Emerging and Frontier Markets: Economic and Geopolitical Analysis

[LeveragedBuyout]

Petrodollar-based economies:

---

Sober Look: Update on crude oil markets

MONDAY, OCTOBER 20, 2014

Crude prices came under pressure again today. According to Reuters (from last week), the Saudis “will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two”. Their goal is to shake out some of the high-cost competition (such as the US). The Saudis also do not want to choke off the economies of their customers by cutting production. Current production levels are likely to stay unchanged unless there is a significant price move to the downside from here. Spot crude is now holding right in the middle of the Saudis’ preferred range at around $85/bbl. Both OPEC and non-OPEC producers are not particularly happy with Saudi Arabia right now (particularly Russia, Iran and Venezuela) – these countries all want to see production cuts.


A significant difference remains in the demand profile between international crude markets and those in the US. While both of the futures curves shifted sharply lower, the WTI curve, unlike Brent, remains in backwardation. It means that US crude oil market participants have an incentive to take oil out of storage rather than storing it. This indicates a more robust US spot crude demand than exists globally.


Source: Deutsche Bank

 

[LeveragedBuyout]

http://blogs.ft.com/beyond-brics/2014/10/21/tajikistan-touts-itself-as-new-investment-frontier/

Tajikistan touts itself as new investment frontier
Oct 21, 2014 9:41am

If you are bored of Botswana, tired of Tunisia and Mongolia is just not edgy enough any more then perhaps Tajikistan could be your next true frontier market destination.

The Tajik government certainly hopes so. It has just organised its first ever investment conference – and with some 600 people in attendance, it would seem there is certainly some curiosity about what Tajikistan has to offer.

“The development of the private sector and attracting investment is one of our top priorities,” Tajikistan’s strongman president, Emomali Rahmon, told the assembled delegates in Dushanbe’s national library. “We definitely need huge investment to fully realise our resources and potential.”

International investors may have an opportunity to take a closer look at Tajikistan soon: the central bank last week signed up Standard & Poor’s to provide Tajikistan’s first credit rating, a move which may be a prelude to a maiden bond. And Talco, the state aluminium company, has suggested it may consider a listing in a few years’ time.

With 8m people and GDP of just $8.5bn last year (making it one of the world’s 30 poorest countries by GDP per capita), Tajikistan is not an obvious destination for foreign investment. Add endemic corruption, unreliable electricity supplies, ever-changing tax and customs regulations, an economy under pressure from the slowdown in Russia and competition from politically-backed Chinese investors and it is clear that investing in Tajikistan is only for the hardiest souls.

In theory at least, the country holds plentiful opportunities.

It may be poor, but it is growing fast: GDP growth has averaged 7.4 per cent over the last three years.

It is home to one of the largest silver deposits in the world, as well as significant gold deposits. It is one of the largest producers of antimony, a strategic minor metal, outside of China. And just last year, Total of France and CNPC of China partnered with Canadian-listed explorer Tethys Petroleum to work on exploring a natural gas deposit that one western diplomat says could be “a complete game changer”.

In a region where electricity shortages are common (ironically, including in Tajikistan itself) the country has some of the world’s potential hydroelectric power resources. According to government estimates, it has the potential to produce 527bn kilowatt hours a year – an amount equivalent to more than 100 Hoover dams – but it is using only about 5 per cent of that potential.

And Tajikistan is also blessed with fertile agricultural land – which may offer an opportunity as Russia searches for new sources of fruit and vegetables after banning European imports. Frederic Lobbe, who is opening the first branch of French supermarket chain Auchan in Dushanbe, says the move will expand trade between Tajikistan and Russia – where Auchan also has a significant presence.

“Many of the products will come in trucks from Russia and we don’t want them to go back empty,” he says. “We want them to go back loaded with Tajik grapes, apricots, cherries and onions.”

Finally, there are hopes that Tajikistan can reclaim its ancient Silk Road role as a major transit country, facilitating trade from China and Afghanistan to Russia and the west.

But after a week reporting in Dushanbe (including moderating a forum hosted by the FT and European Bank for Reconstruction and Development on the Tajik business climate) it is hard to have any illusions about the challenges of investing in Tajikistan.

