Critical intelligence before the U.S. market opens
TriStar/Everett
In the wee hours of a Moscow morning, Russia took a massive step toward protecting the ruble and defending its ailing economy against a currency crisis. The country’s central bank, in a surprise move, raised its key interest rate to 17% from 10.5%, effective today. That’s the biggest bump since the government defaulted on debt back in 1998.
Our comrades in the fuzzy hats are up against it.
The ruble’s bleeding hasn’t really stopped despite that move, which Wonkblog’s Matt O’Brien says is a desperate move, a “financial shock and awe,” that won’t stop things from getting a lot worse.
“It’s a classic kind of emerging-markets crisis,” he wrote. “It’s only a small simplification, you see, to say that Russia doesn’t so much have an economy as it has an oil-exporting business that subsidizes everything else. That’s why the combination of more supply from the United States, and less demand from Europe, China, and Japan has hit them particularly hard.”
For the ruble to truly stabilize beyond this knee-jerk bounce, oil is going to have to recover, and who knows when that will happen. It doesn’t look like today.
Not many are shedding a tear for Vladimir Putin, of course, but there just might be an outbreak of sobbing in the world’s trading pits if Russia’s woes reverberate across the globe. Emerging markets, like Mexico and Brazil yesterday, have been getting hammered, and it’s starting to feel like 1998 all over again. Back then, oil prices were plunging, currencies were spiraling, Venezuela was caught in a financial tailspin, and Russia was sinking into debt default and devaluation.
Sound familiar?
There are some differences. Differences that actually might make a difference and keep us from plumbing the deepest depths in today’s scenario. But with all the unsettling noise, this sure doesn’t feel like a market, in the U.S. anyway, that’s somehow within spitting distance of all-time highs
As it stands, we’re heading into the back stretch of 2014 and mutual funds are lagging the indexes by the widest margin in almost a decade, according to Advisors Asset Management. That means the chase to put a positive spin on the year-end portfolio could add fuel to this huge surge in volatility we’re seeing. LINK
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