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Emerging markets feeling the heat

Published Tuesday, August 18th, 2015

This week’s Monday had none of the drama of last week’s Monday. A week ago China delivered a currency bombshell in reaction to very poor export figures. Whilst arguments continue as to the real motive behind the currency adjustment there can be no denying the fallout which is still ongoing particularly in the currency markets.

Emerging market currencies are under heavy pressure. The Turkish lira, Mexican peso and South African rand all hit record lows against the dollar yesterday. Malaysian and Indonesian currencies are at 17-year lows. The MSCI index of Asia-Pacific shares excluding Japan is at a two-year low. Explosive events in Tianjin last week and Bangkok yesterday will have a negative effect on GDP growth in both countries. The Shanghai Composite has just closed 6.2% down! None of this is good for oil demand.

Concerns that OPEC production could reach 33 mbpd next year from Iran’s OPEC representative are not helpful either, even if they are truthful. Nor is the Omani announcement that for the first time in its history the country’s crude and condensate production exceeded 1 mbpd. It was further confirmation that oil producers are trying to make up for lost revenue by increased volume.

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Posted by David Hufton