The most significant is corruption: Tajikistan ranks 154 out of 177 countries on Transparency International’s Corruption Perception Index. Much of the economy is in the hands of the president’s family: his brother-in-law controls the largest bank, the main private airline, and is linked to the aluminium factory which accounts for much of the country’s export earnings; his son heads the customs service.

The US state department criticised Tajikistan’s “egregious corruption” in a scathing report on investment in the country earlier this year. One western diplomat is blunter still: “It’s a kleptocracy.”

Even if investors can navigate the political maze of the Tajik elite, however, there are other concerns. Tajikistan’s geographical location is as much a curse as a blessing. It has a long-running feud with Uzbekistan, and skirmishes this year have also created tension on the Kyrgyz border. But perhaps most significantly, it has 1400km of border with Afghanistan. As one major foreign investor in the country says: “Security is my primary concern.”

Electricity supply, though improved, remains erratic. According to a recent survey by the European Bank for Reconstruction and Development, Tajik businesses suffer 11 outages per month, and losses due topower outages were equivalent to 10 per cent of annual sales.

There has been some progress: Tajikistan has introduced a “one-stop shop” that has reduced the amount of time necessary to register a new business. Last year, it joined the WTO. And it is in talks to join the EITI, a natural resources anti-corruption initiative.

Those efforts have persuaded a few brave private-sector investors to come to Tajikistan. In addition to Total and Auchan, there is CHL Limited, an Indian family company which is due to open the Dushanbe Sheraton in November, and a group of Turkish investors who are building a Coca Cola bottling plant.

But the problems outlined above mean the vast majority of investment into Tajikistan has been limited to politically-backed Russian and Chinese companies (often state-owned), and international financial institutions such as the World Bank, Asian Development Bank and European Bank for Reconstruction and Development.

As Susan Elliott, US ambassador to Dushanbe, puts it: “I would love to have more American and European investment — it is a win-win for America and Tajikistan — but I need to be honest about the investment climate. Many US and international companies who have done business in Tajikistan have faced difficulties.”

 

[LeveragedBuyout]

http://ftalphaville.ft.com/2014/10/22/2016612/burn-rates-oil-sovereign-edition/

Burn rates, oil sovereign edition
Izabella Kaminska

How long does it take for an oil-exporting nation to burn through its cash reserves as it waits for oil prices to turn around?

Naturally, it depends on which oil exporter we’re talking about and the size of their existing cash-pile. Differences between countries can be monumental.

The Oxford Institute of Energy Studies picks up on the theme by citing a chart from Deutsche Bank which shows the varying cash buffer rates between Saudi Arabia, Russia and Nigeria (H/T Marc Ostwald).

Here’s the chart:



So Saudi can survive up to eight years on next to nothing oil revenues, versus a measly couple of months for Nigeria.

But what’s really interesting about Saudi Arabia’s position is that if it was to shut-in production to the point that oil prices rose back up to $100 per barrel, the Kingdom might end up better off despite reduced export flows.

For instance, the Oxford Institute calculates that producing 7 mb/d of exports at $75 per barrel would fetch Saudi Arabia $525m per day, while cutting output to 6.2 mb/d at $100 would earn it $620m daily.

On a separate note, however, Ed Crooks at the FT reports on Wednesday that the break-even rate for US shale producers may be much lower than we first anticipated:

Even with US crude prices of about $100 a barrel earlier in the year, the small and midsized exploration and production companies that led the US shale revolution were running large cash deficits. If oil remains at its present level of roughly $82 per barrel, it will put back the point at which they will be able to cover their capital spending from their cash flows.

However, their costs have already fallen sharply, and could fall further.The median North American shale development needs a US crude price of $57 a barrel to break even today, compared with $70 a barrel in the summer of last year, according to IHS, the research company.​

Of course, if this price decline is mainly about shaking out the speculative element from the market, the main consequences are that spot prices will become fundamentally driven and future investment in conventional, high up-front cost, oil extraction (as opposed to shale) will be diminished greatly.

