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<br /> Energy for all is the need of the hour, especially in an emerging <keyword id="34412" type="ORGANIZATION" weightage="100" keywordseo="economy">economy</keyword> like <keyword id="3658" type="COUNTRY" weightage="100" keywordseo="India">India</keyword> where a big chunk of the population still can’t access <keyword id="1977921" type="UNKNOWN" weightage="100" keywordseo="Modern-energy-sources">modern energy sources</keyword> and the overall growth of the country suffers due to such non-inclusion. The outlook is not exactly bright at this point as India ranks 69th among 124 <keyword id="6407494" type="UNKNOWN" weightage="100" keywordseo="countries">countries</keyword> in the recently released <keyword id="1970968" type="UNKNOWN" weightage="100" keywordseo="global-energy-architecture-performance-index">Global Energy Architecture Performance Index</keyword> (<keyword id="1977925" type="UNKNOWN" weightage="100" keywordseo="EAPI">EAPI</keyword>) Report 2014, prepared by the <keyword id="69007" type="ORGANIZATION" weightage="100" keywordseo="World-Economic-Forum">World Economic Forum</keyword> in collaboration with <keyword id="6370971" type="CITY" weightage="100" keywordseo="Accenture">Accenture</keyword>.<br />
 <br /> India, with an overall score of 0.48, has the second lowest <keyword id="1379968" type="UNKNOWN" weightage="100" keywordseo="energy-performance">energy performance</keyword> in the <keyword id="1977931" type="UNKNOWN" weightage="100" keywordseo="BRICS-cluster">BRICS cluster</keyword> that also includes <keyword id="6355226" type="COUNTRY" weightage="80" keywordseo="Brazil">Brazil</keyword>, <keyword id="6358826" type="COUNTRY" weightage="80" keywordseo="Russia">Russia</keyword>, <keyword id="1334" type="COUNTRY" weightage="100" keywordseo="China">China</keyword> and <keyword id="6355117" type="COUNTRY" weightage="80" keywordseo="South-Africa">South Africa</keyword>. Interestingly, China lies at the bottom among the <keyword id="175259" type="ORGANIZATION" weightage="100" keywordseo="Brics">BRICS</keyword> (85th with a score of 0.45), but other countries in this group are way ahead of India and its neighbour. Ranked 22nd, Brazil tops the BRICS group with a score of 0.64, extracting 50% more <keyword id="35050" type="CITY" weightage="100" keywordseo="gdp">GDP</keyword> per unit of energy use than the average of the other <keyword id="486040" type="UNKNOWN" weightage="100" keywordseo="BRICS-countries">BRICS countries</keyword>. It is followed by the Russian Federation (28th, with a score of 0.62) and South <keyword id="12925" type="ENTERTAINMENT" weightage="80" keywordseo="Africa">Africa</keyword> (54th, with a score of 0.54).<br />
 <br /> The top 10 performers are mostly EU and/or <keyword id="1977933" type="UNKNOWN" weightage="100" keywordseo="OECD-nations">OECD nations</keyword> – <keyword id="6356961" type="COUNTRY" weightage="100" keywordseo="Norway">Norway</keyword>, <keyword id="22501" type="COUNTRY" weightage="100" keywordseo="New-Zealand">New Zealand</keyword>, <keyword id="6354785" type="COUNTRY" weightage="100" keywordseo="France">France</keyword>, <keyword id="23050" type="COUNTRY" weightage="100" keywordseo="Sweden">Sweden</keyword>, <keyword id="103" type="COUNTRY" weightage="100" keywordseo="Switzerland">Switzerland</keyword>, <keyword id="49968" type="COUNTRY" weightage="100" keywordseo="Denmark">Denmark</keyword>, <keyword id="6363645" type="COUNTRY" weightage="100" keywordseo="Spain">Spain</keyword> and <keyword id="106735" type="COUNTRY" weightage="80" keywordseo="latvia">Latvia</keyword> – with the exception of <keyword id="15385" type="COUNTRY" weightage="80" keywordseo="Colombia">Colombia</keyword> (7th) and <keyword id="57870" type="COUNTRY" weightage="80" keywordseo="Costa-Rica">Costa Rica</keyword> (9th). The US came in 37th, followed by <keyword id="6355311" type="COUNTRY" weightage="80" keywordseo="Japan">Japan</keyword>. The regions covered in the report include <keyword id="1977935" type="UNKNOWN" weightage="100" keywordseo="EU28">EU28</keyword>, <keyword id="195393" type="COMPANY" weightage="100" keywordseo="MENA">MENA</keyword>, BRICS, <keyword id="6378080" type="COUNTRY" weightage="60" keywordseo="North-America">North America</keyword>, <keyword id="303353" type="COUNTRY" weightage="100" keywordseo="Sub-Saharan-Africa">Sub-Saharan Africa</keyword> and the <keyword id="5891" type="ORGANIZATION" weightage="100" keywordseo="ASEAN">ASEAN</keyword>.<br />
 <br />
<strong>Why we need EAPI</strong><br /> Before we consider why India is lagging behind the rest, it is important to understand the dimensions of the ‘<keyword id="1977936" type="UNKNOWN" weightage="100" keywordseo="Energy-triangle">energy triangle</keyword>’ and what it takes to achieve top-level energy performance. During the past three years, the World Economic Forum has been working on the <keyword id="1978006" type="UNKNOWN" weightage="100" keywordseo="New-Energy-Architecture">new energy architecture</keyword>, defined as the integrated physical system of <keyword id="689119" type="UNKNOWN" weightage="100" keywordseo="energy-sources">energy sources</keyword>, carriers and demand sectors. The ‘energy triangle’ frames the key objectives of the <keyword id="1977939" type="UNKNOWN" weightage="100" keywordseo="Energy-architecture">energy architecture</keyword> – the ability to provide secure, affordable and <keyword id="1977947" type="UNKNOWN" weightage="100" keywordseo="Environmentally-sustainable-energy-supply">environmentally sustainable energy supply</keyword>. Accordingly, the Global Index has used 18 indicators to assess 6 regions and 124 countries under three baskets – <keyword id="1977948" type="UNKNOWN" weightage="100" keywordseo="Economic-growth-and-development">economic growth and development</keyword>, <keyword id="585025" type="UNKNOWN" weightage="100" keywordseo="environmental-sustainability">environmental sustainability</keyword> and <keyword id="1714410" type="ORGANIZATION" weightage="100" keywordseo="Energy-access">energy access</keyword> &amp; security – while analysing the complex trade-offs and dependencies that affect the efforts of each country under review.<br />
 <br /> “Resource, wealth or <keyword id="352701" type="ORGANIZATION" weightage="100" keywordseo="Economic-Development">economic development</keyword> alone do not guarantee high performance on the Index,” said Roberto Bocca, senior director and head of energy industries at the World Economic Forum. “For an <keyword id="1977954" type="UNKNOWN" weightage="100" keywordseo="Effective-energy-system">effective energy system</keyword>, countries need to focus on all three sides of the energy triangle – environmental sustainability, security of supply and affordability,” he added. Undoubtedly a difficult task, if you look at the toppers or any other country, for that matter. No single country has got a top score of 1/1 for the overall Index (an average of the scores posted under the three heads) and no one has hit a ‘perfect 1’ either, under any of the three baskets.<br />
