PiS policy shift puts Polish markets under strain

2016 ◽  
Keyword(s):  
Financial Markets ◽  
Foreign Currency ◽  
Monetary Policies ◽  
Government Bonds ◽  
Content Type ◽  
Local Currency ◽  
Policy Shift ◽  
Law And Justice ◽  
Rating Downgrades ◽  
High Share

Significance However, the unexpected downgrade of Poland by Standard & Poor's (S&P) on January 15 has focused attention on the financial and economic policy stance of the Law and Justice (PiS) government, in particular, the party's plans for a Hungarian-style forced conversion of foreign currency (FX)-denominated mortgages in local currency contracts. Poland's equity markets have fallen sharply, although the zloty and local government bonds are proving more resilient, despite coming under increasing pressure. Impacts The threat is looming over Poland of further rating downgrades if the credibility of its fiscal and monetary policies is undermined. Emerging Europe's high share of FX-denominated debt, particularly in the south-east, might be a source of financial vulnerability. Non-resident investors are still purchasing Poland's domestic bonds and may even be attracted by the recent rise in yields. CEE's negligible trade linkages with China and favourable status as an oil importer put its financial markets among the most resilient EMs.

scholarly journals Behavioral agent-based framework for interacting financial markets

2020 ◽  
Vol 5 (2) ◽  
pp. 94-115
Author(s):  
Heba M. Ezzat
Keyword(s):  
Financial Markets ◽  
Trading Strategy ◽  
Past Performance ◽  
Time Step ◽  
Monetary Policies ◽  
Content Type ◽  
Agent Based ◽  
Market Makers ◽  
Novel Approach ◽  
Excess Volatility

Purpose This paper aims at developing a behavioral agent-based model for interacting financial markets. Additionally, the effect of imposing Tobin taxes on market dynamics is explored. Design/methodology/approach The agent-based approach is followed to capture the highly complex, dynamic nature of financial markets. The model represents the interaction between two different financial markets located in two countries. The artificial markets are populated with heterogeneous, boundedly rational agents. There are two types of agents populating the markets; market makers and traders. Each time step, traders decide on which market to participate in and which trading strategy to follow. Traders can follow technical trading strategy, fundamental trading strategy or abstain from trading. The time-varying weight of each trading strategy depends on the current and past performance of this strategy. However, technical traders are loss-averse, where losses are perceived twice the equivalent gains. Market makers settle asset prices according to the net submitted orders. Findings The proposed framework can replicate important stylized facts observed empirically such as bubbles and crashes, excess volatility, clustered volatility, power-law tails, persistent autocorrelation in absolute returns and fractal structure. Practical implications Artificial models linking micro to macro behavior facilitate exploring the effect of different fiscal and monetary policies. The results of imposing Tobin taxes indicate that a small levy may raise government revenues without causing market distortion or instability. Originality/value This paper proposes a novel approach to explore the effect of loss aversion on the decision-making process in interacting financial markets framework.

Near-zero growth is expected in Kazakhstan in 2016

2016 ◽  
Keyword(s):  
Financial Markets ◽  
Banking System ◽  
Oil Prices ◽  
Domestic Demand ◽  
Living Standards ◽  
External Shocks ◽  
Monetary Policies ◽  
Content Type ◽  
Trading Partners ◽  
Zero Growth

Significance Low global oil prices and GDP declines in Russia and other trading partners caused a slowdown in growth in Kazakhstan in 2015 and early 2016. External shocks led to a large devaluation of the currency, hikes in inflation, and low domestic demand and industrial activity. Savers switched from tenge to dollars, and devaluation brought reduced liquidity and increased volatility in the financial markets, undermining the banking system. Impacts Falling living standards are a key political risk for President Nursultan Nazarbayev. Higher oil prices and a modest Russian recovery may offer Kazakhstan some respite. Tenge depreciation against trading partners' currencies will boost non-commodity exports. 'Dollarisation' of the economy will reduce the central bank's ability to implement monetary policies.

Central bank missteps are Emerging Europe's main risk

2017 ◽  
Keyword(s):  
Czech Republic ◽  
Capital Inflows ◽  
Bond Yields ◽  
Monetary Policies ◽  
Government Bonds ◽  
The Czech Republic ◽  
Content Type ◽  
International Investors ◽  
Global Stock Markets ◽  
Equity Index

Subject The implications of a sharp rise in foreign holdings of local currency-denominated government bonds in Emerging Europe. Significance A surge in capital inflows into the Czech Republic and Turkey is increasing the scope for a disorderly sell-off in financial markets, as both the US Federal Reserve (Fed) and the ECB begin simultaneously withdrawing monetary stimulus. While international investors’ appetite for higher-yielding assets remains strong because of low (or in some cases negative) bond yields in advanced economies, emerging markets (EM) are still vulnerable to the removal of stimulus by the Fed and the ECB. Impacts Global stock markets are at record highs: the rally in the S&P 500 equity index is now the second-strongest bull run in US history. Price pressures in Central Europe, particularly core inflation, will be subdued, except in the Czech Republic. This will allow central banks to maintain loose monetary policies which in turn will support regional bond markets.