 

[LeveragedBuyout]

http://blogs.ft.com/beyond-brics/2014/10/22/cheaper-oil-a-balm-not-a-cure-for-turkey/

Cheaper oil a balm, not a cure, for Turkey
Oct 22, 2014 11:35amby Mian Ridge

With its hefty energy import bill and high inflation, Turkey is an obvious winner from the drop in oil prices, which economists expect to help improve its current account deficit. But will other troubles neutralize the benefit of lower oil prices?

The country’s energy import bill last year of about $50 bn – roughly equivalent to the size of its 12-month running current account deficit – puts Turkey firmly on the right side of the slide in oil prices, which have declined 25 per cent from this year’s peak in June.

But Turkey’s dependence on foreign capital, which makes it particularly sensitive to changes in global liquidity, could offset this advantage. This dependence led Morgan Stanley to put Turkey in its “fragile five” last year.

Since then, its problems have multiplied. Investors who might have seen the country as a relatively safe bet are inevitably alarmed by its proximity to Syria and Iraq. A stagnant euro-region economy and sanctions against Russia have damaged its exports, while a broader emerging market currency sell-off has weakened the lira by more than 7 per cent against the dollar since late July.

Recent comments from US Federal Reserve officials, however, suggesting US rate hikes could be delayed pushed up the lira against the dollar in recent days, and extended its biggest weekly rally in six months (see chart)

Economists expect the drop in oil prices to lower the budget deficit to between 4.5 and 5 per cent of GDP from around 5.8 per cent if oil prices stay low.

In a recent note Nomura said that if oil prices continued to fall and stabilise at current levels for more than two quarters, it might result in a current account deficit “in the mid to high 4 per cent region”, rather than the 6-7 per cent of GDP that had previously been expected.

It characterised this as:

significant but not a game-changer​

It also warned that:

there are other channels through which Turkey does not benefit as much. The fall in oil prices comes at a time of slowing global and emerging market growth, which is not good for risky assets and emerging markets. In other words, what is contributing to the oil price falls probably erases some of the potential “ceteris paribus” benefits.​

It added that in terms of inflation Turkey would benefit but that benefit would take a while to trickle through because of a recent natural gas and electricity price hike.

In short, we think the oil price fall (if sustained) will benefit Turkey – perhaps on an RV basis for the markets – but do not see it as a “game-changer”.


Nomura

​

“It’s a benefit but not as great a benefit as it would be if things on the ground were different”, Dmitri Petrov of Nomura told beyondbrics. He added that even currency fluctuations were unlikely to wipe out the advantage Turkey will get from cheaper oil.

​

Capital Economics made similar predictions in a recent note, saying:

For those EMs with large twin energy and current account deficits, such as Turkey and South Africa, lower oil prices may help to improve balance of payments positions and ease concerns about the potential effects of Fed tightening. However, we doubt that policymakers in these EMs will be able to rely on lower oil prices to do all of the work. We estimate that a drop in oil from $110pb (the average over the past 12 months) to $80pb will lower Turkey’s import bill by 1.5% of GDP … over the course of a year

​

That would still leave Turkey with a current account deficit above 5 per cent of GDP, it said.

Turkey slashed its growth estimates this month and raised its inflation forecast for 2014 and 2015, citing unfavourable conditions in the global economy. In September inflation was running at 8.9 per cent; the target is 5 per cent.

On Tuesday, Turkey’s central bank said it would begin paying interest on financial institutions’ lira required reserves from November to help boost growth without monetary policy easing. It had stopped doing that in 2010 when a flood of cheap funding threatened to overheat the economy.

“The Turkish economy is struggling”, Neal Shearing of Capital Economics told beyondbrics.

“Domestic demand is slowing down and there are all sorts of risks in the background”.

 

[LeveragedBuyout]

Will Dubai never learn?

---

Dubai’s Borrowings from its Biggest Bank Surpass 100 Billion Dirhams - Middle East Real Time - WSJ

• 

• October 22, 2014, 11:06 AM ET

Dubai’s Borrowings from its Biggest Bank Surpass 100 Billion Dirhams
ByAsa Fitch

Emirates NBDs lending to the Dubai government has increased despite recent attempts by regulators to rein in local banks exposures.
Bloomberg News
The Dubai government has borrowed more than 100 billion U.A.E. dirhams ($27.24 billion) from Emirates NBD as of the end of the third quarter, according to the bank’s most recent financial statements, underscoring the extent to which the emirate has come to rely on its biggest lender for financing after the global recession.