<br />
<br />
<br />
<strong>Four factors hindering India’s energy performance</strong><br />
<strong>Low access:</strong> Let’s look at the grassroots first. Energy access across BRICS is high, with the exception of India and South Africa which continue to face <keyword id="1977958" type="UNKNOWN" weightage="100" keywordseo="Lower-electrification-rates">lower electrification rates</keyword> for rural and low-income groups. In fact, India is the lowest performer within the BRICS cluster (0.54/1), with only 75% accessing modern energy sources. It means around 293 million people go without those, compared to just 4 million in China.<br />
 <br /> However, there are longer-term solutions on the cards. Alongside a number of national and international initiatives, the government is currently running the Restructured Accelerated Power Development and Reform Programme or <keyword id="398803" type="UNKNOWN" weightage="100" keywordseo="R-APDRP">R-APDRP</keyword>, directing around $10 billion over the coming years for <keyword id="1977960" type="UNKNOWN" weightage="100" keywordseo="Grid-modernisation">grid modernisation</keyword>. India has also launched a <keyword id="856064" type="UNKNOWN" weightage="100" keywordseo="Remote-Village-Electrification">Remote Village Electrification</keyword> programme while the <keyword id="386624" type="ORGANIZATION" weightage="100" keywordseo="Ministry-of-New-and-Renewable-Energy">Ministry of New and Renewable Energy</keyword> is targeting the installed capacity from new <keyword id="430844" type="UNKNOWN" weightage="100" keywordseo="renewables">renewables</keyword> to reach 21,700 MW by 2017 (more on India’s <a href="http://www.businessinsider.in/Five-Moves-That-Will-Power-Indias-Green-Shift/articleshow/23463110.cms">green power</a> here).<br />
 <br />
<strong>Increasing <keyword id="1977962" type="UNKNOWN" weightage="100" keywordseo="Reliance-on-energy-imports">reliance on energy imports</keyword>:</strong> Large-scale economic expansion across the country has triggered bigger <keyword id="6417014" type="UNKNOWN" weightage="100" keywordseo="energy-consumption">energy consumption</keyword> and a crippling dependence on imports – a major factor behind the ballooning trade and <keyword id="894126" type="UNKNOWN" weightage="100" keywordseo="current-account-deficits">current account deficits</keyword>. India is one of the biggest importers of crude oil and more than half of its $191 billion <keyword id="113688" type="UNKNOWN" weightage="100" keywordseo="trade-deficit">trade deficit</keyword> in FY2013 – $109 billion, to be precise – accounted for oil, with the country importing around 82% of its requirements, mostly from the <keyword id="138623" type="UNKNOWN" weightage="100" keywordseo="Gulf-countries">Gulf countries</keyword>. Overall, 28% of the country’s <keyword id="1977965" type="UNKNOWN" weightage="100" keywordseo="Net-energy-consumption">net energy consumption</keyword> is met through imports and among the BRICS, India has the <keyword id="1977966" type="UNKNOWN" weightage="100" keywordseo="Highest-spend-on-fuel-imports">highest spend on fuel imports</keyword> relative to GDP (10%).<br />
 <br /> It’s a kind of vicious cycle, to say the least, which is negatively impacting the <keyword id="6356076" type="UNKNOWN" weightage="100" keywordseo="indian-economy">Indian economy</keyword>. “The whole mess in the <keyword id="52599" type="TECHNOLOGY" weightage="100" keywordseo="CAD">CAD</keyword> is due to the imports of both coal and oil,” Vivek Pandit, senior director for energy at the Federation of Indian Chambers of Commerce and Industry (<keyword id="6355001" type="CITY" weightage="80" keywordseo="FICCI">FICCI</keyword>) told <em>FT</em>. Worried by the current account deficit, <keyword id="44528" type="ORGANIZATION" weightage="100" keywordseo="FDI">FDI</keyword> and <keyword id="68968" type="UNKNOWN" weightage="100" keywordseo="institutional-investors">institutional investors</keyword> gradually started withdrawing their support since March this year. This fuelled a substantial weakening of the <keyword id="6355302" type="ORGANIZATION" weightage="100" keywordseo="Rupee">Rupee</keyword> and resulted in a drawdown of <keyword id="6368276" type="COMPANY" weightage="80" keywordseo="Foreign-exchange">foreign exchange</keyword> to the tune of $12.8 billion. According to a PwC report, the drawdown could have been avoided, had India produced 17 million tonnes more oil than its current domestic production.<br />
 <br /> Worse still, <keyword id="1977973" type="UNKNOWN" weightage="100" keywordseo="Indias-oil-import-dependency">India’s oil import dependency</keyword> is forecast to grow another 10 percentage points to exceed 90% by 2031. While increasing domestic exploration will help to a certain extent, India must try and curb the <keyword id="1977977" type="UNKNOWN" weightage="100" keywordseo="Oil-bills">oil bills</keyword> further by seeking new suppliers and buying more stake into African and other <keyword id="1977979" type="UNKNOWN" weightage="100" keywordseo="Non-Gulf-oil-and-gas-assets">non-Gulf oil and gas assets</keyword>.<br />
 <br /> This part of the strategy is slowly taking shape as <keyword id="81864" type="CITY" weightage="100" keywordseo="ONGC-Videsh">ONGC Videsh</keyword>, the overseas investment arm of <keyword id="55282" type="ORGANIZATION" weightage="100" keywordseo="India-Government">India government</keyword>’s flagship oil and gas explorer <keyword id="118729" type="COMPANY" weightage="100" keywordseo="Oil-Natural-Gas-Corp">Oil &amp; Natural Gas Corp</keyword>, has been pushing hard to build up a <keyword id="1977984" type="UNKNOWN" weightage="100" keywordseo="Diversified-portfolio-of-foreign-assets">diversified portfolio of foreign assets</keyword> to minimise the country’s dependency on the Middle East. <keyword id="6354737" type="CITY" weightage="100" keywordseo="ONGC">ONGC</keyword> Videsh has recently signed two multi-billion-dollar deals to buy into offshore natural gas assets in <keyword id="6372754" type="COUNTRY" weightage="80" keywordseo="Mozambique">Mozambique</keyword>. It has a significant presence in <keyword id="48890" type="COUNTRY" weightage="80" keywordseo="Latin-America">Latin America</keyword> and is also looking for exploration assets in <keyword id="6356970" type="COUNTRY" weightage="100" keywordseo="Myanmar">Myanmar</keyword>, <keyword id="6354759" type="COUNTRY" weightage="100" keywordseo="Bangladesh">Bangladesh</keyword>, <keyword id="30174" type="COUNTRY" weightage="100" keywordseo="Lebanon">Lebanon</keyword> and <keyword id="6355478" type="COUNTRY" weightage="80" keywordseo="Australia">Australia</keyword>.<br />
 <br />
