As Emerging Markets Head One Way, Turkey Lira Goes the Other

(Bloomberg) — The last time Turkey’s lira was so out of step with other emerging-market currencies, Recep Tayyip Erdogan had just come out of prison and was trying to gain a foothold in national politics.

That was 1999. After two decades of the kind of fast-paced growth typical of developing nations, the risks from President Erdogan’s stewardship have set the currency on a divergent path to its peers. Issues including central-bank independence and potential U.S. sanctions are eclipsing global themes such as Federal Reserve policy that dictate the route for other emerging markets.

“Domestic and international factors suggest this divergence between average emerging-market performance and the specific performance of the lira will continue,” said Cristian Maggio, head of emerging markets at TD Securities in London. “Perhaps one of these factors can be overlooked. But when you have many such factors together, lasting for a long time, then it weakens the general understanding of Turkey as a fairly resilient economy.”

The 30-day rolling correlation between the lira and the Currency Index is the most negative in 20 years, according to data compiled by Bloomberg. That’s not all: while the correlation shows the frequency with which the two assets move in the same direction is declining, the magnitude of shared moves is also changing.

The Turkish currency is showing a beta of minus 0.173 with the MSCI gauge this quarter, compared with 1.05 over the past 10 years. That means a one-percent gain in the index results in a slight loss for the lira. In the past decade, both moved in lockstep.

Unique Risk

Stress in the Turkish economy built up between 2016 and 2018 when the central bank was seen as too slow to raise interest rates given a deepening of the current-account deficit. The demand for dollar funding from the government, companies and citizens added to the stress on the lira.

According to Maggio at TD Securities, the proliferation of political tension — from geopolitical skirmishes in the region to a controversial purchase of Russian missiles — sets Turkey apart as a unique risk in emerging markets, justifying the negative correlation.

The concerns driving other developing currencies are more global. The U.S.-China trade war has undermined growth and contributed to persistent strength in the U.S. currency. Central banks are reaching the limits of accommodation as interest-rate cuts prove ineffective in reviving growth.

Another factor that has helped separate the lira from the rest of the EM herd is its recent period of unusual calm.

After the last bouts of turbulence, authorities took steps such as tightening liquidity in offshore money markets to curb the currency’s swings. The result is that the lira has traded in a narrow range since June, despite 1,000 basis points of cuts in the benchmark interest rates, the ouster of a central-bank governor and a military incursion into northern Syria that worsened Turkey’s relationship with the U.S.

The MSCI EM currency gauge has risen 1.3% this year, while the has declined 9%.

(Updates the beta figure in the fifth paragraph)

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UK election: Tories confident they can break through Labour’s ‘red wall’

This is one of the key spots to watch for in the election tomorrow

The Financial Times is out with a report suggesting that the Tories are feeling confident in executing their election strategy by breaking down Labour’s ‘red wall’.

The report (may be gated) highlights sentiment on the ground in marginal constituencies in the North East and it details that the resolve of people to vote against Corbyn has hardened going into the election tomorrow.
I talked a bit about the ‘red wall’ in my election primer earlier in the week here. In essence, these are constituencies in the north and the Midlands in which the Tories are looking to “steal” to secure a majority government tomorrow.

I highlighted the seats mentioned in the report above and here’s the breakdown:

UK election2017 general election results in the North East
ForexLive

Generally, when viewing the ‘red wall’, these are seats that you’d expect Labour to comfortably keep. As such, when they report tomorrow, keep an eye on these places especially the likes of Bishop Auckland, Darlington, and Stockton South i.e. the marginals.

They can go some way in revealing sentiment on the ground in the election this year and if we do see a stronger Tory presence, it could allude to higher odds of a victory for Boris Johnson once this is all said and done.

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Man beats AI drone in first race of its kind

One of the world’s top drone pilots has beaten nine computer-piloted drones in a race around an obstacle course.

Swiss pilot Gabriel Kocher wore first-person-view goggles to pilot his drone through the course in six seconds.

The fastest automated drone, completing the unseen course in 12 seconds without the use of GPS or any human intervention, won a $ 1m (£0.76m) prize.

Organisers the Drone Racing League predicts AI-powered drones will dominate the competition by 2023.

