Emerging markets stalked by inflation and rates 21 Jan 2011 Consumer prices are rising across emerging economies and interest rates are following. Borrowing costs are rising in Asia, Brazil's overnight rate is over 11 percent and Russia should move. For highpriced emerging market equities, the tightening of liquidity is a threat.
Euro crisis further shrinks Barroso’s credibility 20 Jan 2011 The European Commission president has been mostly invisible during the euro debt crisis. Now he's irked France and Germany with veiled criticism of the euro zone bailout fund. Paris and Berlin are right to ignore him. But their original mistake was to champion him for the job.
China’s Hu dodges inflation trade-off 20 Jan 2011 President Hu Jintao says inflation won't force yuan appreciation. But maybe it should. Prices are rising at 4.6 percent, and the economy is growing at an abovetrend 12 percent. The undervalued yuan is drawing money into China, undermining efforts to tighten.
Peripheral debt is still rife with downside risks 19 Jan 2011 A couple of decent bond auctions has eased pressure on the euro zone. But investors should be wary. Though a few tempting investment openings exist, many Greek, Irish and Portuguese bonds still aren't cheap enough to compensate for the risk of default.
Europe needn’t crush markets to fight crisis 19 Jan 2011 Europe must revamp its 440 billion euro bailout mechanism. But turning it into a bondbuying fund, as some suggested, would be a mistake. It could distort markets and encourage profligate governments. The euro zone should rather look at ways to make lending terms more flexible.
BoE must resist a double dip rate hike 18 Jan 2011 UK inflation at 3.7 percent is far worse than expected. The pressure on the Bank of England is huge. But raising interest rates now will threaten a new recession, a bigger fiscal deficit and stilllonger unemployment queues. The BoE must be strong.
Governance beats acronyms for investors 18 Jan 2011 The BRIC bloc touted by Goldman s Jim O Neill in 2001 was partly selffulfilling, diverting billions of investment from elsewhere. His latest growth group, including Turkey and Mexico, could do the same. But smaller betterrun places may provide higher longterm returns.
EU stress tests inch towards credibility 18 Jan 2011 New bank tests will cover liquidity and sovereign debt risks. That tackles two big flaws of last year's effort. But capital adequacy both quality and quantity must also be higher. And unless governments can recapitalise banks that fail, the tests will flop again.
Book review: Is the West doomed? 17 Jan 2011 A controversial book by Dambisa Moyo, How the West was Lost, suggests that it is virtually bound to be eclipsed by China. It raises the idea of protectionism and default as a way of fighting back. Hugo Dixon is more sanguine about the prospects and doesn't like all the remedies.
Oil set for turbulent ascent 17 Jan 2011 OPEC rightly sees the near$100 oil price as mainly driven by speculation also a convenient excuse not to up supply. Other forces are fuelling oil's rise too: demand, liquidity and a weak dollar. Euro panics and eventual central bank tightening threaten abrupt corrections.
Tunisia’s uprising sends warning to police states 17 Jan 2011 The toppling of the Tunisian regime shows that an open economy can't work in the long term unless it is democracybased, in spite of western complacency and support. This should give pause to both investors and dictators.
China yuan investment a nod in right direction 14 Jan 2011 A pilot scheme will allow Chinese investors to use their own currency to buy overseas, albeit with restrictions. That lays down the pipes to establish the renminbi as a global currency. But while the capital account remains closed, the yuan flow will be limited.
Deflation off U.S. agenda despite still-tame CPI 14 Jan 2011 Key inflation numbers remain benign, despite some underlying price pressures. Meanwhile, though consumers spent a bit less than expected in December, they re hardly putting off purchases. Overall, recent data suggest concerns about pernicious deflation can be put to rest.
India can’t afford to be soft on corruption 14 Jan 2011 The government's lacklustre response to a series of scandals isn't just woeful; it is symptomatic of a general lack of reformist zeal which could drag down India's mediumterm growth. The best hope is that an outcry will lead to a crackdown on sleaze, but don't count on it.
Asia’s hot money starts to get fussier 13 Jan 2011 As U.S. optimism grows, inflows to riskier markets like Indonesia, India and the Philippines seem to be wavering. That may relieve central bankers worried about rising currencies and asset bubbles. But investors can no longer consider Asian stocks and bonds as a oneway bet.
Trichet rightly shrugs off inflation risk 13 Jan 2011 The ECB will keep interest rates unchanged and is confident that inflation in the euro zone will get back to the two percent target by year end. Trichet is right. In the short term, minding the euro crisis is more important than obsessing about inflation.
U.S.-China love-in shouldn’t deter rebalancing 12 Jan 2011 Goodwill has flourished ahead of President Hu's visit to Washington. The two powers need to work together on geopolitical issues like North Korea. But tough conversations on trade are still needed: the bilateral imbalance between the U.S. and China has actually grown.
Belgium invites crisis, but doesn’t quite get one 12 Jan 2011 Despite lacking a government for six months, the country is in better shape than the euro zone periphery. Sovereign debt spreads are at a euroera high, but still way below those of Spain. The economy is competitive. And the king is helping by focusing on the deficit.
Europe can find ways to make EFSF more efficient 12 Jan 2011 Euro zone leaders are debating ways to increase the region's 440 billion euro bailout fund's lending capacity and make it more flexible. Revamping the fund could help fight contagion in bond markets. But radical changes aren't on the immediate agenda.
EU bank levy idea is circular – and dangerous 12 Jan 2011 Brussels has floated the notion of a oneoff 50 bln euro tax on lenders to help pay for sovereign bailouts. But whacking banks so that governments can continue to prop them up makes little sense. Worse still, the scheme could reinforce the moral hazard the EU wants to end.