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Bloodbath: Emerging Market Assets Collapse As China Selloff Triggers Panic
On Sunday evening, this happened:
- BLOOMBERG COMMODITY INDEX SLIDES TO LOWEST LEVEL SINCE 1999
That’s right, Bloomberg’s commodity index cratered to its lowest level since 1999 or, said differently, the lowest level of the 21st century. That headline flashed just minutes after we highlighted Barclay’s take on the "long, slow, and painful" end of the commodities supercycle which is weighing heavily on emerging markets in the wake of China’s move to devalue the yuan. Here’s how we described the setup on Sunday evening:
Emerging markets will remain in focus this week as the world watches anxiously to see if China’s move to devalue the yuan will ultimately transform an already precarious situation into an outright crisis.
Slowing demand from China has been the major concern for commodity exporters and indeed, wide open capital markets (thanks to ultra accommodative monetary policies across the globe) have served to keep struggling producers afloat, perpetuating a global deflationary supply glut.
Saudi Arabia’s attempt to squeeze the US shale complex has only exacerbated the problem, as persistently low crude prices put further pressure on the commodities space as well as on the FX reserves of oil producing countries. When China devalued the yuan,it validated the suspicions of those who had assumed that the country’s economy was in far worse shape than anyone at the NBS was willing to admit. Additionally, it marked a new escalation in the global currency wars and threatens to undermine the export competitiveness of many an emerging economy.
So that, in a nutshell, was where we stood going into the week and that rather abysmal backdrop (if you’re an EM) has prompted quite a few analysts and commentators to draw a comparison between what’s unfolding in EM FX markets and the Asian Financial Crisis of 1997/98. What’s amusing is that some of the same desks who rushed to make the comparison a week ago now look to be talking back their predictions, perhaps realizing that circulating such things might be adding fuel to the fire.
But it is far too late for that - the genie is out of the bottle and indeed it was a bloodbath across EM overnight with currencies under continued pressure and the MSCI EM index falling 4.2% as Chinese stocks collapsed after the PBoC failed to slash RRR over the weekend. Here’s a survey of the carnage:
Here’s a look at some of the overnight chatter courtesy of Bloomberg:
BRL -1.72% at 3.5612 vs USD, dragged into EMFX selloff seen today as commodities meltdown leads to massive stops;
Rupee weakens for third day; India has sizable forex reserves and won’t hesitate to use them to curb volatility: RBI Governor Rajan; makes strong case for sticking to disinflation path, saying “rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading”
Malaysia’s 10-year bonds fall; nation’s foreign reserves fell to $94.5b as of Aug. 14 from $96.7b as of July 31; anti-graft agency says probe on 2.6b ringgit ($614m) fund is ongoing; 1MDB ready to assist Swiss authorities on probe related to it
Indonesia’s 10-year bonds drop; Bank Indonesia expects benchmark rate unchanged at 7.50% for next year, while undervalued rupiah needs joint policy effort: Governor Martowardojo
Won falls; Bank of Korea FX official Park declines to comment on speculation of market intervention, but says authorities aware of importance of market stability
Singapore’s dollar drops for second day; data today will show consumer prices dropped 0.2% from year earlier in July, smallest decline in seven months
USD/RUB is set to test YTD high at 71.8465 as Russia remains most vulnerable CEEMEA currency, hit both by global risk aversion and collapse in oil prices
Russian PM Medvedev said exporters will soon start selling hard currency for rubles, a form of indirect intervention
USD/TRY holding below last week’s blow-off top as market has discounted negative political situation; fall in U.S. yields, further drop in oil prices both supportive factors
ILS may outperform other EM peers as BoI likely to leave rates on hold at 0.1% today, as forecast by 15 out of 17 analysts in Bloomberg survey
USD/ZAR to remain volatile after spiking ~8% to record high in illiquid overnight Asia trading, key drivers now are ZAR traders’ P&L and risk-management concerns
EUR/PLN rises to fresh 6-mo. highs, PLN may remain under pressure despite strong domestic fundamentals as positions cleaned out on broad EM contagion
And a bit more from FT:
Fears over China’s decelerating growth have sent investors fleeing from the currencies of emerging markets, from South Africa to Malaysia, whose prospects have become twinned with the fortunes of the world’s second-largest economy.
Following an Asian session where markets went into meltdown after the Beijing government failed to meet widespread expectations that it would support its economy and stock market with either a major liquidity injection or an interest-rate cut, emerging market currencies are struggling to find any support.