Emirates NBD, which is majority-owned by the Dubai government through the Investment Corporation of Dubai, has long been disclosing the loans as a related-party transaction in its quarterly financial statements. They have almost tripled since the financial crisis set in at the end of 2008, when the bank reported AED34.8 billion on its books.

The sharp rise shows how Dubai’s government has leaned increasingly on Emirates NBD for financing since the crisis, when many global financial institutions packed up their bags and left amid concerns that the emirate and its over-leveraged companies were on the verge of a debt default. Today, Emirates NBD’s AED102.4 billion worth of loans to Dubai constitute nearly half of its AED213.7 billion of overall loans and receivables.

Emirates NBD’s lending to the Dubai government has increased despite recent attempts by regulators to rein in local banks’ exposures. Dubai was one of the hardest-hit places in the world in the global recession, an experience that drove home the dangers of excessive leverage and led to hastily arranged bailouts from the central bank and neighboring Abu Dhabi.

The central bank responded by instituting a series of so-called large exposure limits, or guidelines that curtailed loans to single borrowers or groups of related borrowers to a maximum percentage of their capital. Banks resisted the rules, and called last year for at least five years to put them in place.

It’s not clear whether Emirates NBD is currently in compliance with the limits. A request for comment was not immediately returned.

 

[LeveragedBuyout]

http://blogs.ft.com/beyond-brics/2014/10/22/venezuela-and-sliding-oil-prices/

Venezuela and sliding oil prices
Oct 22, 2014 11:26pmby Andres Schipani

Blame the Empire.

Venezuela’s socialist President Nicolás Maduro on Wednesday accused the United States of oversupplying the market -in his words, “inundating the market”- to rattle oil prices. His government is having a tough time coping with a sliding crude price as oil accounts for some 95 per cent of export revenues of the energy rich country.

The toxic combination of dropping oil prices, an economy in shambles and lower levels of foreign reserves, has been reinvigorating fears of a debt default. Alejandro Grisanti, head of Latin America economics research at Barclays, said on Wednesday in report titled “Venezuela: The perfect storm”:

The decrease in oil prices is costing Venezuela approximately $728m in revenues for every dollar of price decline. This has raised the pressure on Venezuela’s hard currency cash flow, increasing the probability of a default; however, we still think it is lower than what the market is pricing.

In a scenario of oil prices staying closer to current levels with an average of USD/b80, without adjustments, the deficit in the hard currency cash flow would be S38.2bn. This would be a situation of high stress for Venezuela.​

Venezuela’s Finance Minister Rodolfo Marco said on Tuesday, while presenting the 2015 budget bill, that the country can cope with the volatility of energy prices. Amid market jitters, the embattled Caribbean country made a $1.5bn payment of a sovereign bond earlier this month. And stressing Venezuela would make good on a $3bn bond payment of the state-run oil giant due next week, he said:

Venezuela maintains and will maintain an impeccable record in paying its sovereign debt. The government has the seriousness, will and financial capacity to honor its commitments . . . We will fulfill the payment of the 2014 PDVSA bond for $3bn due on October 28.
​

Still, be it the Empire’s fault or not, low crude prices may place Maduro in a tougher position. His approval ratings dropped to about 30 per cent in September from roughly 35 per cent in July, according to the latest survey by a respected local pollster, Datanálisis. Rampant crime coupled with a spiralling economic vortex ofgalloping inflation and widespread shortages of goods, already put him against the ropes. The slide in oil prices could press him further still.

 

[Sasquatch]

An excellent thread @LeveragedBuyout

I will make it a sticky, I enjoyed many of your valued posts.

 

[Hakan]

This is a good one on Argentina

Sometimes when I get bored I watch these economic documentaries.

 

[LeveragedBuyout]

This is a good one on Argentina

Sometimes when I get bored I watch these economic documentaries.

Thank you for this. Argentina is a depressing example of what happens when populists rule for prolonged periods of time. By all rights, Argentina should be in the G7, but instead, it's descending further down the ranks of emerging economies.

