So much is going wrong in Brazil that it is hard to keep up. For years, critics have accused the government of incompetence. Now its actions are looking catastrophic – so much so that there are good reasons to think President Dilma Rousseff, who began a second four-year term only on January 1, may not last much longer.
Here is our list of 10 things that threaten to bring her down. Read more
How much bang do fund managers give for their investors’ bucks? It’s a question that has provoked plenty of debate in the FT recently, prompted not least by the “scandalous index cloning epidemic” in which supposedly active managers charge high fees for simply following a benchmark.
EM investors are far from immune. So they may be interested to hear of a new service offered by Copley Fund Research, which tracks the performance of 100 of the biggest global emerging market equity funds, with a combined $265bn of assets under management. Read more
Developed country central banks that see quantitative easing as a route to recovery are merely inflating bubbles, driving up the prices of assets held by rich people and failing to deliver growth on the ground. So says Atiur Rahman, governor of the central bank of Bangladesh.
“QE will lead to bubbles and overheating,” he said during a visit to beyondbrics on Friday. “They are creating liquidity in the air and never really touching the ground.” Read more
Turkish lira per US dollar, 3 months to Feb 4. Source: Thomson Reuters
The Turkish lira went on a fresh slide on Wednesday, adding to its losses over the past fortnight. Investors have no doubt been alarmed by the pressure piling on Turkey’s central bank from the luscious new presidential palace in Ankara. But the lira’s new weakness may also signal an unwinding of some strongly bullish positions on Turkish local debt taken by foreign investors in recent months. Read more
Just what are we to read into this? Mainstream and social media in India are abuzz with the revelation that, when Prime Minister Narendra Modi met US President Barack Obama on Sunday, the pinstripes of his suit were not pinstripes at all but his full name, Narendra Damodardas Modi, spelt out in block capitals over and over again. Read more
PIB = GDP, IPCA = CPI. Black lines = 2015, red lines = 2016. Source: central bank
The task facing Brazil’s new economics team came further into focus on Monday morning with inflation expectations rising and the consensus on economic growth falling, both for the fourth consecutive week. The central bank’s latest weekly survey of market economists has GDP rising just 0.13 per cent this year, down from the 0.55 per cent expected four weeks ago, while consumer price inflation is seen ending the year at 6.99 per cent, up from 6.53 per cent four weeks ago and some way beyond the upper limit in the government’s target range of 4.5 per cent plus or minus two percentage points. Read more
Investors are often known to buy on the rumour and sell on the fact but on Thursday, following the announcement of the European Central Bank’s €60bn-a-month asset-buying programme, they carried right on buying.
That’s true, at least, of central and eastern European currencies, if you measure them against the freshly-weakened euro. Read more
After building expectations for so long, it will come as a disappointment today if the Eureopean Central Bank does not promise to buy (or have others buy) €50bn’s worth of assets every month for at least the next year.
Assuming Mario Draghi delivers as hoped, what will it mean for EM? Will ECB QE pick up where the US Federal Reserve’s variety left off, floating EM asset prices once again? Beyondbrics has been asking around. Read more
The gloom continues to darken over the outlook for Brazil’s economy this year but, for the time being, investors are betting that the country’s very high interest rates are worth the risk.
The central bank’s latest weekly survey of market economists shows the consensus on economic growth this year falling yet again, to just 0.38 per cent. Inflation expectations, meanwhile, have crept up again, to 6.67 per cent, beyond the upper limit of the government’s target range. Read more
Those who relish irony will have found much to savour in the Swiss central bank’s actions on Thursday when, as Mohamed El-Erian comments, we were reminded of the dangers of substituting financial engineering for real economic reform.
The choicest item is the way that Hungary’s authorities have emerged, as analysts at Commerzbank put in on Friday morning, looking like “financial experts of the highest calibre” – not an opinion often heard on financial markets. Read more
This is what happened to the Hungarian forint and the Polish zloty, measured against the euro, after the Swiss central bank abandoned its currency peg on Thursday.
Source: Thomson Reuters
Capital flows to emerging markets fell sharply in 2014 and will fall again in 2015 before a modest recovery in 2016, according to estimates by the Institute of International Finance in a report to be published on Thursday. Read more
Investors used to studying Venezuela’s financials for signs of impending default might want to switch their attention to the queues building outside supermarkets across the country, as Venezuelans find it harder and harder to buy the most basic household goods.
The threat of rising social unrest leaves the government in Caracas with a choice: should it use its scarce resources to pay bondholders, or to put groceries on the country’s shelves? Read more
The year is barely under way and already Brazilian analysts are hurriedly revising down their projections for economic growth in 2015. In the central bank’s second weekly survey of market economists of the new year, published on Monday, gross domestic product is seen expanding by just 0.4 per cent, down from 0.5 per cent expected last week and about 0.7 per cent a month ago.
It is an inauspicious way to begin a year that not only will be hugely significant for Brazil but in which Brazil – or so Manoj Pradhan and Patryk Drozdik of Morgan Stanley argue in a note on Monday – will be hugely significant for the rest of EM. Read more
There are few more sure signs of economic meltdown than a run on a country’s banks. In Venezuela, however, the currency is losing its value too quickly to be worth running after. Instead, Venezuelans are going after groceries. The country is seeing a run on its supermarkets that is gathering pace by the hour. Read more
Consumer price inflation in Brazil was 6.4 per cent last year, the country’s statistics office said on Friday. This was in line with expectations but it will nevertheless have provoked sighs of relief in Brasília. While inflation was well above the government’s target of 4.5 per cent, it did at least remain within its tolerance band of 2 percentage points, so the central bank will not have to write to the president to explain its failure to do its job.
It is yet another case, in Brazil, of things being good only because they are not outright bad. Read more
In the long-running battle between contagion and differentiation in emerging markets, contagion currently has the upper hand. That’s hardly surprising when you look at the size of the shock coming out of Russia and the failure of Monday night’s 650 basis point interest rate rise to deal with it. Nothing on this scale has been seen since 1998.
Rouble per US dollar, year to date. Source: Thomson Reuters
But contagion is not absolute and some EM currencies are bucking this month’s sharp falls, at least for now. Below, we present charts that show how the big EM currencies are faring in these times of extreme stress. Read more
With only a couple of weeks left in the year, Brazil watches are still revising downward their view on GDP growth for 2014. The central bank’s latest weekly survey of about 100 market economists has GDP growth coming in at a feeble 0.16 per cent this year, down from 0.18 per cent a week ago and 0.21 per cent a month ago. The consensus for 2015 is also sliding: just 0.69 per cent growth is expected in this week’s report, down from 0.73 per cent last week and 0.8 per cent a month ago.
Those looking for a silver lining to this darkening cloud may argue that it reflects a conviction among analysts that Brazil’s new economics team under Joaquim Levy at the finance ministry (pictured above) is serious about reining in the public deficit and that this, while positive in the long term, will dampen growth in the interim. Read more
Economic growth across emerging markets is expected to reach an annual rate of 3.9 per cent in the final quarter of this year, slightly up on the estimated 3.7 per cent in the third quarter, according to the Institute of International Finance. But the IIF’s Coincident Indicator, based on 41 macroeconomic variables that it says are highly correlated to EM growth, shows growth is still well below the average rate of 4.5 per cent seen in 2012 and 2013.