Tuesday, January 28, 2014

LEHMAN 2.0? THE EMERGING MARKET CRISIS HAS BEGUN

LEHMAN 2.0? CHINA HALTS ALL BANK TRANSFERS FOR 3 DAYS!
*Update: China Compass is denying Forbes’ Gordon Chang’s report, stating: The PBOC has not—repeat not—asked Citibank to stop customers from wiring funds... Chang’s understanding of Chinese culture evidently does not extend to the timing of bank holidays.
It appears that China’s credit crunch liquidity crisis ahead of this week’s impending default of Credit Equals Gold wealth product is intensifying, as the Chinese Central Bank has just ordered commercial banks to halt all domestic renminbi bank transfers for 3 days, and renminbi foreign currency conversions for 9 days!
Emerging Market Pain Continues
Emerging markets are getting roughed up.
India fell 1.8%. Thailand dropped 2.6%. Jakarta dropped 2.4%. Elsewhere in Asia, Hong Kong lost 2.1% and Shanghai lost 1%.
Things are bad on the emerging market currency front as well. The dollar is hitting new highs against the Turkish Lira and the South African rand.
HSBC’s Four Reasons Why Current EM Jitters May Last
While HSBC itself may be having some rather substantial capital outflow issues, that does not prevent its head of EM research, Pablo Goldberg, to list four reasons why the current series of “painful though unrelated flare-ups” in key markets may last. To wit:
1) Reinforcement of preference for DM vs EM
  • While EM have cheapened vs DM, value might not be enough as long as the flow continues to favor DM
2) Potential short-term solutions leading to longer-term problems
3) FX depreciation leading to outflows from local markets
4) Due to decentralized nature of these shocks, no silver bullet can restore appetite for risk
Of course, he saved the best for last: “Unlike the market shocks of recent years, QE or IMF bailouts unlikely to come to rescue this time.” Which really is all that matters in a time when the Fed has begun tapering and any market not economy data-driven untapering, will merely serve to kill its credibility that much faster.1
Finally, in order to assess EM demand, Goldberg recommends tracking 1Y/1Y swaps, China PMIs and EPFR flows data to see when/if the capital outflow trend will reverse.
Source: Bloomberg
update Jan 27, 2013 5am NY Time:
The 3 culprits behind the emerging markets rout
 
update: 10PM NY TIME JAN 27, 2013:
Did the Fed sink the emerging markets?
 
Argentine Peso Leads Emerging-Market Currency Rout as Lira Sinks
 
The Emerging Market Crisis
Emerging-Market VIX Surges Most in Two Years on Selloff
Are emerging markets on the brink of another crisis?
Are We On The Verge Of A Massive Emerging Markets Currency Collapse?
This time, the Federal Reserve has created a truly global problem.  A big chunk of the trillions of dollars that it pumped into the financial system over the past several years has flowed into emerging markets.  But now that the Fed has decided to begin “the taper”, investors see it as a sign to pull the “hot money” out of emerging markets as rapidly as possible.  This is causing currencies to collapse and interest rates to soar all over the planet.  Argentina, Turkey, South Africa, Ukraine, Chile, Indonesia, Venezuela, India, Brazil, Taiwan and Malaysia are just some of the emerging markets that have been hit hard so far.  In fact, last week emerging market currencies experienced the biggest decline that we have seen since the financial crisis of 2008.  And all of this chaos in emerging markets is seriously spooking Wall Street as well.  The Dow has fallen nearly 500 points over the last two trading sessions alone.  If the Federal Reserve opts to taper even more in the coming days, this currency crisis could rapidly turn into a complete and total currency collapse.
A lot of Americans have always assumed that the U.S. dollar would be the first currency to collapse when the next great financial crisis happens.  But actually, right now just the opposite is happening and it is causing chaos all over the planet.
Strongman Shelford

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