a) David Oakley at the Financial Times reported yesterday that outflows from emerging markets reached $29.5 billion over the last three months, the highest levels seen since 1995 (and the Asian Financial Crisis).
"The hardest hit stock markets in dollar terms are Ukraine, which has fallen 58.8 per cent this year in part on geopolitical worries; China, down 57 per cent amid fears it had risen too far on a bubble; Hungary, down 49 per cent on worries over growth; Pakistan, down 46.7 per cent amid political turmoil; and Vietnam, down 46.4 per cent in the face of a sharp rise in inflation.
Russia been under pressure, with the benchmark RTS index down 4.4 per cent yesterday and 46 per cent since its May 19 peak.
Emerging market sovereign bond yield spreads have risen to 330 basis points over Treasuries – highs not seen since mid-2005 – from 300bp at the start of last week amid rising risk aversion."
b) Joanna Slater in today's Wall Street Journal reports that, as one might guess considering the story above, many central banks in emerging economies have begun taking steps to defend their currencies against the dollar. Central Banks involved include those of Argentina, South Korea, Russia, Thailand, India, and Pakistan.
The sums involved are large. Russia spent about $14 billion in August alone, the largest such drawdown in its reserves in at least a decade, as foreign investors fled following the conflict with Georgia. South Korea has spent more than $21 billion -- or roughly 8% -- of its reserves in the past five months to assist the ailing won.
2. The Economic Times has the story that the International Energy Agency has asked India to remove their oil subsidies. Although the government has already reduced its subsidies in some areas, there are some in which I doubt it will ever make reductions. Most importantly: propane, which many poor Indians use to cook.
3. Bloomberg reports that Vietnam may cut coal exports by 89% by 2015 in order to meet domestic demand. It is expected to export 28 million tons this year. The National Coal & Mineral Industries Group said it may face a shortage as early as 2012 and may source imports from Australia and Indonesia at that time.
4. Robin Wigglesworth at the Financial Times reported Tuesday that the Saudi Central Bank has issued three times as much debt so far as of July than it had in all of 2007, in an attempt to absorb excess capital. Since the riyal is pegged to the dollar, the recent rise in both has encouraged international banks to withdraw their riyal deposits. Which in turn has forced Gulf banks to look to local money markets to finance lending, siphoning down the local money supply and raising the cost of money. Saudi Arabia wants to encourage this liquidity squeeze further by introducing more treasuries as part of an effort to curb inflation. Saudi annual inflation hit 10.6% in June.(1)
5. Robin Pagnamenta and Angela Jameson at the London Times report that OPEC is sending a high level delegation to Moscow to discuss closer cooperation.
6. Ian James and Vladimir Isachenkov of the Associated Press report that two Russian strategic bombers landed in Caracas yesterday. The Tu-160s have flown to Venezuela on a training mission, and will carry out maneuvers over neutral waters in the coming days. (The planes are not loaded, so to speak, with bombs during these.) NATO fighters escorted the planes on their trip from Russia to Venezuela.
7. Jeb Blount at Bloomberg reports that Petrobras has announced reserve estimates for the Iara field of 3-4 billion barrels. The Iara field is part of the ongoing deep sea finds Brazil has made in salt deposits known as the Santos Basin.
Iara is part of concession block BM-S-11, which also holds the Tupi field and is estimated to have 5-8 billion barrels in recoverable oil. BG drilled the exploration well and said it found 26-30 APIº oil.(2)
8 billion barrels of oil are equal to about 94 days of world consumption (at ~85 mb/d) and about 400 days of American consumption (at ~20 mb/d) and 640 days of American imports (at ~12.5 mb/d). 12 billion barrels of oil are equal to about 141 days of world consumption, 600 days of American consumption, and 960 days of American imports. (Assuming everything remains constant, of course.)
8. Joe De Capua and Chinedu Offor report via Voice of America that MEND, the primary militant group in the Niger Delta, has called for a cease fire in response to the Nigerian government's decision to create an agency to develop the region. Evidently, MEND trusts this effort more than ones of the past because they believe it comes at the initiative of Vice President Jonathan Goodluck, who is a native of the Niger Delta region.
9. James Kanter at the New York Times writes that members of the European Parliament's Industry Committee backed changing mandated biofuel use from 10% (of the transportation fuel mix) in 2020 to 4%. Environmentalists praised the move, which followed reconsideration of the mandates in the Environment Committee in July. The fledgling biofuel industry is understandably upset, given the cost of the infrastructure in place and under construction.
10. Michael M. Grynbaum at the New York Times reports that the trade deficit reached a record high in July, as larger exports were more than offset by higher oil prices. Economists are looking forward to the numbers for August, as oil fell below $125/b in that month.
11. Craig Torres and Liz Capo McCormick at Bloomberg write that the Fed will likely have to provide the financial industry an unprecedented infusion of cash to prevent further blow ups. (h/t Jesse's Cafe Americain). Yikes.
(1) Reuters: Saudi Inflation Hits 30-Year High on Food, Rent
(2) BG Press Release