The Zloty Loses its Slot

Sep 27 • Between the lines • 1931 Views • Comments Off on The Zloty Loses its Slot

Please no laughing at the back of the class, the Polish currency, the zloty, is apparently falling out of favour with investors and speculators. Are you thinking what I’m thinking, that it’s a shame they didn’t ditch their sovereign currency in 2002 and join the euro?

Trading humour can be so cruel. The zloty is down 16 percent against the dollar and 9.9 percent versus the euro this quarter as the worst performer amongst the European currencies. “The zloty was not so long ago the darling of Europe, Middle East and Africa regions but these days are gone,” Benoit Anne, the head of global emerging-market strategy at Societe Generale SA in London, said in a phone interview with Bloomberg, “It used to be a very strong fundamental story and you don’t have it anymore.”

Poland’s was the only European Union economy to avoid recession after the global credit crisis in 2008 caused record purchases of government’s bonds. The economy expanded an average 4.4 percent a year since 2007, compared with 0.1 percent in the EU. However, that artificial ‘growth’ came at an obvious price; Poland’s budget deficit has more than quadrupled since 2007 to 7.9 percent of GDP last year, the widest gap since at least 1996, according to data compiled by Bloomberg.

Contagion thoughts took a twist in an unfamiliar direction yesterday, with news that Danish banks are experiencing their own crisis and it’s deepening due to the new government’s plans to impose taxes on lenders, this threatens to deplete capital at a time when most of the country’s banks have no access to funding markets.

“The banks are under severe stress,” said Jesper Rangvid, professor of finance at Copenhagen Business School, in an interview with Bloomberg. Imposing extra taxes on the country’s banks “definitely does not contribute to banking stability.”

Stocks rallied yesterday, rebounding from last week’s slump. Commodities reversed losses and the Dollar Index declined. The Standard & Poor’s 500 Index jumped 2.3 percent to close at 1,162.95 at 4 p.m. in New York. The S&P 500 is down circa 12 percent since the end of June, heading for its worst quarterly performance since 2008. Ten-year U.S. Treasury note yields added six basis points to 1.90 percent, rising from a close to record low. The Dollar Index lost 0.5 percent, while the euro fell against 12 of 16 major peers. Financial shares ranked among the session’s best performers, with the KBW Bank Index up 5.3 percent. Dow component JPMorgan Chase & Co advanced 7 percent to $31.65 while Citigroup Inc gained 7 percent to $26.72.

Turning attention back to Europe, Greeks are facing up to a miserable existence due to the austerity measures. Greece will deepen pension cuts, extend the painful property tax and put tens of thousands of workers on notice in order to secure new aid and stave off bankruptcy, causing more pain for an increasingly embittered electorate. With civil servants suffering swingeing 15% salary cuts and core inflation hitting hard the experience is exacerbated by the random rolling transport strikes. Talk of plans for a 50 percent write-down in Greek debt and improvements in the euro-zone rescue fund buoyed the market, however, European officials called the talk premature. The plans could involve using leverage and the European Investment Bank to buy sovereign debt to save European banks. A solution cannot come quick enough for Greece’s battered and embittered population.

 

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Gold lost circa 4% on Monday, hit by liquidation by commodity hedge funds triggered by another sharp margin hike. The metal has lost 11% during its recent four-session sell-off, its worst four-day drop since February 1983. There was widespread talk of possible selling by big hedge funds to cover their losses in other markets. Gold was down 3.4 percent at $1,600 an ounce by 1:17 p.m, having fallen earlier by more than 7 percent to a 2-1/2-month low of $1,534.49. The difference between the session high and low of $128 marked the largest daily price swing on record. Silver fell as much as 16 percent and was set for its sharpest three-day fall on record of more than 25 percent. Silver eventually dropped 3.2 percent to $30.05 an ounce.

Looking towards this mornings London and European session the European bourses equity futures indices look positive, the FTSE up 1%, the STOXX up 3% and the DAX likewise. The SPX future is currently flat. Brent is up $69 a barrel. Will Asian markets feel the wave of premature optimism felt by Europe and the USA? Talk may be regarded as cheap, until action is taken Asian markets and policy makers will remain sceptical as to the will and ability to rescue both Europe’s and the USA’s debt crises.

Key morning announcements include; at 09:00 the Eurozone – M3 (Money supply) for Aug. And at 11:00 UK – CBI Industrial Trends Survey for Sept. Nether of which publications are likely to affect sentiment greatly.

 

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