Its first artificial-intelligence robotic racing contest was the result of a collaboration between aerospace giant Lockheed Martin and crowd-sourced problem-solving platform HeroX.

“Our team worked really hard throughout each stage to bring a robust and (most importantly) fast solution to the table,” said the prize-winning MVLab team.

“We are proud to have won despite the remarkable competitors that we had to face.”

Dr Steve Wright, senior research fellow in avionics and aircraft systems, at University of the West of England told BBC News: “Ten years ago if you needed a processor that could solve those sort of problems – how to fly a drone through a course – it would have been the size of a dinner plate and would have guzzled energy and got so hot you could fry an egg on it.

“Now, it’s the size of a playing card and doesn’t get all that hot – suddenly, it fits in a drone.”

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Survivors of New Zealand volcano eruption left badly burned

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Argentina Can’t Pay Debt Until Economy Grows, Fernandez Says

© Reuters.  Argentina Can’t Pay Debt Until Economy Grows, Fernandez Says © Reuters. Argentina Can’t Pay Debt Until Economy Grows, Fernandez Says

(Bloomberg) — Argentina is willing but unable to pay its debts under current conditions and needs the economy to grow again before meeting its obligations, President Alberto Fernandez said in his first speech after being sworn in.

The government will seek “constructive and cooperative” dialogue with the International Monetary Fund and bondholders to address the debt load, Fernandez said, without giving additional details. The outgoing administration of Mauricio Macri left Argentina in “virtual default,” he said.

Fernandez, 60, read off a list of challenging economic indicators that he’s inheriting including the biggest debt load as a percentage of gross domestic product since 2004, when the country was in default and he was cabinet chief. Investors are awaiting details from incoming Economy Minister Martin Guzman on his plans to confront the debt crisis which may include proposals to extend maturities.

“The country is indebted, cloaked by an instability that discards the possibility of development and leaves it hostage to foreign financial markets,” he said. “Argentina should grow with a project of its own and implemented by Argentines, not dictated by foreigners with old recipes that always fail.”

Fernandez’s speech was “constructive,” said said Shamaila Khan, the New York-based director of emerging-market debt at AllianceBernstein. “They obviously didn’t have much policy details. But I don’t think we were expecting that from an inauguration speech.”

Debt Challenge

Macri, who reinserted Argentina into global bond markets after taking office in 2015 but later failed to control inflation and kick start growth, signed a record $ 56 billion IMF credit line last year. The implied probability of non-payment over five years with credit-default trading stands at about 95%.

Macri, who was forced to reimpose capital controls in September after markets sank due to a primary election that showed Fernandez set to win the presidency, had also announced plans to “reprofile” a total of $ 101 billion in debt between payments due to private creditors and the IMF.

Moody’s Investors Service Inc. said restructuring Argentina’s medium- and long-term debt will be a challenge for Fernandez’s administration, and that the future of the nation’s credit ratings will depend on “losses imposed on bondholders as well as the long-term sustainability of the government’s yet-to-be-defined economic program.”

Fernandez said that the 2020 budget can only be drawn up once the debt negotiation has been completed, as well as some economic and social measures haven been implemented to compensate the impact of the crisis in the economy.

“Solving the problem of the unsustainable debt that Argentina has today is not a matter of winning a dispute. The country has the will to pay, but it lacks ability to do it,” Fernandez said.

Argentina’s bonds fell slightly on Tuesday with notes due in 2028 down 0.5 cent to 40 cents on the dollar.

(Updates with quotes from Fernandez, analysts)

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Trump’s Nafta Rewrite Gets Signoffs; Senate to Vote in 2020

© Reuters.  Trump’s Nafta Rewrite Gets Signoffs; Senate to Vote in 2020 © Reuters. Trump’s Nafta Rewrite Gets Signoffs; Senate to Vote in 2020

(Bloomberg) — House Democrats embraced the U.S.-Mexico-Canada trade agreement after securing key revisions and announced plans to vote on the deal next week, putting President Donald Trump closer to a political win as he heads into the 2020 election.

Speaker Nancy Pelosi praised the changes her House Democats were able to negotiate, saying the revised deal is better for American workers. She said the new version of the accord, known as the USMCA, will be a model for other trade agreements going forward.