By the way, I like your signature. The Guns of August is one of my favorite books.

EDIT: Holy cow, I just noticed all of your "thanks" on this thread. Thank you for your support! Every time I feel like I'm talking to myself and become discouraged, a titled member arrives with words of encouragement. You have my gratitude.

An excellent thread @LeveragedBuyout

I will make it a sticky, I enjoyed many of your valued posts.

Thank you for your kind words, Hu Songshan. I welcome any contributions that you (or anyone else, for that matter) would like to make to this thread. It was never intended to be "mine," but rather, a common resource for all of us who are interested in the economies and geopolitics of the emerging markets. Not as much has been said on the geopolitics side here, but I hope to change that soon.

By the way, I don't know if this is within your power, but would you consider moving this thread to the "World Affairs" section, since it seems to have grown beyond Asia?

 

[Hakan]

Thank you for this. Argentina is a depressing example of what happens when populists rule for prolonged periods of time. By all rights, Argentina should be in the G7, but instead, it's descending further down the ranks of emerging economies.

By the way, I like your signature. The Guns of August is one of my favorite books.

EDIT: Holy cow, I just noticed all of your "thanks" on this thread. Thank you for your support! Every time I feel like I'm talking to myself and become discouraged, a titled member arrives with words of encouragement. You have my gratitude.



Thank you for your kind words, Hu Songshan. I welcome any contributions that you (or anyone else, for that matter) would like to make to this thread. It was never intended to be "mine," but rather, a common resource for all of us who are interested in the economies and geopolitics of the emerging markets. Not as much has been said on the geopolitics side here, but I hope to change that soon.

By the way, I don't know if this is within your power, but would you consider moving this thread to the "World Affairs" section, since it seems to have grown beyond Asia?

Np.

 

[Viet]

@Nihonjin1051 I changed my mind, looking at my schedule, it's better to get this done now. NB I am not a professional trader (different department, so to speak), so I am approaching this from a non-professional perspective, and perhaps @Peter C might be a better source of more technical information if you're interested (or he can correct mistakes I make below). I will speak simplistically here, as it's fairly easy to find technical details through Google if you want to get heavier on the math, the regulatory requirements (e.g. the specific levels of maintenance margin for various instruments), what credit analysts look at to determine creditworthiness (e.g. debt coverage ratios, debt to total enterprise value, etc.), or other details.

First, we need to define volatility. There are two common ways of defining volatility: one is the simple mathematical calculation of the standard deviation in price changes over a defined period of time (historical volatility), and the second is the volatility index, referred to as VIX for the S&P 500-related measure, but also exists for each that is optionable (implied volatility). VIX is a bit more complicated, since its value is derived from options pricing, specifically using a formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls. Again, I'm not sure if you're familiar with options, but the short and simple version is that options are the right to buy or sell an instrument at specific price (called a strike price) within a certain time frame. This "right to buy or sell" can itself be priced based on how far the underlying instrument is trading from the strike price, how much time is left in the contract, how volatile the underlying instrument is, and a few other factors.

The first definition of volatility dictates that when the standard deviation of price changes increases, volatility by definition is increased. For example, if a stock moves by 1% a day for a while, and then all of a sudden moves by 3% a day (up or down), it can be said that its volatility has increased. This could be due to stock-specific reasons (i.e. news, thin trading volume in the stock, etc.) or could be due to general market conditions (everyone is looking to dump stocks, any stocks, because of poor market conditions).

The second definition of volatility is a function of trading activity in the options, as I described. For this reason, if we talk about VIX when describing volatility, then volatility doesn't necessarily increase when the market drops, because the players trading the stocks may have expectations that the market will rebound, and thus do not bid up the price of puts. On the other hand, VIX can also rise when the market is rising, if the players involved are heavily buying puts (and thus bidding up the price) to hedge their positions. If you want the mathematical details, please see the CBOE site's primer on the VIX (CBOE Futures Exchange - Education ). That said, VIX does tend to spike in response to "fear" in the market (the market drops, traders buy puts to protect themselves), and it tends to subside in bull markets.

