› News for August 14

News for August 14

The financial crisis in Turkey becomes a real nightmare not only for local banks but also for some European institutional investment bankings like BPN Paribas. Financials suffer across the board weighing on other equities and overall Stock Indices go down on fears and worries that this turmoil could affect the financial system worldwide. The real cost of borrowed capital runs 300 basis points ahead of the government bond yields. This differential is a sure sign of financial crisis when it’s harder to get external funding when it’s needed. Two more factors are adding pressure: growing inflation and falling currency. Turkish Lira was down 27% in 2018 versus USD and plunged 18% more on Friday when the newest U.S. sanctions were announced. The selloff continued on Monday with the currency rewriting historical lows. This toxic news created a panic run of the investors heading into safe haven assets and currencies.

The local Turkish debt market became worse this year, replacing Argentina’s dramatic performance. Local obligations and carry operations dive deep after the Lira plunge earlier last week. Both countries show losses on local operations, the worst performance among the average in developing countries which is currently equal to 4.7%. Lira-nominated obligations owners lost 38% in dollar equivalent after these bonds became cheaper for 8% in one single trading week while losses of Argentina bonds were stable at 36% mark. Investors who had loans in USD in order to buy Lira-nominated assets lost 22% compared to 20% losses on operations with Argentina Peso.

Meantime, the U.S. Federal Reserve signals further interest rate hikes. The next one is expected to happen during the September meeting and some analysts predict even the fourth hike this year. According to the statement of the Federal Open Market Committee which has been published on Wednesday, the regulator is confident about the stable and sustainable growth of the economy operating at very low unemployment levels. The CapEx investment is growing across the board stimulating businesses to enlarge the expansion to the local economy and affect the robust growth of the U.S. GDP. At the same time, the Fed underlines the fact that the current targeting range of the interest rates at 1.75-2% is still stimulative for the economy. This leaves the room for further tightening in the upcoming year.

The trade tensions between China and the United States continues to escalate. Beijing threatens to stop importing American oil after the both countries’ officials failed to have an agreement and the U.S. side promised to enlarge import tariffs for Chinese goods from 10% to 25%. There are rumours on the market that the trading department of Chinese Sinopec Corporation stopped placing trade orders for Americal oil till October at least. This decision has been already made and implemented by China officials as traders of other companies also reduced the overall volume of buy orders. At the same time, China refused to decrease the oil import from Iran despite the U.S. sanctions against that country which started on August 6. Chinese companies and officials acted the same way before when the UN sanctions to Iran were implemented. This was exactly the reason why Iran managed to hold the oil output at 1 million barrels per day.

 trade tensions between China and the United States
Source: Asia Times

Russian industrial sector declined in July, the first time in two years. It is the third month of the business activity slowdown according to IHS Markets’ top-managers survey. The Purchase Managers Index (PMI) which calculates the total volume of industrial production, the number of employees and the number of orders fell from 49.5 to 48.1 points. It is the third time this year when the index is below 50 level which divides growth and decline. The quarterly slide of the indicator for 3.2 points became the worse performance since winter 2015 and the reading was minimal since April 2016. The internal and external demand is decreased the first time in 2018. New business volumes are down the second month in a row. The resources needed for the industrial production became more expensive due to the Rouble weakened. This fact together with the spike in petroleum prices forced the manufacturers to decrease their purchase activity to 3-months low.

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