“This is the day we have been waiting for,” Pelosi told reporters. “It is infinitely better than what was initially proposed by the administration.”

Trump welcomed the finalized Nafta overhaul, which has been languishing for more than a year and could resolve some of the uncertainty weighing on the economy as he heads into his re-election campaign. But it is also a win for House Democrats who are eager to prove that they can do more than investigate and impeach Trump.

The timing on Tuesday was extraordinary, with Pelosi flanked by more than 30 of her colleagues announcing the long-awaited trade deal just minutes after chairmen of House committees investigating Trump unveiled the two articles of impeachment they plan to bring against the president. She said the back-to-back announcements were not a coincidence.

“We are at the end of the session and you have to make some decisions,” Pelosi said.

The timing will prove more difficult in the Republican-led Senate, according to Majority Leader Mitch McConnell. He told reporters Tuesday that the Senate won’t take up the USMCA until after it finishes with the impeachment trial next year.

“We will not be doing USMCA next week in the Senate,” McConnell said Tuesday.

On Oct. 12, 2011, the House and Senate passed trade agreements with Korea, Panama, and Colombia, according to Henry Connelly, a Pelosi spokesman.

“Senator McConnell has no excuse not to bring up the USMCA,” Connelly said in an emailed statement.

‘Will-It-Ever-Happen Moment’

The changes that Democrats demanded on provisions regarding the environment, pharmaceuticals, labor and overall enforcement were the subject of intense negotiations between U.S. Trade Representative Robert Lighthizer and House Democrats led by Ways and Means Chairman Richard Neal.

“Every once in a while you get to participate in a will-it-ever-happen moment,” Neal said Tuesday. ”This is a triumph for workers across America.”

Lighthizer called the agreement “historic” and said the accord “will be the model for American trade deals going forward.”

“After working with Republicans, Democrats, and many other stakeholders for the past two years we have created a deal that will benefit American workers, farmers, and ranchers for years to come,” Lighthizer said in a statement.

Pelosi told her Democratic members earlier Tuesday that expects a House vote next week, according to Representative Henry Cuellar, a Democrat from Texas. Neal also confirmed that timing.

“We are ready to rock and roll,” Cuellar said after a closed-door meeting of Democratic representatives in Washington. “We’re very confident. We have the numbers” to pass the deal.

Pelosi later told reporters she hopes to vote on the deal, known as the USMCA, “before the end of the session,” which would be before Congress recesses for the holidays Dec. 20.

Representatives from Canada, Mexico and the Trump administration met in Mexico City Tuesday to sign the amendments to the trade agreement. Mexican President Andres Manuel Lopez Obrador said the new version will be ratified by the legislatures of all three countries.

Revised Provisions

The revised trade agreement removes a loophole in Nafta that allowed any country to object to the formation of enforcement panels, and it updates rules governing how evidence can be presented at arbitration panels, according to a summary of the agreement.

The major sticking point in talks for months has been labor-rights enforcement. The deal creates a new labor-specific dispute panel system covering all goods and services, and labor violations can lead to “penalties on goods and services.”

Instead of U.S. labor inspectors in Mexico, which Mexican negotiators opposed, the deal creates an inter-agency committee to monitor labor rights in Mexico and allow labor attachés to monitor labor reforms.

The agreement establishes benchmarks for Mexico’s implementation of its new labor law. If they the deadline is not met, that leads to “enforcement action,” according to the summary.

Democrats also managed to remove a provision that would have guaranteed 10 years of data protection for biologic drugs, which pharmaceutical companies lobbied to preserve in the deal.

“We now have a new and improved, renegotiated Nafta that prevents Big Pharma from raising prices,” said Representative Jan Schakowsky, an Illinois Democrat.

The Biotechnology Innovation Organization, a drug industry group, said removing protections for biologic drugs “surrendered one of the most important tools” that would help Trump keep his promise to “end foreign free-riding on American medical innovation.”

Pelosi said that she was not able to remove a provision granting legal liability protections for internet companies from the deal.

Republican Support

Trump tweeted his support for the revised agreement Tuesday before Pelosi’s announcement.