OK, that intro out of the way, how is leverage involved? First, options themselves are leverage. To steal from Investopedia:

"Leverage can be created through options, futures, margin and other financial instruments. For example, say you have $1,000 to invest. This amount could be invested in 10 shares of Microsoft stock, but to increase leverage, you could invest the $1,000 in five options contracts. You would then control 500 shares instead of just 10." Futures instruments are also a form of leverage, where a smaller amount of required cash in the account (called maintenance margin) can control an instrument worth multiples of the maintenance margin.

The second form of leverage is margin debt, where traders borrow money to invest in instruments. For retail traders, if you have $100,000 to invest, you can borrow another $100,000 from your broker, and trade with $200,000. Of course, if the value of your investment declines too much, you will get a "margin call," where the broker asks for an immediate cash injection to maintain your position, or otherwise the broker will forcibly liquidate your position to reclaim the cash it lent to you. You can see how in a market that moves against your position, this can lead to a cascade effect. For example, if you are long a stock, and the stock declines, you may get a margin call, and be forced to sell your stock, which causes the stock to decline further. Writ large across multiple players, you can see how this could quickly effect the broad market. Events can cause sharp changes in the market (e.g. the failure of Lehman Brothers, the announcement of QEx, etc.) which can catch people out on the wrong side of a trade, and as they scramble to close their positions, it causes volatility to increase.

The third form of leverage is corporate debt. Corporations borrow money from banks and sell bonds to investors in order to raise money to fund their operations, and occasionally, in order to pay out dividends to shareholders. Debt isn't free, and requires cash flow to cover the interest payments, and sufficient cash to pay off the principal when the debt is due (or roll over the debt into a new bond). When the economy is doing well, debt is cheap, and cash flow tends to be strong, so corporations can easily pay the interest. When the economy starts doing poorly, capital becomes more scarce, and the cost of debt (i.e. interest) rises, and cash flow weakens, so the interest on the debt is harder to pay. When companies get into trouble, they default on their debt, which causes losses to investors, who in turn may be forced to sell other instruments to raise enough cash to maintain their own capital requirements--so you can see the cascade effect there, as well. Of course, this cascade of debt defaults also strangles the real economy, as investors demand higher interest rates precisely when companies need capital the most. Since the debt markets generally follow the business cycle, corporate leverage also rises and falls on a cyclical basis.

Sorry, out of time, I have to end it here. Hopefully that gets you started for further research, if you are interested.

Recently there is one sort of traders appearing on the scence of the stocks and options markets: high-frequency traders using complex mathematical algorithmen. unlike other classical traders in trading rooms, their remotely controlled computers are colocated in the datacentres of the stock exchanges. Such high-frequency traders have a great impact on volatility. Some recent market crashes were due to their behavior.

Can you uncover their role a bit?

 

[LeveragedBuyout]

Recently there is one sort of traders appearing on the scence of the stocks and options markets: high-frequency traders using complex mathematical algorithmen. unlike other classical traders in trading rooms, their remotely controlled computers are colocated in the datacentres of the stock exchanges. Such high-frequency traders have a great impact on volatility. Some recent market crashes were due to their behavior.

Can you uncover their role a bit?

I can certainly discuss it, although it's not exactly my area of expertise (this is @Peter C 's area, I believe). Are you interested in high frequency trading in general, or specifically how it affects emerging markets?

 

[LeveragedBuyout]

Turkey’s Central Bank Holds Interest Rates For Second Consecutive Month - Real Time Economics - WSJ

• 

• October 23, 2014, 7:42 AM ET

Turkey’s Central Bank Holds Interest Rates For Second Consecutive Month
ByEmre Peker
ISTANBUL—Turkey’s central bank on Thursday held interest rates steady for a second consecutive month, signaling policymakers will stick with a tight stance as an emerging-market selloff weakens the lira and inflation remains stubbornly high.

Turkey’s central bank Governor Erdem Basci. The bank has recently renewed its efforts to defend the lira after it came under selling pressure against the dollar.
Reuters
The Monetary Policy Committee kept the benchmark one-week repo rate unchanged at 8.25%, the central bank said in a statement on its website. Policymakers also didn’t change the interest-rate corridor, which ranges from the overnight borrowing rate of 7.5% to the 11.25% overnight lending rate.

