Farewell to decoupling

Thursday 23 October 2008 - Farewell to decoupling Presented by Andrew Cates + The fear of a deep and broad-based global recession is haunting the investment landscape with equity markets suffering steep declines overnight. Safe haven assets and currencies such as government bonds and the Yen have been receiving some fresh bids. There is also a great deal of conjecture in the markets of large redemptions from hedge funds, more commodity contract defaults and hefty FX-related losses. + Whereas many had believed that the global financial storm had been contained to the developed economy complex with only limited spill-overs to the emerging world the truth now appears to be far less rosy. From the Ukraine to Hungary to Argentina and back again to Russia developing economies are being placed under the proverbial spotlight. + In a research item today from our EMEA team we argue that countries with relatively illiquid markets with deep-seated macroeconomic and financial issues have yet to weather a storm but they may be the next ones under the spotlight. These include the likes of Estonia, Latvia, Lithuania, Romania and Bulgaria. Should the broader EMEA region slip into crisis we would not rule out contagion spreading to other emerging financial markets. + Overnight for the record the RBNZ delivered a fairly aggressive policy response in the form of a rate cut of 100bps, in line with expectations. In the day ahead the calendar is pretty bare as regards economic events with just the latest claims estimate on offer in the US. The UK sees some retail sales data while France sees some consumer spending and INSEE business confidence data.

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YouTube | October 23, 2008

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