This installment in our occasional and disjointed series into the risk of balance-sheet driven currency crises in EMs — based on the hidden debt that lurks beneath — features a new if well flagged villain: oil.
The broad question as ever is: have the majority of emerging markets still got manageable foreign currency external debt levels? And do they rule themselves out as candidates for a self-fulfilling currency crisis? Even when dark debt is taken into account?
Tl;dr: Yes, with a few exceptions. Read more
Once upon a time there was a magical land called Ru, where the roads were paved with oil and the houses were built from kitsch gold blocks. Because its capital glistened with a red petroleum hue, it became known to all around as the wonderful Crimson City of Ru.
There, all the residents rejoiced night and day safe in the knowledge their needs would forever be catered to. Why? Because the Wonderful Wizard of Ru, known by some as “Ru the great and the terrible”, would see to it that the kingdom was always defended from its greatest enemy: the Wicked Witch of the West.
Ru was the most wondrous place in the world. Read more
It’s a good job the London housing market is indestructible, otherwise the collapse of the Russian currency might be cause for concern in Belgravia. After all, Russians were buying one in every five “super-prime” properties this year.
That stat comes via Knight Frank, who consider £10m-plus pied-à-terres to be super prime. In the six months to October, 21 per cent of the high end sales closed by the estate agent went to Russians.
Infographic of the golden postcodes after the jump. Read more
For those of you who, like me, slept through the CBR’s attempt to sledgehammer the cumbling rouble back into some sort of shape by hiking 10.5 per cent to 17 per cent…
Remember when breaking 60 was a thing? (Update at 0700ish: The rouble is up 6.2 per cent in early Tuesday trading to 60.27 per dollar) Read more
**10.5 per cent to 17 per cent**
Click to enlarge for the Central Bank of Russia’s emergency rate hike at 1am Moscow time — surpassing both the Turkish central bank’s hike in January this year and the Bank of England’s 500bps of moves on one day in 1992. Lamontsky.* Read more
Take another 100bp puny market!
Oh… Read more
Excuse, courtesy of Deutsche’s Jim Reid…
Briefly back to the Oil theme, the effect of the recent slump continues to have a negative impact on the Russian Rouble. The currency was down as much as 6.6% yesterday versus the dollar before paring back some of those intra-day losses to close around 4.5% lower on the day (at 51.65). The currency has now declined 30% since the end of September. Russia’s 5yr CDS widened a further 26bps yesterday to 344bps whilst the 10y government bond yield finished 15bps higher at 10.76%. The moves also come on the back of an announcement by the Finance Minister Siluanov last week that capital flight may reach $130bn in 2014 – the most since 2009.
Meet the real reason for this post, from a Russian corner of the internet, via Katie Martin: Read more
Dunno what we’re talking about?
Read the otherworldly (and exclusive) story from Sam Jones: Object 2014-28E – Space junk or satellite killer? Russian ‘UFO’ intrigues astronomers. Read more
Ukraine will probably end this year with public debts over two-thirds the size of its economy. We won’t know the exact figure until March when official statistics come out, nor if those statistics will be able to count the GDP of the separatist east.
But it is not looking good. We thought this rated a reminder.
Because the President of Russia certainly hasn’t forgotten about it — or the unusual clause inserted into the language of a $3bn bond Ukraine owes to his government: Read more
What’s an oil power to do when the commodity it owes its power to is on the wane?
One strategy, of course, is to devalue your currency so as to help the competitiveness of whatever exports you have left, and focus on the so-called strategy of import substitution – buying more of your own stuff and pretending that, heh, you just don’t care. As Deutsche Bank’s Yaroslav Lissovolik notes on Friday it is a strategy that has worked for Russia in the past, namely in 1998 and 2008. Read more
1. A large mythical creature known to operate in FX markets with the explicit intention of shattering upstanding and well-managed currencies like bitcoin, the rouble and the naira. If found to display extreme speculative dumping behaviour, defences must be organised by the champions of the superior currency zone so as to scare the wunderbeast away. These defences usually involve feeding the BearWhale large amounts of unwanted inferior dirty currency until it can physically consume no more and withdraws to its BearWhale cave. A successfully slain Bearwhale is usually cause for much jubilation and festivity within the defending community.
Back in March, when one US dollar still bought you 36 Russian roubles, we noted how the Kremlin’s attempt to publicly trash-talk the dollar by threatening to drop it as a reserve currency if and when the US was to impose sanctions was largely a propaganda tactic deployed to confuse the economically ignorant about the reality of who was really dependent on whom.
(As if Russia’s dependence on dollar reserves was ever a US Achilles heel. Quite the contrary, it’s always been Russia’s.)
From our point of view it was all a desperate measure to stave off a currency crises in the making, and obscure the fact that Russia’s CBR was losing control (given that even rate hikes were proving ineffective at curbing the rouble’s slide). Read more
С начала года ЦБ для поддержания курса рубля потратил $68 млрд. Полторы Олимпиады улетело в пустоту.