Falling commodity prices are also affecting the finances of emerging markets, such as Indonesia and Russia, that produce raw materials for China’s slowing industrial engine, as well as the still-lacklustre economies of Europe.
The Malaysian ringgit has fallen 1.4 per cent to M$4.23 per dollar, a level not seen since the 1998 Asian crisis, when Kuala Lumpur pegged its currency at M$3.80 to the dollar before removing this control in 2005.
The Indonesian rupiah has lost 0.65 per cent to Rp14,030 per dollar, also its weakest since the late 1990s crisis.
The Thai baht is down 0.3 per cent to Bt35.74 per dollar, its lowest since 2009.
The Turkish lira is hovering around fresh record lows, down 1.1 per cent to TL2.95 per dollar.
The South African rand is 2.3 per cent lower at R13.2 per dollar, having briefly dropped to an all-time low of R14 per dollar earlier in the day.
The Russian rouble is 1.1 per cent weaker against the dollar, at Rb70.10, having not crossed the threshold of Rb70 for the first time since February.
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Disco Inferno!
Discount Inferno!
BTFD?
Fuck em! Let them bleed. And instead naming the real culprits, the yiddish bastards, I see a lot finger pointing at China, Russia, India and Saudi Arabia.
… I gotta clear my calendar for OCTOBER !
THEY outsmarted you AGAIN? My condolences.
I don't play that shit knowing its rigged by bloodsucking motherfuckers. Mark my words you will overstay your welcome once again.
Don't worry, Jim Cramer says the solution to everything is to place a "limit order" on all your stock trading transactions. Right Jim, that should do the trick.
"Bear Stearns is not in trouble! Don't Be Silly!"
Lehman is fully solvent.....
Why is that piece of shit even still on TV? Better yet why is that worthless shitbag not in prison?
Everything is awesome!
the sky is falling
believe in better
https://www.youtube.com/watch?v=TkWViQLMjSM
Always about the dollars !
Indexes could be green by lunch
Ya know, I wouldn't dooubt it.
Stack physical chickens, goats, dogs, etc.
Chicken for food, dogs for alarms and goats to mow the fucking grass.
Chop the balls off the males while they're young, because you may have to eat them later.
Beans and ammo
https://www.youtube.com/watch?v=tnFy1luxL0A
Food, guns, land and booze, along with a few paranoid friends......
Panic???? .... just wait till the FED starts hiking rates in September.
Negative interest rates .... and everyone says the FEDS have no ammo left!
Foos!!!
Let it all fucking burn!
Burn baby burn!
Market green by days end. BTFD Its FED software stupid.
The plunge proection team?
MXN is bleeding, but I guess it is not emerging enough to make it to the article
This thing has ramped 700 points in an hour. I would not be surprised with green by noon.
Time for some Howard Beale ...
https://www.youtube.com/watch?v=Olj8bNDjKi8
my thinkorswim account is buggered. went to delayed, and then i x'ed out and logged back in and its stuck in the log-in screen.
Yellen up all night putting toothpaste back in the bottle
I still stand by my 2 theories, the countries, and their citizens that are controled, by the biggest of the BIS's, CB's," ie the fed,boe,,ecb, and boj are the promoters,and enablers of the forwarding of the NWO, are going to be the biggest losers, and Obama told us that while running for president," you can't expect to have your thermostat at 72 degrees, the privilege of, on demand- unlimited, food, clean water, and electricity, while there's billions of humans on this earth that don't have enough.
for those who don't grasp the NWO," it's global redistribution".
#2 the BIS will buy stocks on the cheap, when the bubble they made burst and basically be majority owners, and federalize the worlds largest global co's , ie gm.
how many trillions does the unaccountable BIS" ie fed,ecb, boj, and boe, and their treasuries have to make this possible?
no one can tell you, when you're unaccountable it's limitless.
one other personal bitch, I just started receiving my ss, for medical reasons I will not come close getting out what I put in.
I've already apologized to my children, and some grand-children for un wittingly letting politicians ruin america, but, the millinials who trash me now will have to explain to their children , and grand-children, how they through free pizzas, concerts, and free college tuition ,and the fsa put Obama in charge for 8yrs.
of course theses are just theories.
everyones touting the pboc has lost control, Clinton sold them a seat at the no limit hold-em poker game, china just put in a small raise.
many among the piigs, brics, euro-asia , aiib nations, and dozens of other em's will be looking for partnerships most suitable, or they'll default, they've got BIS cb's also, and as krugman stated we just owe this money to ourselves, so they'll goto the biggest cb's to squeeze the money out of.