Eq: EMs


In what seems to have become a nearly annual summer event over the last few years, Greece has just struck a fresh deal with its creditors. After 11 hours of talks in Brussels, the country’s creditors came to an agreement about how to alleviate the country’s debt burden, resolving an impasse between Germany and the IMF. The agreement is aimed at how to deal with Greece’s debt burden once its bailout ends in 2018. The deal was non-specific and principle-based, and one of the more radical possibilities is that the IMF could dramatically reduce its exposure to the country by buying its loans. The deal allows for Greece to receive €10.3 bn more this summer, to keep the country afloat.

FINSUM: This is another confusing and non-specific agreement on how to deal with Greece. We expect more fighting to come.

Source: Financial Times

(Rio de Janeiro)

Emerging markets are seeing their brief reprieve from downward pressure ending abruptly as market concerns over a pending Fed rate rise run their inevitable course. The release of Fed minutes last week has led to a strong and steady change of perspective on the direction of rates, turning the overall market view to one of “risk-off” where equity, commodity, and emerging market assets suffer. In total the MSCI emerging market index fell 3% last week. An analyst from BNP Paribas Investment Partners said that markets cannot forget about emerging markets’ rising debt, widening deficits, and slowing growth. Even the brief rally EMs had recently seen is reported to have been light-hearted as it was supposedly only ever driven by short-covering.

FINSUM: The outlook for emerging markets is very bleak, especially if the US hikes. It is hard to see EM assets performing well in the near term.

Source: Financial Times

(Sao Paulo)

Brazil appears on the edge of a full blown revolution. The country is in the midst of a complex and tense political standoff which has its citizens rioting violently. Current president Dilma Rousseff made an appointment for Lula Da Silva, the country’s former president and Roussef’s mentor, to become a government minister. However, the opposition argues that this was only done to shield Da Silva from immediate arrest related to corruption charges, as holding a ministerial position makes Da Silva immune from all court proceedings other than the Supreme Court, which is more likely to rule in his favour. However, just as the swearing in process was occurring, a separated judge issued an injunction blocking the appointment on the grounds that it would prevent the “free exercise of justice”. Protests enveloped the country Wednesday and Thursday as recordings were released of Da Silva speaking about the investigations and a conversation with Rousseff about the appointment. Brazilian assets rallied as investors saw the government as likely to fall.

FINSUM: This is quite a political and societal volcano for Brazil, and seems to be the culmination of a long period of growing frustration. Anyone’s guess how this will affect Brazilian markets.

Source: Financial Times

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