Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 24 May 2016 at 12:00 GMT

Daily Shot: Emerging markets under pressure Team / Saxo Bank
  • EM markets worldwide under pressure though for varying reasons
  • Polish zloty falls to a 3-month low vs euro
  • Saudi shares hammered as investors retreat
  • Kenya cuts rates for first time since 2013 in surprise move
  • Short-selling in Hong Kong shares spikes
  • High debt-to-GDP rates in many EM countries
  • Steel and iron ore trader sentiment sours

By Walter Kurtz*

We begin with several developments in emerging markets.

1. Saudi shares have been pummeled as equity investors continue to exit the Gulf states.
2. The Mexican peso is under pressure again, now at 18.5 to the dollar. Time for a Banxico rate hike to defend the currency? It's certainly time for a Mexican vacation.
Retail sales in Mexico remain quite robust. Some suggest that a portion of this improvement in retail is due to the higher buying power of repatriated dollars (one dollar now buys 18.5 pesos rather than 13 a couple of years ago).
retail sales
3. The Polish zloty falls to a 3-month low vs. the euro as a result of the government's standoff with the constitutional court.

4. Israel's government makes a shift to the right.
5. Kenya's central bank unexpectedly cut rates for the first time since 2013 on slowing inflation.
6. Shortages are becoming acute at the wholesale level in Venezuela (although cutting sugary drinks may not be a bad thing).

7. Short-selling in Hong Kong shares spikes.
Hong Kong
8. The comprehensive chart below shows the total leverage and the breakdown for major emerging economies.
debt to gdp

9. At high debt levels, increasing leverage produces diminishing benefits to a nation's standards of living.
living standards
High leverage levels also reduce returns on assets.

1. Switching to China, sentiment among steel and iron ore traders sours again in spite of a relatively robust demand.

2. In fact, iron ore is down 6% on the day in Singapore trading.

3. It's important to point out that thus far, China's steel mill profitability is up sharply.
4. Some of this fresh demand for steel comes from stimulus-driven fixed asset investment. China's addiction to investment-based growth will be hard to shake.

end use
5. Morgan Stanley published its scenarios for China's deleveraging. A "gradual adjustment"? Perhaps.
— Edited by Clare MacCarthy

* Walter Kurtz is an alias

**This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot here. E-mail addresses are never shared with anyone


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