<strong>Prevalence of <keyword id="1896941" type="UNKNOWN" weightage="100" keywordseo="energy-subsidies">energy subsidies</keyword>:</strong> Another factor that is dragging India down by increasing oil demand and widening the budget deficit. Both India and Russia are the lowest performers for the indicator on <keyword id="1977989" type="UNKNOWN" weightage="100" keywordseo="Liquid-fuel-subsidies">liquid fuel subsidies</keyword>. India’s subsidies for diesel put it in the lower quartile globally for this indicator even as the country is trying to improve <keyword id="1977991" type="UNKNOWN" weightage="100" keywordseo="Energy-affordability">energy affordability</keyword> and access for lower-income groups.<br />
 <br />
<strong>Coal-dependence hurts:</strong> At present, coal dominates the country’s <keyword id="1798751" type="UNKNOWN" weightage="100" keywordseo="energy-mix">energy mix</keyword> with a robust 53% share in <keyword id="1977995" type="UNKNOWN" weightage="100" keywordseo="Primary-energy-consumption">primary energy consumption</keyword>, affecting India’s score in terms of environmental sustainability. The country has scored 0.41/1, underlining the challenge it faces in diversifying the energy mix beyond <keyword id="181402" type="UNKNOWN" weightage="100" keywordseo="fossil-fuels">fossil fuels</keyword>. Although energy trade can have positive impacts here, it can also pose economic and <keyword id="1977997" type="UNKNOWN" weightage="100" keywordseo="Energy-security-risks">energy security risks</keyword>, especially as we are dependent only on a few trading partners.<br />
 <br /> Interestingly, 41% of the <keyword id="1200645" type="UNKNOWN" weightage="100" keywordseo="energy-supply">energy supply</keyword> in the top 10 countries comes from low-carbon energy sources, compared to a global average of 28%. India, too, is rolling out low-carbon power generation through plans to increase <keyword id="43870" type="UNKNOWN" weightage="100" keywordseo="nuclear-capacity">nuclear capacity</keyword> from the current 4.4 GW to 5.3 GW by 2016.<br />
 <br />
<strong>The bottom line</strong><br /> “Our analysis concludes that there is no single way forward; each country must work with its own resources and constraints, making difficult choices and trade-offs,” said Arthur Hanna, Managing Director, Energy Industry, Accenture, and a Member of the World Economic Forum’s Global Agenda Council on New Energy Architecture. “The Index helps nations take stock of their energy transition challenges and address key barriers to success, such as market distorting subsidies, continued uncertainty around energy policy and funding for research and development of <keyword id="1978009" type="UNKNOWN" weightage="100" keywordseo="New-energy-sources">new energy sources</keyword> and technologies.”<br />
 <br />
Keeping that in mind, can India cope with the transition and morph its energy policies accordingly?  <br />
 <br />
<strong>Top Image:</strong> Wikipedia<br />
<strong>Data chart: </strong>World Economic Forum

<b>Energy
Performance: Is India
Losing Out On Power Play?</b>

<keyword id="3658" type="General" weightage="100" keywordseo="india" source="Orion">India</keyword>'s forex reserves rose around $2.4 billion during the week ending July 29, after falling for last four consecutive weeks, on back of positive inflows by foreign investors in the Indian equity market.<br /><br />The country's foreign exchange reserves rose by $2.315 billion to $573.875 billion during the week ending June 29, according to the <keyword id="6354335" type="General" weightage="50" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword>'s (<keyword id="30067" type="General" weightage="80" keywordseo="rbi" source="Orion">RBI</keyword>) weekly supplementary statistical data.<br /><br />"India's foreign exchange reserves, supplemented by net forward assets, provide insurance against global spillovers. Our umbrella remains strong," RBI Governor <keyword id="6359111" type="General" weightage="80" keywordseo="shaktikanta-das" source="Orion">Shaktikanta Das</keyword> said. "The <keyword id="50847" type="General" weightage="80" keywordseo="reserve-bank" source="Orion">Reserve Bank</keyword> has also used its foreign exchange reserves accumulated over the years to curb volatility in the exchange rate," he added.<br /><br />During the current financial year (up to August 4), the US dollar index (DXY) has appreciated by 8 per cent against a basket of major currencies. In this milieu, the <keyword id="91748" type="General" weightage="80" keywordseo="indian-rupee" source="Orion">Indian Rupee</keyword> has moved in a relatively orderly fashion depreciating by 4.7 per cent against the US dollar during the same period - faring much better than several reserve currencies as well as many of its EME and Asian peers.<br /><br />The depreciation of the Indian rupee is more on account of the appreciation of US dollar rather than weakness in macroeconomic fundamentals of the Indian economy.<br /><br />"Market interventions by the RBI have helped in containing volatility and ensuring orderly movement of the rupee. We remain watchful and focused on maintaining stability of the Indian rupee," Das added.<br /><br />In July, foreign investors turned net buyers in the Indian equities nearly after 10 months, with an investment of around Rs 4,980 crore in the Indian equity markets. This comes heavy sell-off by these entities of around Rs 50,203 crore.<br /><br />According to NSDL data, investment of foreign investors in July month stood at Rs 4,989 crore, as compared to over Rs 50,000 crore outflows in June, Rs 39,993 crore in May and Rs 17,144 crore in April.<br /><br />The other central banks of Asia also used their foreign exchange reserves to defend their currency.<br /><br />Despite the resultant drawdown, India's foreign exchange reserves remain the fourth largest globally.<br /><br />SEE ALSO :<br /><br /><a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/indian-consumers-are-packing-their-bags-to-travel-to-goa-and-bali/articleshow/93393370.cms">August has a long weekend and Indian consumers are packing their bags to travel to Goa and Bali</a><br /><br /><a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/markets-to-keep-a-close-watch-on-us-and-indian-inflation-data/articleshow/93419790.cms">Markets to keep a close watch on US and Indian inflation data</a><br />

As FIIs come back, India's forex reserves rise by $2.4 bn

