US
Financial Stocks Tumble Most In 2 Years, Catch Down To Credit, Red In
2014
15
October, 2014
Despite
manufactured earnings reports that apparently 'beat' US
financial stocks are the worst performer today and down 9% from its
highs in mid-September.
Today's drop in XLF - the Financials ETF - is the biggest since Nov
2012, and is red for 2014 now. Of course, this should not be a total
surprise since US
financial credit spreads have been flashing a much less exuberant
tone for a few weeks...
US
Financials drop negative yearo-to-date, down 9% from the highs...
as
they catch down to credit....
European Stocks Plunge,
Enter Correction (-11% From
Record Highs)
15
October, 2014
Greece
(-6.5% today), Italy (-4.4%), Spain (-3.6%), and Portugal (-3.2%) all
saw major stock price collapses today dragging the broad European
Stoxx 600 index down 11.4% from its highs just 18 days ago... All
European stock indices are now red for 2014
All
European national stock indices are red YTD...
Charts:
Bloomberg
Rouble
hits new low, stocks sag as falling oil burns
- Russian assets hammered by oil price declines
- Gulf bourses also hit
- Oil importing nations see stocks rise
15
October, 2014
LONDON,
Oct 15 (Reuters) - Russian and Middle Eastern markets remained under
heavy pressure on Wednesday as another dive in oil prices - their
main revenue earner - sparked new selling, while slowing global
inflation pushed some emerging market bond yields to new lows.
As
oil slid towards $80 a barrel, the rouble dipped to its weakest level
on record, Russian government borrowing costs hovered at a five-year
high and shares in Moscow fell to near their lowest level since 2009.
It
sparked new measures from Russia's central bank, including another
shift in its currency intervention threshold and auctions for banks
to deposit dollars, but analysts remained sceptical of their success.
"If
the oil price doesn't stabilise, there probably isn't much hope for
the rouble," said Richard Segal, an emerging market strategist
at Jefferies. The currency is down almost 20 percent this year.
MSCI's
emerging equity share index slipped 0.25 percent following a similar
move on Monday. It continued to outperform broader markets, however,
as Chinese , Thai and Turkish stocks - all are big oil importers and
benefit from price falls - saw gains.
Emerging
markets have been suffering as the U.S. Federal Reserve prepares to
end years of aggressive stimulus and heads towards its first
post-crisis rate rise.
But
there are some signs the rising dollar and the impact of falling oil
prices on inflation may cause the U.S. central bank to go easy on
policy tightening.
U.S.
bond yields have collapsed in recent days on that view and government
bond yields in Poland and Hungary, which are also pricing in both
domestic and euro zone policy easing, hit new lows on Wednesday.
Among
other major oil producers, Saudi Arabia saw its stock market lose
another 1.7 percent as the bourse heads for its worst week since
early 2011. Other Gulf markets also sagged, though Nigerian markets
were steadier in west Africa, where the Ebola outbreak has also
fuelled concerns.
Greek
stocks which are now part of most emerging market indexes, fell
another 1 percent to take their fall this week to almost 7 percent
and bond-yields remained above 7 percent. The moves came as fears
grew over whether Greece's fragile conservative-led government can
hold on if new elections are called.
All
data taken from Reuters at 1024 GMT. Currency percent change
calculated from the daily U.S. close at 2130 GMT.
China,
Russia Sign CNY150 Billion Local-Currency Swap As Plunging Oil Prices
Sting Putin
13
October, 2014
While
it is beyond a doubt that the primary catalyst for Europe's
triple-dip recession has been the nearly two quarters and counting of
escalating Russian sanctions that were supposed to solely harm Putin
(because who could have possibly foreseen that plunging German
exports to Russia would have a far greater impact on the
export-driven German economy), the truth is that the Kremlin itself
is starting to hurt, if not so much as a result of the European trade
embargo but mostly due to crashing oil prices, which have been driven
lower almost exclusively by Saudi Arabia as part of its most
recent secret bargain with
the US, a bargain which as we read today is likely
to tear OPEC apart.
One
place where Russia has been hit the hardest as a result of tumbling
oil prices, is the crashing currency, with the Ruble hitting new
record lows against the USD on a daily basis. In fact, as Bloomberg
reports,
Russia has been forced to spend a whopping $6 billion in just the
past 10 days to slow down the tumble of the RUB:
The ruble extended its longest losing streak in more than a year as $6 billion of Russian currency interventions failed to stem the depreciation amid tumbling oil prices.
The ruble weakened 0.5 percent versus the dollar-euro basket to 45.2911 by 1:50 p.m. in Moscow, taking its seven-day decline to 2.2 percent, the longest stretch of losses since the nine days ended Aug. 1, 2013. Oil, which along with natural gas contributes almost half of Russia’s revenue, fell 2.4 percent to $88.08 per barrel in London, the lowest since December 2010.
Russia’s central bank intervened in the past 10 days to stabilize the ruble, central bank Governor Elvira Nabiullina told lawmakers in Moscow today. The action, which comes as President Vladimir Putin orders a withdrawal of Russian forces from Ukraine’s border, has so far failed to halt the ruble’s decline amid a domestic foreign currency shortage stemming from sanctions. The cost of swapping rubles into dollars widened to a record.
“The main driver for the ruble right now is the oil price,” Dmitry Polevoy, the chief economist for Russia at ING Groep NV, said in e-an e-mailed note. Crude’s decline “totally eclipses” the “reassuring news” that Russia announced it was pulling back forces from Ukraine’s borders, he said.