“Macroprudential measures taken at the beginning of the year and the tight monetary policy stance started to have a favorable impact on the core inflation trend,” the central bank said, reiterating its previous statement. “The tight monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.”

Turkey’s lira extended gains to 0.4% to 2.2366 per dollar after the decision, while benchmark two-year government bond yields rose to 8.72% from 8.67% earlier Thursday.

Facing an annual inflation rate of 8.9% in September that hasn’t budged toward the bank’s official target of 5%, and a currency selloff driven by expectations of rate hikes next year by the U.S. Federal Reserve, Turkish central bankers have been trying to balance government pressure to cut borrowing costs with market demands that it rein in consumer-price increases.

“Easing the monetary policy will be a risky move for the central bank of Turkey in this volatile environment. The Inflation outlook will also not support easing in the monetary policy,” said economists led by Inan Demir at Finansbank AS in Istanbul.

Turkey’s lira has slumped by about 7.5% since late July, with U.S. economic data in the past three months fueling speculation that the Fed may start raising interest rates in the first half of 2015. Meanwhile, the central bank’s October survey saw an uptick in yearend inflation expectations to 9.2% from 8.9% in September.

The country’s monetary policy has been on a rocky path for much of the year amid volatile swings in emerging markets. In late January, it was forced to more than double its benchmark rate to 10% at an emergency meeting, as the lira slumped to record lows.

The government has been calling on policy makers to quickly reverse the hikes to stimulate the economy since the spring, when the central bank started slowly easing its stance. Officials made three consecutive cuts to the benchmark rate starting in May, and two cuts to the interest-rate corridor in July and August.

While the central bank’s governor Erdem Basci refrained from tinkering with interest rates at the central bank’s monthly meeting Thursday, policymakers took two steps earlier this week to help stimulate slumping growth in Turkey’s $820 billion economy. Gross domestic product expanded by 2.1% in the second quarter, compared with 4.7% in the first three months of the year.

On Monday, the central bank boosted its limit for loans to exporters by 25% to $15 billion, while also increasing the discount on the credits, and on Tuesday it reintroduced interest payments on lira-denominated reserve requirements, which had stopped in 2010.

“Despite the challenging external and domestic backdrop, however, we believe the central bank of Turkey will look for opportunities to ease if the lira and global conditions permit,” Citigroup Inc. economists said in a report.

 

[senheiser]

Petrodollar-based economies:

---

Sober Look: Update on crude oil markets

MONDAY, OCTOBER 20, 2014

Crude prices came under pressure again today. According to Reuters (from last week), the Saudis “will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two”. Their goal is to shake out some of the high-cost competition (such as the US). The Saudis also do not want to choke off the economies of their customers by cutting production. Current production levels are likely to stay unchanged unless there is a significant price move to the downside from here. Spot crude is now holding right in the middle of the Saudis’ preferred range at around $85/bbl. Both OPEC and non-OPEC producers are not particularly happy with Saudi Arabia right now (particularly Russia, Iran and Venezuela) – these countries all want to see production cuts.


A significant difference remains in the demand profile between international crude markets and those in the US. While both of the futures curves shifted sharply lower, the WTI curve, unlike Brent, remains in backwardation. It means that US crude oil market participants have an incentive to take oil out of storage rather than storing it. This indicates a more robust US spot crude demand than exists globally.


Source: Deutsche Bank

it will hurt america in the long run dueto shale Oil being then to expensive to produce as well as everyone who wants to diversify from Gasoline with other energy. The electric car is a failure

 

[LeveragedBuyout]

it will hurt america in the long run dueto shale Oil being then to expensive to produce as well as everyone who wants to diversify from Gasoline with other energy. The electric car is a failure

I'm not certain about that. According to the analysis I posted yesterday in this thread (Emerging and Frontier Markets: Economic and Geopolitical Analysis | Page 8 ), shale only needs $57 per barrel oil prices to break even. So the US can absorb quite a bit of price decline without shutting down production. There will certainly be other areas that will become unprofitable, however--I don't know what it is today, but I recall that Canada's tar sands production once needed $80/barrel to break even a few years ago, so that might suffer if prices stay low.

I agree that the electric car hasn't been a success, and probably won't be until battery technology gets much better.