The current retail inflationary pressures are expected to ease with fresh Kharif arrivals and a pass-through of lower input costs to consumers - also affirmed by <keyword id="30067" type="General" weightage="50" keywordseo="rbi" source="Orion">RBI</keyword>'s inflation projections for the next two quarters, the monthly economic review for October compiled by the department of economic affairs said.<br /><br /> On inflation, the report by the department of economic affairs said domestic prices of some food items have gone up in the wake of the rise in international prices. <keyword id="3658" type="General" weightage="80" keywordseo="india" source="Orion">India</keyword>'s grain availability was impacted by the untimely heatwaves and deficiency of the southwest monsoon in the current year. However, export restrictions have ensured that the country's needs are fully met. <br /><br /> The department of economic affairs in its report said India's food security has remained intact. Sharp rise in tractor sales in September and October also point towards improved sentiments and an expected increase in crop area sown.<br /><br /> The report also indicated the UNDP Multi-Dimensional Poverty Index (MPI) released in October 2022 showed 41.5 crore people exiting multidimensional poverty in India during the last 15 years. India's success in reducing poverty has also contributed to a decline in poverty in South Asia with South Asia no longer remaining the most multi-dimensionally poor region.<br /><br /> The report also deals with a global outlook, inflation, food security, poverty, health and employment and <keyword id="6354507" type="General" weightage="80" keywordseo="world" source="Orion">World</keyword> and monetary policy. <br /><br /> On domestic inflation, the report said consumer price index (CPI) inflation was largely driven by food inflation with major contributors being imported food items like oil and fats during the first five months of 2022. Since June 2022 however, domestic seasonal factors have increased the inflation of vegetables, cereals and their products, which have contributed to elevating food inflation.<br /><br /> On the global outlook, the department of economic affairs said the prospect of a global economic slowdown had led to an outflow of portfolio investments from most countries into safe-haven US treasuries. This, combined with higher policy rates deployed by the <keyword id="6355253" type="General" weightage="50" keywordseo="federal-reserve" source="Orion">Federal Reserve</keyword> to counter inflation, has significantly strengthened the US dollar vis-a-vis other currencies.<br /><br /> According to the report, the depreciation of most currencies has also led to a global drawdown of foreign exchange reserves to protect their values and prevent volatility in the foreign exchange market.<br /><br /> On food security, the report said global food security has deteriorated and India may turn out to be an outlier with proactive and pre-emptive government interventions.<br /><br /> 2022 brought to the forefront not only the issues of macroeconomic and geopolitical risks but also the vulnerability and interconnectedness of the global food system to shocks. The geopolitical conflict and climatic events have moved the focus to the issues of fragility and over-dependence on a few countries or regions for global food security.<br /><br /> The report said, "Russia and Ukraine are among the most important producers of essential agricultural commodities, including wheat, maize, sunflower seeds and inputs like fertilisers. Together with other countries bordering the <keyword id="391209" type="General" weightage="80" keywordseo="black-sea" source="Orion">Black Sea</keyword>, they constitute the world's breadbasket."<br /><br /> The Black Sea serves as a critical supply and transit hub to move food commodities from these countries to the rest of the world. As the conflict choked the hub, the movement of food items from these countries to the rest of the world got affected, threatening people's livelihoods directly/indirectly connected with the food business in the Black Sea region.<br /><br /> Rising economic activity has led to a decline in the unemployment rate, the department of economic affairs wrote in the report. With the recovery in economic activities across sectors, the overall employment situation has also improved, overcoming the impact of the pandemic.<br /><br /> It added that the Periodic Labour Force Survey (PLFS) shows the urban unemployment rate for people aged 15 years and above declining from 12.6 per cent in the quarter ending June 2021 to 7.6 per cent one year later (quarter ending June 2022). This is accompanied by an improvement in the labour force participation rate (LFPR) as well, reflecting that by the time the current year was one-quarter over, the economy had come out of the grip of the Covid-19-induced slowdown, according to the monthly review.<br /><br /> In a world where monetary tightening has weakened growth prospects, the finance ministry said India appears well-placed to grow at a moderately brisk rate in the coming years on account of the priority it accorded macroeconomic stability.<br /><br /> It added the financial system stress in the second decade of the millennium, a consequence of the lending boom witnessed in the first decade-plus, is now behind us. It also added that private sector financial and non-financial balance sheets are healthy and incipient signs of a new personal sector capital formation cycle are visible. <br /><br /><strong>SEE ALSO:<br /><a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/finance/news/rupee-gains-16-paise-to-81-54-against-us-dollar/articleshow/95758455.cms">Rupee gains 16 paise to 81.54 against US dollar</a></strong><br /><strong><a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/delhi-hc-grants-bail-to-yes-bank-co-founder-rana-kapoor-in-rs-466-51-cr-money-laundering-case/articleshow/95760025.cms">Delhi HC grants bail to Yes Bank co-founder Rana Kapoor in Rs 466.51 cr money laundering case</a></strong><br />

Retail inflationary pressures expected to ease with fresh Kharif arrivals: Finance Ministry

<p> </p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Bank of America</span></p><p class="caption">Britain's FX war chest was twice the size of Turkey's in Q4 2018 -&#xa0;and Turkey was actually defending a run against its currency.</p></div><p></p></div></div></p><ul class="summary-list"><li><strong>The British government and the Bank of England built a $146 billion foreign currency reserve war chest to in the event of a no-deal Brexit, Bank of America said.</strong></li><li><strong>The stash "suggests the UK government was piling up FX reserves on the chance the UK would leave the EU without a deal and thus creating a run on the pound and a current account crisis," the BofA analysts say.</strong></li></ul><p>The UK government built a $146 billion war chest in the fourth quarter to defend against an anticipated run on the pound if Britain left the EU with no deal, according to a foreign exchange reserve analysis by Bank of America.</p><p>BofA analysts Kamal Sharma and Sebastien Cross called the buildup "unprecedented" among the larger global economies, in a note to clients seen by Business Insider.