'Brexit' fallout could hit EU financial assets widely

2016 ◽  
Keyword(s):  
Financial Markets ◽  
Current Account Deficit ◽  
Financial Assets ◽  
Government Bonds ◽  
Content Type ◽  
Eu Membership ◽  
Run Up ◽  
High Yields ◽  
The Uk ◽  
The Eu

Subject The potential fallout from 'Brexit' on both UK and EU-wide financial assets. Significance In the run-up to the June 23 referendum on the United Kingdom's EU membership, the 'Brexit' risk has been weighing on UK confidence and investment. The reaction in financial markets has been more benign, with the pound rising by 3.6% against the dollar since end-February and a 54-basis-point (bp) year-to-date fall in the ten-year gilts yield. The absence of a 'Brexit premium' suggests investors may be underpricing both the UK-specific and EU-wide risks associated with a UK exit from the EU at a time of heightened market volatility. Impacts UK government bonds, along with their US equivalents, will remain attractive to investors because of their relatively high yields. Meanwhile, euro-area and Japanese bonds, whose yields are negative or slightly positive at best, will remain unattractive. The prolonged uncertainty during the post-referendum renegotiations could shave 1.0-1.5 pp off UK GDP growth by end-2017. The wide UK current account deficit and the country's reliance on foreign capital underscore the risks associated with Brexit.

Yen surge to question global monetary easing's effects

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Central Banks ◽  
Recent Improvement ◽  
German Government ◽  
Monetary Policies ◽  
Government Bonds ◽  
Content Type ◽  
Negative Interest Rates ◽  
The Us ◽  
Fiscal Support

Significance Despite aggressive easing by both the Bank of Japan (BoJ) and the ECB, including negative interest rates, the lowering of expectations over the scale and pace of rate hikes by the US Federal Reserve (Fed) has negated their attempts to weaken their currencies and thus boost export-driven growth. This is heightening concern that ultra-loose monetary policies have passed the point where they can revive growth and inflation. Impacts Despite the recent improvement due to the oil price rebound since mid-February, sentiment towards EM currencies will remain fragile. The still strong demand for 'safe-haven' assets, such as German government bonds and gold, implies investors will remain cautious. Negative deposit rates will further undermine banks' earnings, amid persistent concerns about capital levels. Central banks will reach the limits of their capacity to promote growth without fiscal support from governments.

CEE's own risks pose a greater threat than China

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Latin American ◽  
Investor Sentiment ◽  
Government Bonds ◽  
Content Type ◽  
East European ◽  
Asset Class ◽  
Trade And Financial Linkages ◽  
Better Than

Subject CEE markets' resilience to China-induced sell-off. Significance While investor sentiment towards emerging markets (EMs) has deteriorated further because of mounting concerns about China's economy and financial markets, the currencies and government bonds of the main Central-East European (CEE) economies have proved remarkably resilient. Even equity markets, which have suffered sharp falls across the EM asset class, have fared better than in other regions, with Polish, Hungarian and Czech stocks falling by 5.0-6.0% in dollar terms in August, compared with 10.0% and 9.5% for emerging Asian and Latin American shares, respectively. CEE markets' resilience stems from the region's negligible trade and financial linkages to China, relatively strong fundamentals and the sentiment-boosting effects of the ECB's programme of quantitative easing (QE). Impacts EMs' significantly stronger fundamentals make comparisons between the current China-led sell-off and earlier crises in the 1990s misleading. There will continue to be a strong correlation between CEE financial markets and price action in the euro-area. The ECB's full-blown QE should help mitigate the adverse effects of a rise in US interest rates. Very high foreign participation in Polish and Hungarian government debt poses a risk should sentiment towards EMs deteriorate more sharply.

Zimbabwe economic pressures will linger

2019 ◽  
Keyword(s):  
Tropical Cyclone ◽  
Foreign Currency ◽  
Tax Revenue ◽  
Interbank Market ◽  
Content Type ◽  
Local Currency ◽  
The Us ◽  
Us Dollar ◽  
Price Distortions ◽  
Energy Regulatory

Significance Since its introduction in February, the local real-time gross settlement (RTGS) dollar, a de facto new local currency, has lost over 60% of its value relative to the US dollar on both the formal interbank market and the parallel market. Meanwhile, drought and the damage wrought by Tropical Cyclone Idai have placed further pressure on scarce foreign currency resources, prompting increased public protests. Impacts Forex and fuel turmoil will harm the pivotal mining sector, particularly gold, prompting rising job losses and scaling back of operations. Increased tax collection obscures the emergence of an increasingly self-defeating tax revenue system. The Zimbabwe Energy Regulatory Authority's continued control of pricing could see price distortions persisting and renewed fuel shortages.

