The International Monetary Fund has been forced to change the calculation of its most important interest rate after aggressive monetary easing around the world threatened to turn it negative.
Late on Friday, the IMF said it is introducing a floor of 0.05 per cent for the interest rate on Special Drawing Rights, its own form of international currency
The IMF’s move shows how global financial conditions are now easier than they have ever been, more than five years after the end of the Great Recession, leading to the lowest interest rates in its sixty-eight year history.
Rate cuts, asset purchases and forward guidance by central banks around the world continue to disrupt financial markets, forcing participants to adapt in new ways.
“In view of the prevailing interest rates today, the SDR interest rate for the next weekly period starting Monday, October 27, will be established at the floor of 0.05 per cent,” announced the IMF’s executive board.>> Read More
Here’s a snapshot of some key events to watch for.
Eurozone stress tests
The week begins on Sunday when the European Central Bank releases the results of its stress tests of the eurozone’s lenders.
Brazil’s presidential election
Stress tests are not all that’s happening on Sunday.
There’s also the climax to Brazil’s presidential elections, with the run-off between incumbent Dilma Rousseff and rival Aecio Neves. Ms Rousseff’s interventionist policies have been blamed for Brazil’s economic woes and both are courting investors on promises of lower inflation and higher growth.
Two polls on Thursday showed that Ms Rousseff had taken the lead but a smaller poll published by IstoE magazine showed that Mr Neves would have a larger share of the votes. The polls underestimated support for Mr Neves before. We’ll know soon enough.>> Read More
Fitch Ratings has affirmed Italy’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB+’. The issue ratings on Italy’s senior unsecured foreign and local currency bonds have also been affirmed at ‘BBB+’. The Outlooks on the Long-term IDRs are Stable. The Country Ceiling is affirmed at ‘AA+’ and the Short-term foreign currency IDR at ‘F2′.
KEY RATING DRIVERS
The Italian economy is in a prolonged slump and growth prospects are weak. GDP is currently close to its 2000 level and 9% below its peak in 2008. It contracted again in 1H14, in contrast to Fitch’s previous expectation of a weak recovery, after 0.1% growth in 4Q13. Fitch forecasts GDP to contract by 0.2% in 2014, followed by growth of 0.6% in 2015 and unemployment to remain above 12% until 2016. Nominal GDP growth will also remain very weak over the medium term, and is unlikely to exceed significantly the 1.2% average of the 2005-2013 period.
Stocks closed higher Friday as the S&P 500 posted its biggest weekly gain of the year after news of an Ebola diagnosis in New York City had no effect on trading.
The Standard & Poor’s 500 index finished up 13.76 points, 0.7%, to 1964.58, capping off a strong week that saw the benchmark index rise 4.1%. The strong gains helped the S&P 500 snap a four-week losing streak.
The Dow Jones industrial average ended up 127.51 points, 0.8%, to 16,805.41, and posted a 2.6% gain for week. The tech-heavy Nasdaq composite closed up 30.92 points, 0.7%, to 4483.72 and surged 5.3% for the week.
Sales of new homes were essentially flat in September, after the government sharply revised downward what was initially an August surge in buying.
The gains followed an explosive rally on Thursday, when better-than-expected earnings from automaker General Motors and heavy equipment maker Caterpillar sent stocks surging.
Wall Street is closing out a tumultuous period that at one point last week looked as if the stock market was in serious danger of suffering its first correction — a 10% pullback — in more than three years.>> Read More
With expanding rail infrastructure a key policy objective in India under Prime Minister Narendra Modi, Japanese machinery manufacturers are packing their advanced technologies to catch the train.
JFE Engineering already has a ticket. It has won an order in cooperation with a local construction company to build two bridges for a new freight rail line in the west of India. The order is worth 5 billion yen ($45.9 million) in total and 3 billion yen for JFE, which has dispatched engineers to a local materials manufacturer to produce highly durable materials for the bridges. Construction will begin as soon as this year with a goal of completing both in the autumn of 2018.
Kyosan Electric Manufacturing, a leading producer of railway signaling systems, is also on board. The company has started making electronic control devices for rail switches that will be supplied to 10 stations. The Ministry of Railways requires local production as a condition of orders, so Kyosan has licensed technologies to a manufacturer in Chennai. While main components are being imported from Japan for now, the plan is to reach nearly 100% local production in three years.>> Read More
Having been relatively quiet for a while, Russia’s leader Vladimir, speaking in Sochi (following meetings with Middle East crown princes who confirmed Russia as a key partner – “isolated”?), has unleashed his most aggressive statements with regard the failing world order:
*PUTIN SAYS U.S. DOLLAR LOSING TRUST AS RESERVE CURRENCY
*PUTIN: WORLD WITHOUT RULES IS POSSIBILITY; ANARCHY GROWING
Adding that the risk of major conflicts involving major countries is growing, as well as the risk of arms control treaties being violated, Putin exclaimed that the US-led unipolar world is like a dictatorship over other countries and that “US leadership brings no good for others,” and calls for a new global consensus.
Having met Crown Prince Al Nahyan of Abu Dhabi in Sochi, who confirmed that Moscow “plays a very important role in the Middle East,” and added that he had no doubts that his country and Russia “are bound by a privileged relationship,” it appears Russia is less “isolated” than the West would have many believe.>> Read More
We expect Russia will maintain a strong net external asset position and moderate net general government debt in 2014-2017.
We are affirming our ‘BBB-/A-3′ long- and short-term foreign currency ratings and our ‘BBB/A-2′ long- and short-term local currency ratings on Russia.
The outlook remains negative, reflecting our view that we could downgrade Russia over the next 18 months if its external and fiscal buffers deteriorate at a faster pace than we currently expect–for example due to any further tightening of sanctions as a result of the conflict in Ukraine.
If we see Russia’s monetary policy or exchange rate flexibility weakening, we could also lower the ratings.