</p><p>"In the fourth quarter, UK FX reserves rose $23 billion to $146 billion (gross reserves)," they wrote. "In nominal terms, this is a 19% quarter-on-quarter increase in reserves and the largest quarterly increase since our series began in 2000. The scale of this pace of reserve accumulation compared to other G10 economies is unprecedented."</p><p>Governments and central banks usually accumulate large piles of foreign currency when they want to make sure they can buy up their own currencies - pushing up the price - in the event of an attempted mass selloff. The intent is to ensure that any "run" on the central bank can be staved off.</p><p>Britain's central bankers are still haunted by memories of 1992, when currency investor George Soros successfully "broke" the Bank of England by staging a run against the pound. Britain was forced to abandon the European Exchange Rate Mechanism, in which it pegged the value of the pound to the German mark.</p><p>The existence of the war chest "suggests the UK government was piling up FX reserves on the chance the UK would leave the EU without a deal, and thus creating a run on the pound and a current account crisis," the BofA analysts say. They believe a no-deal scenario would push the pound down to just $1.10.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Bank of America</span></p><p class="caption">"UK has been building an FX reserves buffer in case of no-deal," Bank of America says.</p></div><p></p></div></div></p><p>A no-deal Brexit would be so damaging to the British economy that it would threaten the pound's status as one of the world's "reserve currencies" (the group of currencies that are considered so stable that almost all other nations are willing to trade them or hold them as their own central bank reserves), Sharma and Cross say.</p><p>"We have been concerned about the implications of a no-deal on the pound due in large part to its current account deficit position, but also because of its reserve currency status: global reserve managers hold $500 billion in GBP reserve assets. In previous analysis, we estimated a 1% drawdown in GBP reserves could result in $100 billion sales. The UK authorities are rightly concerned about the implications of a no-deal scenario and have correspondingly reacted."</p><p>Of course, Britain did not leave the EU on March 29 this year, as had been planned. The Bank of England and the government have since wound down their position. But the BofA analysts believe a similar tactic could be used later this year, when Britain again attempts to execute its Brexit: "Looking ahead, we could easily see a re-run of fourth quarter events as we head toward the next Article 50 deadline in October."</p><ul class="read-more-links"><li>Read more:</li><li><a href="https://www.businessinsider.com/whatsapp-rumour-started-run-on-metro-bank-2019-5" data-analytics-position="1">A false rumor on WhatsApp started a run on a London bank</a></li><li><a href="https://www.businessinsider.com/price-of-brexit-66-billion-recession-2019-4" data-analytics-position="6">The price of Brexit has been £66 billion so far, plus an impending recession - and it hasn't even started yet</a></li><li><a href="https://www.businessinsider.com/italy-perma-recession-systemic-crisis-threatens-eurozone-2019-4" data-analytics-position="4">Italy's 'perma-recession' could trigger a €2 trillion financial crisis that threatens the eurozone itself</a></li></ul><p class="tagline">Our Brexit Insider Facebook group is the best place for up-to-date news and analysis about Britain's departure from the EU, direct from Business Insider's political reporters. Join <a href="https://www.facebook.com/groups/267178180471848/">here.</a></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/tesla-mini-model-s-for-kids-that-costs-600-family-bought-teach-child-about-driving-electric-2019-4">Tesla has a mini Model S for kids that costs $600, and this family bought it to teach their child about driving electric</a></h3>        <div>                    </div>    </div>

The UK government built a $146 billion war chest to stop a run on the pound in the case of a 'no-deal' Brexit, Bank of America says

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Reuters</span></p><p class="caption">A young woman keeps her balance during a performance by China's Sincuan Acrobatic group, in Jakarata April 8, 2004. </p></div><p></p></div></div>China is about to try and perform a high-stakes balancing act. </p><p>The country<a href="http://www.businessinsider.com/china-cuts-rates-2015-8"> cut interest rates</a><span style="line-height: 1.5em;"> on Tuesday in a bid to keep money flowing through its economy. </span></p><p><span style="line-height: 1.5em;">Now that it has done that it has a new gargantuan challenge on it hands - making sure the yuan stays stable.</span></p><p><span style="line-height: 1.5em;">Here is why.</span></p><p><span style="line-height: 1.5em;">Cutting interest rates reduces the cost of finance for China's companies, making debt cheaper at a time when the economy is slowing and debt-laden Chinese companies are seeing manufacturing slump. </span></p><p>Reducing rates also puts pressure on the currency and increases the risk of capital flight, however, as investors take their money out of the country for fear of it being worth less tomorrow than it is today. <span style="line-height: 1.5em;">That forces China to use its foreign-exchange reserves to keep the yuan where it wants it.</span></p><p><span>"China's policy environment is increasingly complex, with no clear way to balance competing objectives," wrote Bloomberg economist Tom Orlik after the rate cut was announced. </span></p><p><span>"A cut in interest rates will reduce corporates' debt-servicing costs. But it also puts downward pressure on the yuan and risks capital flight, which would add to stress in the financial system."</span></p><p><span><span><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span>Reuters</span></p></div><p></p></div></div><br /></span></span></p><h2><span><span><span>These two moves contradict each other</span></span></span></h2><p><span><span><span>That means China has a decision to make. It can either let the currency fall further, or it can cut the interest rate again and </span></span></span><span style="line-height: 1.5em;">use up its foreign exchange reserves trying to maintain the yuan at the current exchange rate. </span></p><p><span>"Our current forecast is that the USD/CNY will get to 6.8 by year-end, assuming that the PBoC would truly let the market decide (more) and thereby the drawdown in official FX reserves can be limited," wrote Societe Generale analyst Wei Yao.