend as Canada’s term structure turns negative.”
“In addition, if the artificial boom ends when interest rates are no longer artificially depressed, then it stands to reason that the structure of interest rates will also revert to its natural state… the next U.S. recession may prove unusually severe by historical standards… Approximately one year ago… then Federal Reserve Chair Janet Yellen believed the next recession-driven financial crisis may be averted for at least a generation or so… You know nothing, Janet Yellen. Winter is coming.”
“Ireland’s famous green pastures and cool climate are a perfect environment for grazing dairy cattle — but not this year. The sweltering summer turned lush fields brown and led to shortages of fodder for the country’s millions of cows. Months of drought and heat have also caused problems across the European Union, the top milk exporter. Farmers from Ireland to Germany have had to cull herds or stop milking months early.”
“An increasingly likely disorderly exit of the United Kingdom from the European Union could lead to a new financial crisis in Europe, German finance minister Olaf Scholz warned on Thursday. Speaking during the ongoing “Handelsblatt” banking conference in Frankfurt, Scholz cautioned that it was still “difficult to say whether (a post-Brexit agreement) can be reached” before London crashes out of the bloc on March 29 2019. As a consequence, the minister recommended to business leaders to make the necessary preparations for a “disorderly Brexit” until it was too late.”
“Foreigners’ net holdings of British government debt fell by a record amount last month, a move partly driven by a large volume of maturing bonds but one which also revived concerns about the effect of Brexit on investor appetite… Bank of England data released on Thursday showed a net 17.153 billion pound drop in foreigners’ holdings in July, the largest since records began in 1982…”
“Consumer borrowing growth slowed sharply in July as Britons tightened their belts and lenders became more cautious. The annual pace of credit growth dropped to 8.5 per cent, the lowest level since November 2015, according to Bank of England data published on Thursday… The Bank of England would likely welcome the slowdown in consumer credit growth as it was concerned about “pockets of risk” but would not want to see unsecured lending dry up.”
“The UK housing market has slowed to its weakest in five years as fewer mortgages have been given to buyers so far this year than at any point since 2013, when banks and the market were still recovering from the financial crisis.”
“European Union Commissioner Guenther Oettinger chided Italy on Friday about its high debt levels – the second in Europe behind Greece – and warned that market confidence could be eroded if Europe raised its overall debt… Oettinger said he took seriously Italy’s threat to veto the EU’s seven-year budget plan if the bloc does not share the burden of migrant arrivals. However, he said Italy had obligated itself as a member of the EU to make its budget payments and also benefited from the bloc’s outlays.”
“The escalating trade war between the U.S. and China could lead to a “global economic crisis,” according to George Yeo, a former Singapore foreign and trade minister. “It’s not good for us in the near term if it leads to a global economic crisis, which may well happen,” Yeo said. “I mean we’ve just had Trump threatening to leave the WTO if it doesn’t change in the U.S. favor,” he added. “So all this is causing a lot of anxiety all around.””
“Summer holidays are almost over, but trade wars are just heating up. This doesn’t mean anything good for global exports, according to research by Bloomberg Economics. Examining the weighted average of growth in cargo volume at nine of the world’s busiest ports suggests a marked slowdown.”