— Alexey Navalny (@navalny) October 30, 2014 Read more
From a summary of Russia’s proposed new budget, by Free Exchange:
The budget shows how much trouble the Russian economy is in—and how unwilling the government is to face up to reality. Read more
. . .Which is an announcement by the Ukrainian Security Service on Thursday that it has opened an criminal investigation into just how Ukraine managed to sell $3bn of some curious bonds to Russia in the last months of Viktor Yanukovych’s government. Read more
After Russia instituted its ban on western food imports in August, we noted there was a risk the measures could end up hurting average Russians just as much, if not more, than European farmers.
We also noted that propaganda dynamics could make it hard for westerners to discern the truth with regards to what was really going on. Read more
And so to the website of the Investigative Committee of the Russian Federation:
This little chart is becoming a major headache for the world’s biggest oil producers:
Speaking on the sidelines of the SINET cybersecurity conference being held in London on Tuesday, UK Business Secretary Vince Cable expressed concern over the average age and quality of some of the IT systems of British banks.
As Cable commented to FT Alphaville:
“I’m always horrified when I discover just how ancient the technological infrastructure of the banking system is, a lot of it comes from the 60s and banks are still operating this. One of the reasons why it hasn’t been possible to get proper competition — for example when breaking up RBS –is because the banking infrastructure is just so ancient that they can’t spin it off. And it’s a massively costly business. The financial sector, although in some ways it’s one of the most advanced parts of the economy, it’s often decades not just years behind.”
The comments followed the announcement of a £4m competition for UK cyber businesses to develop ideas to tackle cyber security threats, and initiatives aimed at raising corporate and public awareness of cyber-security risk. It is hoped, in particular, that other mission-critical businesses such as utilities will come together in a collaborative process to spearhead fresh approaches to the problem of cyber crime and resilience. Read more
Sam Jones (formerly of this parish) writes in the FT about how the conflict in Ukraine has revealed the capacity for a new type of warfare.
This is one that has “exploded the notion that expansive communications technologies and economic interdependence were fostering a kind of grand bargain.” Against it, the great power arrayed on the other side can do little, despite its considerable conventional might.
Quite so. Take, for example, this story from Bloomberg on Friday… Read more
Ukraine claimed at pixel time to have fired on a number of Russian tanks crossing its borders.
Being invaded by Russia is not very conducive to a country’s GDP. But also, bizarre as it seems if its armour really is aflame in the Donbas, Russia is also the owner of Ukrainian sovereign debt. This has some precarious terms (for the borrower) restricting growth in debt to GDP to below 60 per cent. Read more
Here’s some Tina Fordham while we await developments… Read more
Given that modern-day warfare must at some point involve drones or autonomous vehicles, it makes sense that modern-day propaganda wars should involve Twitter and social media.
The battle for cyber hearts and minds in that regard is now getting really interesting.
One need only do a casual Twitter search for “пустые полки“, the Russian for empty shelves, to see what we mean.
The backstory here is that in retaliation for US and EU sanctions, Russia has decided to ban the importation of large categories of food products from each. Read more
Russia’s ESPO crude blend determines the key compensation rate for Russian oil production.
As analysts at JBC Energy note on Monday, however, the crude now trades at its weakest differential to Dubai crude — the benchmark it is most commonly compared to — since it became an established blend on the market in 2010.
Whilst the analysts are quick to point out that there are legitimate fundamental reasons for the weakness, it should not go unnoticed that some regular ESPO customers seem to be missing from the market. Read more
Click for the Russian government’s official decree banning food imports from the US, EU, Canada, Australia and the Kingdom of Norway…
“From Nord Stream in the Baltic, to Russian bank subsidiaries in Austria…”
Shares in Gazprom, a company that made $32bn in net income last year, trade at only 2.6 times forward earnings.
So it’s not as if plenty of foreign fund managers weren’t already pretending that the Moscow market has been wiped from the face of capitalism.
On the other hand — via Bloomberg on Friday (and more from the WSJ): Read more
Was Rosneft an arm of the Russian state in 2004?
For anyone looking at its shareholder list — or the background of Igor Sechin, chairman of the board of directors at the time — back then, it might hardly seem a taxing question. But it’s not the question the arbitration tribunal saw as important in Monday’s Yukos ruling.
This was whether Rosneft was specifically acting on behalf of the state when it played its part in the dismemberment of Yukos in 2004. (State responsibility in international law is a tricky subject.)
In an astonishing passage, the tribunal is sceptical that there is evidence of Rosneft acting in this way — until it notices the reflections of the man in the Kremlin from the time… Read more
Another excerpt from Monday’s ruling by an arbitration tribunal, awarding $50bn to be paid by Russia to Yukos ex-shareholders…
As part of the damages from Russia’s expropriation of Yukos’ assets — the tribunal also had to work out interest. This is an important part of any arbitration case looking at financial losses incurred years ago. Although actually, there is surprisingly little guidance on what rate to choose. And the rate used by the tribunal here is (excuse the pun) interesting. Read more