</span></p><p><span><span>"In this case, we expect one more 50bp RRR cut. However, if the PBoC chooses to keep the currency around the current level, then it just has to keep RRR cuts coming." </span></span><span style="line-height: 1.5em;"> </span></p><p><span style="line-height: 1.5em;">If it decides it needs to keep the yuan stable - as it has been doing at what </span><a href="http://www.businessinsider.com/chinas-record-capital-outflows">Bloomberg estimates could be a cost of about $40 billion a month</a><span style="line-height: 1.5em;"> - it is going to have to keep RRR cuts coming in order to keep the economy liquid.</span></p><p><span>That will put pressure on China's foreign-exchange reserve war chest. </span><span style="line-height: 1.5em;">China publishes a headline number on its </span><span style="line-height: 1.5em;">foreign exchange reserves, but doesn't provide a detailed breakdown. Analysts have estimated that China has about $900 billion in liquid reserves to do all of this work. </span></p><h2><span><span>And it's a lot of work</span></span></h2><p><span>"The PBoC's war chest is sizeable no doubt, but not unlimited," Yao pointed out. "It is not a good idea to keep at this battle of currency stabilization for too long."</span></p><p><span style="line-height: 1.5em;">The question is, then, when will China be ready to let the market decide the fair value of th yuan so it can stop bleeding reserves? </span></p><p><span style="line-height: 1.5em;">Will it be when export data is more positive? When it has restructured the debt of some of its state owned enterprises? When the stock market stabilizes?</span></p><p><span>It is unclear. The only objective we can see here is to hold on.</span></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/shanghai-tower-tallest-building-china-2015-6">The tallest building in China - a 2,000-foot skyscraper in Shanghai - is finally ready</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="1mZDNndToBk-OcDgXJg9SFuyf7SINRvm" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

Here's the next high-wire act China is going to have to pull off

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Jason Lee/Reuters</span></p></div><p></p></div></div>It looks like the tide is turning in China.</p><p>China's trade data was weak in July, with lower-than-expected export and import growth at -4.4% and -12.5%, respectively. </p><p>The country's reduced appetite for commodities drove down imports growth, while labor-intensive goods (i.e. industries such as agriculture and electronics) were a main drag on exports, according to a note by a team led by Morgan Stanley economist Robin Xing.</p><p>The bigger drop in imports than in exports helped widen China's trade surplus by $4.4 billion to $52.3 billion in July.</p><p>Meanwhile, foreign-exchange reserves declined by $4.1 billion to $3.2 trillion in the month, The People's Bank of China said on Sunday, better than analysts had expected. <span>The reserves jumped $13.4 billion in June, after <a href="http://www.businessinsider.com/fx-markets-july-6-2016-7">hitting a 5-year low in May</a>.<br /></span></p><p> </p><p><span><span>"We believe the better-than-expected reading was mainly supported by still positive valuation effect due to weaker US dollar as well as the wider trade surplus (the trade surplus in July is US$4.4bn larger than in June)," Xing wrote. "This suggests that underlying capital outflows may have intensified in the month."<div class="KonaFilter image-container display-table float_right click-to-enlarge"><div><div class="image on-image"><a title_source="Morgan Stanley" title_caption="" class="zoomin" href="https://static-ssl.businessinsider.com/image/57a9f5c5ce38f238008b5924-960/china.jpg"><span class="sprites click-to-enlarge-icon" title="Click to enlarge"></span></a><p class="source"><span>Morgan Stanley</span></p></div><p></p></div></div></span></span></p><p><span><span>The economists aren't counting on things to get better. They expect export growth to remain slow, thanks to Brexit's potential drag and tepid global trade growth in the third quarter.</span></span></p><p><span>Chinese officials have repeatedly said they're sticking to a <a href="http://www.businessinsider.com/r-china-central-bank-head-says-china-has-more-room-to-support-economy-2016-2">"prudent and relatively accommodative"</a> monetary policy. C<span>redit conditions are <a href="http://www.businessinsider.com/hsbc-chinese-credit-conditions-are-the-loosest-theyve-been-in-5-years-2016-7">the loosest they've been in over five years,</a> while private investment<span> is not growing at all. </span></span></span></p><p>China needs to slash benchmark interest rates further in order to shore up growth, according to the Morgan Stanley economists, who have estimated that the country could see 50 basis points more in interest rate cuts by the first quarter of next year.</p><p>However, policymakers will need to be cautious and make sure rate cuts don't lead to a further drawdown of foreign capital. Here is Morgan Stanley again (emphasis ours):</p><p style="padding-left: 30px;">"We believe policymakers have been trying to strike a balance to manage the trilemma challenge - flexibility of exchange rate, openness of capital account and control over domestic interest rates. Namely, the central bank will need to allow some USDCNY depreciation in a general environment of USD strength to maintain monetary policy independence of rate cuts.<strong> But the pace of rate cuts will need to be carefully measured to avoid sharp USDCNY depreciation, which would un-anchor expectations and accelerate outflows, resulting in an undesired tightening in domestic liquidity conditions.</strong> Indeed, the PBOC's 2Q16 Monetary Policy Report released over the weekend warned that too frequent cuts in RRR could add too much liquidity to the financial system and lead to yuan depreciation expectations. <strong>This suggests that policymakers may have turned more cautious and will likely slow down the pace of monetary easing in the near term to keep capital outflow pressures at bay."</strong></p>     <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/real-estate-bizarre-house-san-francisco-california-suburb-2016-7">No one wants to buy this bizarre house in a wealthy San Francisco suburb</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="hmdzcxNTE64DFq4MmhnQPHwo6CHUK3mS" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

China's trade is slowing down and its central bank needs to be careful

