Today is news
Expect slight positive reaction to the announcement of expanding stimulus program in China. However, the decision was expected by investors, which should limit the positive effect on the market.
Chinese leaders signaled they would take further steps to support growth including widening fiscal deficit and stimulating the housing market. “Monetary policy must be more flexible and fiscal policy – more forceful”, as leaders create “appropriate monetary conditions for structural reforms,” according to statements released in the end of the government’s Central Economic Work Conference by the official Xinhua News Agency on Monday
EM DATA EM Market Data 22 December
CEEMEA (Central & Eastern Europe, Middle East and Africa)
REGION SUMMARY Expect flat trading today, as many investors have already limited their activity ahead of Christmas holidays.
MACRO Fitch positively assesses Azerbaijan’s move to introduce the floating exchange rate of manat for the sovereign economy. However, the agency expects quite strong negative consequences for the banking sector. We still await some correction in mid- and long- term IBAZAZ issues.
Fitch noted Azerbaijan’s adoption of a floating exchange rate regime for the manat will assist the sovereign’s fiscal and external adjustments to lower oil prices and protect buffers. However, on the other hand, manat’s fall “will hurt the already fragile banking sector, as loan dollarization is high. The Azeri banks have large amounts of foreign-currency denominated loans, and capital ratios will drop across the board due to the inflation of risk-weighted assets related to these loans. Also, several banks run considerable amount of unhedged short currency positions and will have to book significant one-off translation losses. Fitch also mentioned that “although the banking sector was an area of weakness, its small size (with assets at 50% of GDP in 2015) allowed the government to provide the needed support”.
Kazakh central bank Governor Daniyar Akishev said tenge might rebalance, if Russian ruble weakened 10% against USD, and oil fell below USD 30. Kazakh central bank also considering cutting dollar deposit rate.
CORPORATE Actually, Vneshprombank’s Eurobond could still be attractive for the distressed investing, given the potential bond recovery in comparison to the current price. As reported, Bank of Russia has placed moratorium on Vneshprombank debt payment for 3 months. According to the law, the moratorium is an insured event, and in two weeks the Deposit Insurance Agency will start repaying deposits to the individuals who had deposits in Vneshprombank.
REGION SUMMARY Regional bonds market was relatively flat yesterday. Today market is supported by expectations of China’s stimulus measures.
MACRO Concerns are growing among investors that India’s growth slowdown may lead to a substantial increase in country’s borrowings. Fiscal situation is one of the main drivers for the country’s capital market.
Indian bond market continue to decline on concerns about slowing economic growth that may put the budget deficit target at risk. The country’s finance minister stated the government might have to reassess its fiscal projections for the year starting April, 1. Such comments came after policy makers reduced their estimates of economic growth later this month. Investors are concerned about a high probability of increasing borrowings next year to finance the growing budget gap. The fiscal situation is one of the main drivers for the India’s capital market.
INDUSTRY For investors in iron ore industry we confirm our recommendation to stay with the market leaders only, as other producers will not withstand the period of extremely low prices. Australian Department of Industry & Science announced its forecasts for iron ore prices in 2016. According to the department, prices will average USD 41.3 per t, while previously it forecasted USD 51.2 per t. The Department noted it expected iron ore export from Australia to increase 13% in 2016 after rising 7% in 2015. This predictions are in line with general market expectations on future prices. We confirm our recommendation for investors to stay with the market leaders only, as other producers will not withstand the period of extremely low prices. Ivan Fink from Schildershoven Finance NV
REGION SUMMARY Latin American bonds market decreased due to slight decline in oil prices and increased risk-off sentiment that came from Brazil. Brazilian BXBZCRP Index decreased 52 bps.
MACRO Barbosa undetailed comments disappointed investors. It looks like he will face the same challenges as the former finance minister, in an effort to improve fiscal discipline. Investors should be prepared for growing volatility.
Brazilian bond market was under pressure yesterday, as new finance minister comments didn’t inspire investors confidence. The market expected him to announce possible detailed measures to stabilize economic situation in the country. Barbosa didn’t specify any issue. Previously, he promised to achieve tax on financial operations (CPMF tax) approval in Congress at the beginning of 2016. Congress president Eduardo Cunha stated the Congress wouldn’t pass the tax. CPMF tax temporary implementation is one of the critical reforms in stabilizing the complex fiscal situation. It is difficult to predict future dynamics on this side. Investors should be prepared for growing volatility.
According to the latest polls, Dilma Rousseff has enough support in Congress to withstand the current political crisis.
According to Folha, one of the main Brazilian business newspapers, over 42% of lawmakers support impeachment of the president. Currently, it looks like Dilma Rousseff has relatively high chances to withstand the political crisis. We will closely monitor further news from this side.
Brazilian Congress will vote on recess today. It would be negative for the economy, if the Congress takes a recess.
Today, Brazilian Congress will decide on winter recess. Government supporters want to skip holidays to accelerate impeachment hearings. Opposition lawmakers are trying to extend the period of hearings. For the country’s economy impeachment hiring extension is negative, as we don’t expect any reforms to be implemented during this period.