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Protests Erupt As Zimbabwe Now Has The Most Expensive Gasoline In The World

Zimbabwe is once again at the brink of economic collapse, making a mockery of President Emmerson Mnangagwa’s claim that the country is open for business.

As Bloomberg reports,  many shops and factories have shut their doors because of a lack of customers and those that continue to trade are open to haggling over prices to secure hard currency. At an appliance shop in the capital, Harare, a salesman whispers that a Whirlpool Corp. washing machine priced at about $5,000 if paid for electronically will sell for $1,500 in cash, while at a nearby electrical warehouse, a $600 invoice is whittled down to $145 for payment in dollar bills.

But, as OilPrice.com’s Tsvetana Paraskova reports, Zimbabwe is on a three-day nationwide strike and protests are erupting in the streets after the government of the southern African country doubled fuel prices, making gasoline sold in Zimbabwe the most expensive gasoline in the world.  

Zimbabwe is in the midst of an economic crisis and a shortage of foreign exchange, which has led to fuel and bread shortages, and many companies have stopped working because they can’t import raw materials.

Following hyperinflation in 2009, Zimbabwe abolished its own currency and has been using the U.S. dollar and South African rand instead.

But the economic crisis and foreign currency shortages has prompted the government to say over the weekend that it would introduce a new currency of its own in the next 12 months.

However, the policy that really sparked protests and calls for a national stay-away was the sharp increase of fuel prices over the weekend.

According to Zimbabwe’s President Emmerson Mnangagwa – who succeeded the president of 38 years Robert Mugabe in November 2017 – the doubling of the fuel prices would help ease fuel shortages

…click on the above link to read the rest of the article…

Peso, Rand Plummet As Emerging Market Crisis Deepens

The EM contagion is slamming currencies around the globe, and while the Turkish Lira remains relatively immune for the time being, traders are now focusing their attention on the South African rand and the Argentine peso, both of which are in freefall this morning.

The ZAR has plunged 3.2%, the most since Nov. 10, 2016 on a closing basis, after the country reported that it had unexpected slumped into recession, which in turn is reigniting concerns about a rating agency downgrade. At the same time, the yield on rand-denominated government bonds has jumped 24bps to 9.24%, the highest since Dec. 1.

The Argentine peso is the other EM currency in freefall this morning, dropping 5.5% to 39 per dollar (vs the Friday close dueo the Monday US holiday) when the market opened in Buenos Aires Tuesday following a new series of measures announced by the government on Monday, including new export tariffs to help close fiscal gap by 2019, a move which the market clearly finds insufficient.

As Bloomberg notes, NY-traded shares of Argentine companies opened down, with the Bank of New York Mellon Argentina ADR Index dropping 4.4 percent at the open. Bank stocks led declines with drops of as much as 13 percent.

Rand Tumbles As Government Warns Of “Catastrophe” Unless ‘Land Reform’ Allowed

In a barrage of headlines that sparked chaos in FX algo markets, The South African government proclaimed proudly that it is opposed to illegal land grabs (sparking a rally in the rand) before humans realized that this is mere statement of fact and that the entire reason for this process is to ‘legalize’ land grabs through reform.

As Deputy President David Mabuza said, the nation will “slide into catastrophe” if land reform doesn’t take place.

“The majority of our people are poor and homeless,” he told lawmakers in Cape Town Thursday.

“Our resources to carry out reform are limited.”

And the reaction is now getting real as the Rand nears two-week lows once again…

Notably, the rand is behaving more erratically this month than it did during the height of the power struggle between Jacob Zuma and Cyril Ramaphosa in December. The rand’s one-month historical volatility is now at its highest level since December 2016 and the currency is headed for its worst August performance against the dollar on record, on track for a 9 percent drop.

As Bloomberg notes, President Cyril Ramaphosa has embraced land expropriation without compensation as a means to achieve equality and racial justice, and in a bid to steal a march on populist opponents before elections in 2019. A planned amendment to the constitution is still a work in progress, with public hearings on the matter concluding next month.

Yesterday saw UK PM Theresa May confirm her support of Ramaphosa’s “land reforms” as long as they’re legal…

“The UK has for some time now supported land reform that is legal and transparent and generated through a democratic process. I discussed it with President Ramaphosa during his visit to Britain earlier this year and will discuss it with him again later today,” she said.