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>REUTERS/Mohamed Al Hwaity</span></p><p class="caption">A man holds Saudi Arabia's national flag as he rides with a driver performing a stunt known as "sidewall skiing" (driving on two wheels) as part of early national day celebrations in Tabuk, September 22, 2013.</p></div><p></p></div></div>Saudi Arabia, <a href="http://uk.businessinsider.com/saudi-arabia-budget-deficit-2015-and-oil-prices-2015-12">which has taken a beating in recent months thanks to the oil price crash</a>, just got another terrible piece of news about its economy.</p><p>On Monday, HSBC economists Simon Williams and Razan Nazzer dropped a note on the country's foreign exchange holdings, and things look pretty dire for the oil-reliant nation.</p><p>It shows that FX reserves dropped by more than $14 billion (£10.1 billion) during January, falling to their lowest level in nearly three years.</p><p>The amount of reserve assets held by the Saudi government now stands at $602 billion (£434.5 billion), nearly $150 billion (£108.3 billion) down from their recent peak in late 2014, just before oil prices started plummeting.</p><p>Here's the chart:</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>HSBC</span></p></div><p></p></div></div>The amount of money held in foreign reserves has fallen in almost direct proportion to the price of oil over the last 18 months. The world's most crucial commodity has lost around 70% of its value since mid-2014, falling from more than $100 (£72.17) per barrel to around $33 (£23.82) today, thanks to a massive oversupply in the market and stagnant demand.</p><p>Saudi Arabia, along with fellow OPEC members, has strongly resisted calls to cut the amount of oil it produces, although it did <a href="http://uk.businessinsider.com/the-saudi-and-russian-oil-ministers-are-meeting-and-crude-oil-is-ripping-higher-2016-2">recently agree to a freeze in production.</a> This move was designed to try and stop the slump in the oil price, and so far seems to be working, with some traders <a href="http://www.cnbc.com/2016/02/27/oils-bottom-may-be-close-traders.html">suggesting that oil has now bottomed and will start to increase in price soon.</a> </p><p>The country is now running a massive budget deficit, just shy of $100 billion (£72.2 billion) as it refuses to cut spending despite oil receipts falling hugely. This led to <a href="http://uk.businessinsider.com/saudi-arabia-budget-deficit-2015-and-oil-prices-2015-12">Business Insider's Lianna Brinded arguing that the country's refusal to cut production of oil is effectively "killing" its economy.</a></p><p>Not only has the oil price crash depleted FX reserves, it has also led to less liquidity in Saudi Arabia's domestic markets, with bank deposits slumping. Here's what HSBC's economists had to say (emphasis ours):</p><p>In another sign of just how much the country is struggling, the Saudi government has, according to reports, been sounding out American businesses to try and attract investment into the oil reliant kingdom. <a href="http://www.ft.com/cms/s/0/11706390-dc80-11e5-a72f-1e7744c66818.html#axzz41XFvv3Zx">The Financial Times says that Saudi officials have been in contact with numerous corporations</a> to try and help boost the country's economy and increase employment. </p><p><span>"The point is to attract inflows of cash and create jobs, which is why there is a focus on retail and healthcare, which are both labour intensive sectors," one unnamed banker told the FT.</span></p><p>The country has also discussed the possibility of<a href="http://uk.businessinsider.com/saudi-aramco-could-look-at-ipo-economist-says-2016-1?r=US&amp;IR=T"> floating its state oil company, Saudi Aramco.</a></p><p><span>Saudi Arabia is not the only major economy that has seen foreign exchange reserves drop massively in the past couple of years. Earlier in February, <a href="http://uk.businessinsider.com/albert-edwards-says-that-china-is-running-out-of-money-and-will-have-to-float-the-renminbi-2016-2">Business Insider reported that the global slowdown has led China to expend around $800 billion (£577 billion) of FX reserves since the middle of 2014.</a></span></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/kirsty-bertarelli-billionaire-lifestyle-rich-britain-2016-2">The fabulous life of Kirsty Bertarelli, the richest woman in Britain</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="9tN2MyMTE63Sbb4PVt6oR_kpPl8a3oqU" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

We just got another massive sign of how badly Saudi Arabia is suffering from the oil price crash

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"></div><p></p></div></div>Moody's just downgraded Russia's government bond rating from Baa2 to Baa3 and placed this rating on review for further downgrade.</p>
<p>Factors included the <a href="http://www.businessinsider.com/oil-below-45-for-the-first-time-in-six-years-2015-1">crassh in oil prices</a> and the decline in the Russian <a href="http://www.businessinsider.com/afp-ruble-tumbles-further-along-with-oil-prices-2015-1">ruble</a>, which have shaken Russia's economy in the last few months.</p>
<p>This rating from Moody's puts Russia's debt just one notch above junk.</p>
<p>Here's the <a href="https://www.moodys.com/research/Moodys-downgrades-Russias-government-bond-rating-to-Baa3-on-review--PR_316487">full release</a>:</p>
<p style="padding-left: 60px;">New York, January 16, 2015 -- Moody's Investors Service has today downgraded Russia's government bond rating to Baa3/Prime 3 (P-3) from Baa2/Prime 2 (P-2). The rating was also placed on review for further downgrade.</p>
<p style="padding-left: 60px;">The key drivers behind the downgrade are:</p>
<p style="padding-left: 60px;">1) Moody's expectation that the substantial oil price and exchange rate shock will further undermine the country's already subdued growth prospects over the medium term; and</p>
<p style="padding-left: 60px;">2) Moody's nearer-term concerns over the negative impact on the government's financial strength of the erosion in official foreign exchange buffers and fiscal revenues.</p>
<p style="padding-left: 60px;">In the review for further downgrade, Moody's will assess the resiliency of the government's balance sheet, in particular its foreign currency reserves cushion, to both the rating agency's baseline forecast for oil prices and to the risk of a further decline in oil prices at a time when <keyword id="6356001" type="COMPANY" weightage="60" keywordseo="international">international</keyword> market access is restricted for Russian borrowers due to sanctions. The review will also focus on the efficacy of policy actions that the Russian central bank and fiscal policymakers may take to address the oil and exchange rate shock in an effort to preserve economic and government financial strength.</p>
<p style="padding-left: 60px;">Moody's also lowered Russia's country ceilings for foreign currency debt to Baa3/Prime 3 (P-3) from Baa2/Prime 2 (P-2) to align it with the sovereign rating, and reduced the long-term country ceilings for local currency debt and deposits to Baa2 from Baa1, while leaving unchanged the country ceiling for foreign currency bank deposits at Ba1/Non Prime (NP).</p>
<p style="padding-left: 60px;">RATINGS RATIONALE</p>
<p style="padding-left: 60px;">RATIONALE FOR DOWNGRADE TO Baa3</p>
<p style="padding-left: 60px;">- FIRST DRIVER: OIL PRICE AND EXCHANGE RATE SHOCKS WILL FURTHER UNDERMINE RUSSIA'S ECONOMIC GROWTH PROSPECTS</p>
