*Forget the "old" protectionism with tolls, etc -the financial protectionism/crowding out effect is much worse
The slow but steady process of banks using government capital to recapitalise with the aim to paying back as soon as possible (its not cheap) is continuing. Leading to no further lending whatsoever and breaking down the supposedly intermediary capital function banks are supposed to have in the process.
The massive misvaluations of balance sheets assets combined with a desperation to shrink ditto will guarantee banks continue to hoard capital in expectation of upcoming creditlosses. As the banks situation gets progressively worse in line with asset values deteriorating, the strategic focus will increasingly be on the domestic market. This process will take place with or without government intervention, although government intervention is becoming increasingly likely for a decent share of European banks.
This background explains why there will be a crowding out effect for the CEE and Baltic countries in that there is simply less capital available and a larger share of the capital available is put to use on the domestic front. CEE and the Baltics bank systems are in the process of getting "crowded out" - financial protectionism in that with only a limited support from their bankowners, the cost of capital for refinancing increases drastically.
* "Coordinated" verbal intervention from Hungary and Poland yesterday - nice try
Officials from the central banks of Hungary, Romania and Poland yesterday made an attempt to scare off speculators by warning of potential intervention to defend their respective currencies.
analysts have concluded that this might actually help calming the markets down. I beg to differ. I seriously doubt that the ECB will have anything to do with this so I expect them to be on their own.
"They" are caught between a rock and a hard place;
Fundamentals are working against them, carry investors have been carried out. they are left with hard currency debt and ever widening current account deficits. Whatever FX reserves they have they will need going forward for fiscal stimulus financing.
If they want to burn it on giving it to speculators, fine, but eventually they will (hopefully) get the drift and bite the bullet. Unfortunately politicians tend to want to stay in power, even if it means burning down the house.
Chase made an estimate of how much western European banks stand to loose in the CEE and Baltics area; 65 BN Eur. 25 Bn Eur on conversion losses and 40 Bn Eur on pure creditlosses. Mind you, this might be on the low side as well.
*Whats the fuzzabout?
So far this week cant say theres been much in the way of chaos, quite the opposite; rather calm and orderly markets actually. Wonder how long it will last for. At least the CDS market seems quite wild still with CDS spreads for CEE and western sovereigns reaching record levels.
At least the Jpy and Chf are weakish and are set to contunue to near term. This is actually something that could become a positive force in all the negative as it would offload pressure on the pace of deleveraging.
Unfortunately I think the CEE, Euroarea and Baltic issues might dominate near term.
* Russia debt negotiations have started
This is leaving hopes for a substantial write off of the 500 BN Usd hard currency exposures Russian corporates have vs western counterparts. Doubt they will reach a solution at this stage but meanwhile Ive closed my RUB exposure not to get caught. Once these negotiations are over I have a feeling it might be time to get in on that trade again.
* Mutual funds
Interesting to note that mutual funds have not dumped shares in 2009, on the contrary, they have actually been reducing their selling. Equity outflows so far this year is running 40% below last years pace. If a bottom would be in sight for equities, one might expect these funds to be dumping everything. Not even close, thus.
* South Korean Exports - a global GDP indicator
This upcoming Monday South Korean exports are out, since they basically cover the globe with their exports, it should provide a quite good indication of what is to come near term. Something to pay attention to.
* Taiwans 2009 GDP getting revised down.
Last week Taiwans 2009 GDP was consensus at -2%. Following last weeks Q4 GDP of -8.4%, GS is now revising it down to -6.5%,,, huuuh
As always, good luck
The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.
Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.
Subscribe to:
Post Comments (Atom)
Posts
2 comments:
I have recently come across your blog, and must say that as far as generating macro-ideas go.. your blog is one of the most useful that I have seen so far...
Well, thank you AGB, appreciate the positive feedback. Trying to put some effort into it so always good to hear that it is being recognised.
Post a Comment