Republicans in the U.S. Congress have been relentlessly pressuring Democrats to put the trade agreement up for a vote. Some Republicans on Monday said they were concerned that the changes to the trade agreement, negotiated in close consultation with labor unions, would stray too far from the original deal.

Senate Finance Chairman Chuck Grassley, the Republican who will shepherd the deal through the Senate after House passage, said he isn’t worried that the revised deal would slow its passage.

”I don’t think it’s going to be big enough to stop us from getting it passed,” Grassley said about GOP concerns.

Louisiana Representative Steve Scalise, the Republican responsible for counting his party’s votes in the House, praised the deal and said Congress should continue working on other “outdated trade deals.”

“I predict an overwhelming vote for this agreement,” Scalise said in a statement. “Republican support for President Trump’s hard-negotiated trade deal will be strong.”

One of the most important endorsements for the deal came from the AFL-CIO, the largest labor federation in the U.S. Richard Trumka, the group’s president worked closely with Democrats on the negotiations.

“We demanded a trade deal that benefits workers and fought every single day to negotiate that deal; and now we have secured an agreement that working people can proudly support,” Trumka said in a statement. “Trade rules in America will now be fairer because of our hard work and perseverance. Working people have created a new standard for future trade negotiations.”

(Updates with Pelosi spokesman’s statement in the ninth paragraph.)

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Forex: Dollar Creeps Lower on Cooling Hopes of Delay to Tariffs on China

© Reuters.  © Reuters.

Invesing.com – The U.S. dollar edged lower on Tuesday, as uncertainty over whether the U.S. would delay planned tariffs on imporrts from China continued to weigh on sentiment.

The , which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.17% to 97.48.

Larry Kudlow, President Donald Trump’s top economic advisor, reportedly said he could not confirm the further tariffs on China would be delayed.

That offset positive news on trade amid a Wall Street Journal report suggesting that the U.S. was mulling a delay to imposing tariffs on China.

Without a deal nor a delay to tariffs before the Dec. 15 deadline, the U.S. is slated to impose tariffs on another $ 156 billion on Chinese goods.

These would include cellphones, laptops and tablets made in China, along with toys, office and schools supplies, some clothing, and even frozen Alaskan pollock fillets.

The dollar was also hurt by a rise in both the euro and the pound.

rose 0.22% to $ 1.1086 as economic data, including a in Germany, was not as bad as feared.

With just two days until U.K. voters head to the booths, the continued to rack up gains against the greenback amid expectations that the ruling Conservative party will secure a parliamentary majority.

Firmer also underpinned a bid in sterling.

rose 0.32% to 1.3184.

As a conservative victory is almost fully priced-in, “even a landslide victory might hardly see the pound rise,” said Oliver Allen at Capital Economics.

rose 0.19% to Y108.75 and was flat at C$ 1.3237.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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DOJ watchdog says no “political bias” in FBI probe of Trump campaign, but errors

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Mubadala has invested $100 billion in U.S., eyes China: deputy CEO

© Reuters.  Mubadala has invested $  100 billion in U.S., eyes China: deputy CEO © Reuters. Mubadala has invested $ 100 billion in U.S., eyes China: deputy CEO

ABU DHABI (Reuters) – Abu Dhabi state investor Mubadala Investment Co [MUDEV.UL] has invested $ 100 billion in the United States, more than 40% of its roughly $ 240 billion portfolio, Deputy CEO Waleed al-Muhairi said on Tuesday.

“What that tells you is that from our perspective the risk reward equation works in the United States,” he said at the SALT conference in Abu Dhabi, adding that the bulk of the investments are direct, with a small portion indirectly invested through funds.

He said the remaining part of the portfolio is almost equally split between three regions – the United Arab Emirates, Europe and Asia.

Muhairi said Mubadala has invested $ 2 billion in China in 15-16 sectors from its $ 10 billion UAE China fund and could step up investments in the mainland.

“China is the UAE’s largest trading partner, it is an important economic relationship for us,” he said.

Mubadala would want to participate in some “shape, way or form” in the growth of China, which could become the largest economy in the world, Muhairi said.

Technology is a focus for Mubadala, he added.

Mubadala has invested $ 15 billion in Softbank’s (T:) Vision Fund I and recently announced plans to invest $ 250 million through two funds in technology firms in the Middle East and North Africa.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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