Rating sovereign debt in a monetary union – original sin by transnational governance

2015 ◽  
Vol 16 (3) ◽  
pp. 253-283 ◽  
Author(s):  
Finn Marten Körner ◽  
Hans-Michael Trautwein
Keyword(s):  
Monetary Union ◽  
Public Debt ◽  
Sovereign Debt ◽  
Foreign Currency ◽  
Debt Crisis ◽  
Emerging Market ◽  
Original Sin ◽  
Risk Assessments ◽  
Content Type ◽  
Local Currency

Purpose – The purpose of this paper is to test the hypothesis that major credit rating agencies (CRAs) have been inconsistent in assessing the implications of monetary union membership for sovereign risks. It is frequently argued that CRAs have acted procyclically in their rating of sovereign debt in the European Monetary Union (EMU), underestimating sovereign risk in the early years and over-rating the lack of national monetary sovereignty since the onset of the Eurozone debt crisis. Yet, there is little direct evidence for this so far. While CRAs are quite explicit about their risk assessments concerning public debt that is denominated in foreign currency, the same cannot be said about their treatment of sovereign debt issued in the currency of a monetary union. Design/methodology/approach – While CRAs are quite explicit about their risk assessments concerning public debt that is denominated in foreign currency, the same cannot be said about their treatment of sovereign debt issued in the currency of a monetary union. This paper examines the major CRAs’ methodologies for rating sovereign debt and test their sovereign credit ratings for a monetary union bonus in good times and a malus, akin to the “original sin” problem of emerging market countries, in bad times. Findings – Using a newly compiled dataset of quarterly sovereign bond ratings from 1990 until 2012, the panel regression estimation results find strong evidence that EMU countries received a rating bonus on euro-denominated debt before the European debt crisis and a large penalty after 2010. Practical implications – The crisis has brought to light that EMU countries’ euro-denominated debt may not be considered as local currency debt from a rating perspective after all. Originality/value – In addition to quantifying the local currency bonus and malus, this paper shows the fundamental problem of rating sovereign debt of monetary union members and provide approaches to estimating it over time.

Markets are downplaying PiS election risks in Poland

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Foreign Currency ◽  
Strong Support ◽  
Commodity Prices ◽  
Wide Margin ◽  
Content Type ◽  
Opinion Polls ◽  
China’S Economy

Significance Despite PiS's costly spending pledges, its nationalist and populist views and its strong support for a controversial, Hungarian-style debt-relief scheme for holders of foreign currency-denominated mortgages, the prospect is causing little anxiety in financial markets. Investors are taking the view that PiS, which is leading the ruling Civic Platform (PO) party by a wide margin in opinion polls, will be forced to renege on many of its campaign promises. Impacts Poland is less vulnerable to the VW scandal, auto manufacture accounting for a much larger share of Czech and Hungarian jobs and GDP. A hard landing for China's economy is now seen as the largest threat to financial markets, as opposed to a rise in US interest rates. Central Europe's economies are better placed to cope with deteriorating sentiment towards EMs. Downside risks to inflation from falling commodity prices and slower EM growth put the NBP under pressure to loosen monetary policy further.

The dollar will determine emerging market asset moves

2018 ◽  
Keyword(s):  
South Africa ◽  
Emerging Market ◽  
Bond Yields ◽  
Government Bonds ◽  
Content Type ◽  
Local Currency ◽  
Treasury Bond ◽  
Asset Class ◽  
Capital Outflows ◽  
Firing Line

Subject Emerging market asset gyrations. Significance Emerging markets (EMs) are under strain as the dollar has risen by nearly 4% since the middle of April, triggered by a sharp increase in US Treasury bond yields and increasing evidence of slower economic activity in the euro-area. Argentina and Turkey are in the firing line as they hold a high proportion of their external debt in dollars, but the entire EM asset class has suffered sizeable capital outflows, and year-to-date returns on dollar-denominated and local currency government bonds are now firmly negative. Impacts US sanctions could squeeze Iran’s oil exports, putting upward pressure on the oil price though US shale should cap prices below 80 dollars. Foreign holdings of EM local currency sovereign bonds, at risk of a sell-off, are highest in South Africa, Indonesia, Malaysia and Russia. Bank for International Settlements Chief Agustin Carstens recommends EMs build up reserves as “sometimes whatever comes in … will … go out”. For the Institute for International Finance, China, Argentina, South Africa and Turkey are high risk; Russia, Brazil and Philippines lower. US Fed Chair Jerome Powell has reminded investors that tighter monetary policy has been well signposted and should be “manageable” for EMs.

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