…click on the above link to read the rest of the article…

Weekly Commentary: Turkey (Nudged Over the Cliff)

Weekly Commentary: Turkey (Nudged Over the Cliff)

The Turkish lira sank 13.7% in chaotic Friday trading. The lira’s 21.0% “worst week in 17 years” collapse pushed y-t-d losses to 41.1%. Turkish 10-year yields spiked to almost 21%, before retreating somewhat. After beginning the year at 155, Turkey sovereign credit default swaps (CDS) spiked 166 bps during Friday trading (up 199 bps for the week) to 437 bps (high since Feb. 2009).
EM Contagion Effects gained momentum this week. Friday trading saw the Argentine peso hit 3.8% and the South African rand sink 2.7%. For the week, the Argentine peso fell 6.6%, the South African rand 5.5%, the Brazilian real 4.0%, the Hungarian forint 2.2%, the Romanian leu 2.1%, the Polish zloty 2.2% and the Mexican peso 1.8%. On the (local) bond yield front, 10-year yields in Brazil jumped 66 bps, Russia 40 bps, Hungary 15 bps and South Africa 13 bps. As global “hot money” frets faltering liquidity and the next shoe to drop, Brazilian equities sank 5.9% (as Brazil sovereign CDS jumped 24 bps to 237 bps).

August 10 – Bloomberg (Lionel Laurent): “Turkish President Recep Tayyip Erdogan has been standing firm as investors dump his country’s assets at an alarming pace, saying: ‘They have got dollars, we have got our people, our right, our Allah.’ European banks with substantial investments in Turkey will hope some of that divine providence rubs off on them, too, after sticking with a bet that has gotten more perilous over time.”

Fears of contagion this week were not limited to the emerging markets. With significant exposure to Turkey, European bank stocks were slammed in Friday trading. Unicredit sank 4.7% and ING Groep fell 4.3%. The big German banks, Deutsche Bank and Commerzbank, dropped 4.1% and 3.5%. European Banks (STOXX600) fell 1.9% Friday.

August 10 – Financial Times (Claire Jones, Ayla Jean Yackley and Martin Arnold): “The eurozone’s chief financial watchdog has become concerned about the exposure of some of the currency area’s biggest lenders to Turkey – chiefly BBVA, UniCredit and BNP Paribas – in light of the lira’s dramatic fall…

…click on the above link to read the rest of the article…

Weekly Commentary: Crisis Watch

Weekly Commentary: Crisis Watch

Where to begin? Contagion… The Argentine peso dropped another 5.0% this week, bringing y-t-d losses to 23.7%. The Turkish lira fell 3.9%, boosting 2018 losses to 15.4%. As notable, the Brazilian real dropped 3.7% (down 11.5% y-t-d), and the South African rand sank 4.0% (down 3.0% y-t-d). The Colombian peso fell 3.0%, the Chilean peso 2.7%, the Mexican peso 2.7%, the Hungarian forint 2.3%, the Polish zloty 2.1% and the Czech koruna 2.0%.
EM losses were not limited to the currencies. Yields continued surging throughout EM. Notable rises this week in local EM bonds include 54 bps in Brazil, 27 bps in South Africa, 34 bps in Hungary, 36 bps in Lebanon, 25 bps in Indonesia, 28 bps in Peru, 14 bps in Turkey, 20 bps in Mexico and 11 bps in Poland.

Dollar-denominated EM debt was anything but immune. Turkey’s 10-year dollar bond yields spiked 41 bps to 7.16%, the high going back to May 2009. Brazil’s dollar bond yields surged 29 bps to 5.58%, the highest level since December 2016. Mexico’s dollar yields jumped 18 bps to 4.64%, the high going all the way back to February 2011. Dollar yields rose 19 bps in Chile, 28 bps in Colombia, 19 bps in Indonesia, 14 bps in Russia, 14 bps in Ukraine and 167 bps in Venezuela (to 32.80%). Losses are mounting quickly for those speculating in EM debt.

Developed bonds were under pressure as well. We’ll begin with Italy:

May 17 – UK Guardian (Jon Henley): “Italy’s new government, likely to be formally confirmed within the next few days, sets a perilous precedent for Brussels: it marks the first time a founding member of the EU has been led by populist, anti-EU forces. From the EU’s perspective, the coalition of the anti-establishment Five Star Movement (M5S) and the far-right League looks headstrong and unpredictable, possibly even combustible. Leaked drafts of their government ‘contract’ include provision for a ‘conciliation committee’ to settle expected disagreements. Mainly it looks alarming. Both parties toned down their fiercest anti-EU rhetoric during the election campaign, dropping previous calls for a referendum on eurozone membership…

…click on the above link to read the rest of the article…

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