Needless
to say, Saudi Arabia is hardly getting a Christmas card from Putin
this year, although one wonders, just what channels will the former
KGB spy use to retaliate against the Saudi princes. Because retaliate
he will.
In
the meantime, however, Putin has other problems as well, the main of
which is a direct consequence of the tumbling currency, namely
soaring inflation, and the all too possible reality of upcoming price
controls.
Russia’s government is considering freezing prices for some “socially important” goods as inflation nears a four-year high, the government newspaper Rossiyskaya Gazeta reported on Thursday.
Russia had been aiming to bring inflation to a post-Soviet low of 5% this year, but the annexation of Ukraine’s region of Crimea ruined the plan. The annexation and the subsequent sanctions imposed by Western countries have put pressure on the ruble, making imports more expensive. The Kremlin’s decision to ban food imports from states that have sanctioned Russia has further spurred already burgeoning inflation.
Russia’s Industry and Trade Minister Denis Manturov said in an interview with Rossiyskaya Gazeta that the government may artificially stabilize prices for some 40 vital goods if a price jumps by more than 30%. He did not say what these goods were or when the price freeze may happen.
If
Venezuela or Argentina is any indication, price controls always end
badly. And the local population knows this, which completes the
triple whammy of Russia's sharp economic impact, namely
the accelerating
conversion of ruble denominated savings into dollars,
sapping Russian commercial banks' dollar holdings, and yet another
drain on Russia's central bank reserves:
More Russians are keeping their cash in dollars and euros as the ruble falls to records amid central bank efforts to maintain control over the pace of the decline.
The number of people with foreign-currency holdings rose in September from August, Bank of Russia said in its inflation report published Oct. 10. OAO Sberbank, Russia’s biggest lender, had its first drop in retail deposits since May last month, while the premium to swap rubles for dollars climbed to a record at the end of last week, data compiled by Bloomberg show.
Investors are betting the most in six years that central bank Governor Elvira Nabiullina will have to raise interest rates after about $6 billion of interventions failed to prevent the ruble from reaching all-time lows every day last week. While the economy risks sinking into a recession amid U.S. and European Union sanctions over the crisis in Ukraine, policy makers must underpin confidence in the ruble.
“Once the mindset of a crisis sets in, it becomes a self-fulfilling prophecy,” Neil Shearing, an economist at Capital Economics Ltd. in London, said by phone on Oct. 10. “Residents start to anticipate further weakness in the ruble and shift out of rubles and into hard currency and that precipitates further weakness.”
To
be sure, the traditional read through of this news is quite negative
for the economy of yet another country which is reliant on the
petrodollar. On the other hand, another take is that the collusion
between the US, Europe and now Saudi Arabia will merely force Russia
to accelerate its bilateral ties with China, in everything from trade
to capital flows. Indeed, that is precisely what is happening.
As RIA
reported over the weekend, China
is ready to export agricultural products and oil and gas equipment to
Russia, China’s Vice Premier Wang Yang stated Saturday.
Products, for which Russia could pay in either Rubles or Renminbi,
thereby accelerating the de-dollarization of bilateral commercial
relations.
"China is willing to export to Russia such competitive products as agricultural goods, oil and gas equipment, and is ready to import Russian engineering products," Wang Yang said during the 18th session of the Russian-Chinese Commission for the Preparation of Regular Meetings of the Heads of Governments.
He noted that trade turnover between Russia and China is increasing every year. Compared to the same period of 2013, it has already grown by 6.7 percent. This trend will help to accomplish the task to increase trade turnover to $100 billion by 2015. The Russian-Chinese Commission for the Preparation of Regular Meetings of the Heads of Governments is currently taking place in Sochi. The annual Russian-Chinese Economic Forum is held within its frameworks.
The participants of this year's forum have noted a positive trend in the development of joint investment, economic, industrial projects, and strengthening of partnerships between the two countries.
Bloomberg
added that Russia, China sign accords on energy, banking, technology,
during a ceremony overseen by Russian Prime Minister Dmitry Medvedev,
Chinese Premier Li Keqiang in Moscow. Pacts include accords on east
gas pipeline route, double-tax treaty, satellite navigation,
high-speed rail cooperation, Rosneft-CNPC cooperation, local-currency
swaps, and so on. China Exim Bank also signs accords w/ VTB,
Vnesheconombank, Russian Agricultural Bank.
And
the cherry on top came moments ago when, as if to assure all involved
parties that there will be enough capital support on both sides,
the PBOC
released a surprising announcement that
the central banks of China and Russia signed a 3-year, 150 billion
yuan bilateral local-currency swap deal today, according to a
statement posted on PBOC website. Deal can be expanded if both
parties agree, statement says. Deal aims to make bilateral trade and
direct investment more convenient and promote
economic development in 2 nations.
To
be sure, some such as Bloomberg, are
skeptical that
the unprecedented pivot by Russia toward China as it shuns the west,
will merely harm the Kremlin.
Others, however, wonder: who will be
left standing: Europe, with its chronic deficit of energy and
reliance on Russia, a country overflowing with natural resources, or
Russia, whose economy is currently underoing a dramatic and painful
shift, as it scrambles to dissolve all linkages to the Petrodollar
and face the Gas-O-Yuan?
Perhaps it is worth refreshing this subject
in a few months, after Europe's economic situation is made far more
clear after what is sure to be a long, cold winter.
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