Saudi Arabia

Iran’s oil minister says his country supports calls for an emergency OPEC meeting to explore ways to shore up the price of oil, but even without such an effort, Tehran is willing to regain its market share “at any cost.”

Though the Saudi Arabian government publicly declared its tentative support for the widely-praised Iran nuclear deal last month, new reports reveal it is secretly funding propaganda efforts to undermine it. A new group called the American Security Initiative has spent over $6 million on advertisements criticizing the deal — using money supplied by the Saudi monarchy.

Because no discussion of global dollar pegs and entrenched FX regimes would be complete without mentioning the Hong Kong dollar...

With declining crude revenues clashing head on with the cost of simultaneously financing the state while intervening militarily in Yemen, the Saudis are looking to tap the bond market (a move which could increase debt-to-GDP by a factor of 10 by the end of next year) and some are speculating that the riyal’s dollar peg could ultimately prove unsustainable. Now, as Bloomberg reports, "Saudi Arabia is seeking to cut billions of dollars from next year’s budget because of the slump in crude prices."

It's a case of economic policy run amuck.  Real estate development can boost the economy, under the right conditions: lots of jobs and economic activity get generated when homes are built or refurbished.  And there is the wealth effect when home prices rise.  But when taken to extremes - as it is today and was in the previous economic cycle consumer spending gets squeezed out in order to pay mortgages and rent.  It becomes an incredibly unproductive use of capital. Simply put, we have a surge in college-age prostitution and it's the Fed's fault. It gives new meaning to the term "perverse monetary policies"

It's not just the Saudi riyal...

It might be time for sellside FX strategists to reconsider their position that the Saudi currency regime isn’t likely to change anytime soon...

"Regional buyers need a lot of conviction to step in front of this speeding train [especially] in context of a rapidly changing economic environment."

We warned on Friday, after last week's China rout, that the market is getting ahead of itself with its expectation of a RRR-cut by China as large as 100 bps. "The risk is that there isn't one." We were spot on, because not only was there no RRR cut, but Chinese stocks plunged, with the composite tumbling as much a 9% at one point, the most since 1996 when it dropped 9.4% in a single session. The session, as profile overnight was brutal, with about 2000 stocks trading by the -10% limit down, and other markets not doing any better: CSI 300 -8.8%, ChiNext -8.1%, Shenzhen Composite -7.7%. This was the biggest Chinese rout since 2007.

Following the end of a horrible week for petroleum importers (not to mention shale producers) despite WTI briefly dipping under $40 (wasn't this supposed to be great news for the US economy?) we have the start of a just as ugly week for the Persian Gulf oil exporters, whose Sunday market open can be described as a continuation of last week's broad risk carnage, and where Saudi Arabia, until recently the region's best performing market, is now down 10% for the year and down 30% compared to 12 months ago.

Over the weeks, months, and years ahead we’ll begin to understand more about the fallout from the death of the petrodollar and nowhere is it likely to be more apparent than in Saudi Arabia where widening fiscal and current account deficits have forced the Saudis to tap the bond market to mitigate the FX drawdown that's fueling speculation about the viability of the dollar peg. As Bloomberg reports, the current situation mirrors a "very scary moment" in Saudi Arabia’s history.

Last week, in the global currency war’s latest escalation, Kazakhstan instituted a free float for the tenge causing the currency to immediately plunge by some 25%. The rationale behind the move was clear enough. What might not be as clear is how recent events in developing economy FX markets stem from a seismic shift we began discussing late last year - namely, the death of the petrodollar system which has served to underwrite decades of dollar dominance and was, until recently, a fixture of the post-war global economic order.

Shockwaves from China’s devaluation have conspired with sluggish global demand and an attendant commodities slump to wreak havoc on developing market currencies the world over. On the heels of Kazakhstan's dramatic move to float the tenge, here's which currencies are next in line to tumble.

Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.