<p style="padding-left: 60px;">Moody's one-notch downgrade to Baa2 in October 2014 balanced an increasingly subdued growth outlook -- in part reflecting Russia's weak institutional strength and the challenging geopolitical environment -- against the government's still extremely strong balance sheet. The negative outlook reflected the fragile nature of that balance, with both the growth outlook and the government's fiscal position exposed to further shocks that could more profoundly undermine consumer and investor confidence, hastening the erosion of fiscal and foreign currency buffers.</p>
<p style="padding-left: 60px;">As evidenced by the recent further steep falls in oil prices and the exchange rate, these shocks have materialized. According to Moody's, the severe -- and likely to be sustained -- oil price shock, alongside Russian borrowers' highly restricted international market access due to ongoing sanctions, is undermining economic fundamentals and increasing financial stresses on both the public and private sectors. In its updated growth outlook for Russia, Moody's now expects real GDP contractions of around 5.5% in 2015 and 3% in 2016, bringing real growth over the 10 years through 2018 to virtually zero.</p>
<p style="padding-left: 60px;">The hike in interest rates that took place in December and rapidly rising inflation, which will inhibit the central bank from easing rates in the coming months, will further squeeze consumers' disposable incomes. In addition, the capacity of the banking sector to provide credit is impaired, causing credit to be scarce, and expensive when available. Moody's expects that even if interest rates are lowered over time, lending will remain constrained; asset quality and profitability problems in the banking system will likely escalate the longer that the recession lasts despite efforts by the government to bolster the system's capital and funding base.</p>
<p style="padding-left: 60px;">The high level of uncertainty is likely to cause the savings rate to rise, thereby further undermining consumption and economic recovery, in contrast to a situation in which households believe that the recession would be short-lived.</p>
<p style="padding-left: 60px;">- SECOND DRIVER: NEGATIVE IMPACT ON GOVERNMENT'S FINANCIAL STRENGTH OF ERODING FOREIGN EXCHANGE BUFFERS AND FISCAL REVENUES</p>
<p style="padding-left: 60px;">Although the rating agency expects Russia's current account to stay in surplus due to import compression and continued capital flight, the ongoing repayment of external debt by the corporate, banking and public sectors and the outflow of direct investment will likely increase the speed of erosion of official foreign reserves, says Moody's.</p>
<p style="padding-left: 60px;">In Moody's view, Russia's nominal FX reserves could fall by at least as much this year as they did in 2014, when they declined by around$125 billion. These estimates are based on the pattern and levels of public and private sector debt amortization, and on assumptions regarding the private sector's drawdown of its accumulated cash reserves and capital flight.</p>
<p style="padding-left: 60px;">Moody's notes that an additional erosion of FX reserves would not in itself be critical for the government's capacity to service its debt. Russia-- especially the government -- is not heavily indebted and its debt maturity schedule is relatively elongated after the maturities falling due in 2014-15 have been paid. However, while the loss of reserves will probably not endanger the government's capacity to service its own debt, significant uncertainty exists over the future dimension and direction of foreign reserves. That uncertainty is an important driver of the decision to move the rating down to Baa3.</p>
<p style="padding-left: 60px;">Moody's also expects that the oil price shock, and the ensuing recession, will cause the government's fiscal position to worsen. Although the impact of the drop in oil prices on ruble-denominated government revenues will be partly offset by the depreciation of the exchange rate, and high inflation will likely limit the impact on non-oil revenues, Moody's expects that the government's revenues will nonetheless fall significantly over the course of next year as Russia's economy contracts. Set against that, it is likely that some form of fiscal stimulus will be implemented either this year or next to mitigate the economic and political consequences of the crisis. Together, Moody's expects these influences to widen the fiscal deficit, with the result that government debt will rise over the next two to three years, albeit from very low levels.</p>
<p style="padding-left: 60px;">Added to that, the risk of politically-motivated actions which either directly or indirectly raise risks to creditors is rising in the context of current geopolitical tensions. Even if that risk remains low, its rise further shifts the delicate balance identified at the time of the last rating action to the downside.</p>
<p style="padding-left: 60px;">Moody's notes that the government's balance sheet remains ostensibly very strong, with very low debt levels and a recent track record of fiscal prudence. Even with a significant further weakening of the country's reserves position, Russia's liquidity ratios such as Moody's external liquidity indicator (EVI) would remain relatively strong. At the end of 2015, the 1-year EVI is estimated at 28.9% (measuring debt obligations falling due in the year against official foreign reserves levels). Import coverage of foreign currency reserves would also remain adequate, although that number is somewhat flattered by the expected import compression.</p>
<p style="padding-left: 60px;">RATIONALE FOR REVIEW FOR FURTHER DOWNGRADE</p>
<p style="padding-left: 60px;">The government's ability to sustain its financial strength, which is the main factor supporting the country's investment grade rating, rests on a large number of assumptions regarding, for example: oil prices and the exchange rate; the longevity of sanctions; capital flows; the effect of import compression on the current account balance; the impact of recession and inflation on the government's fiscal position; and the policy response to domestic or external financial pressures. Small changes in assumptions could imply a more severe decline of reserves and a more rapid accumulation of debt by the government.</p>
<p style="padding-left: 60px;">The review of Russia's Baa3 government rating for downgrade will examine all of these assumptions in order to form a definitive view of the resilience of the economy and the government's balance sheet to further shocks. The review will focus, inter alia, on the resilience of the government's foreign currency reserves buffer to both our baseline forecast for oil prices and to more conservative scenarios. Should oil prices fail to recover in 2016 and beyond, or even drop further, Russia's recession would likely persist beyond 2016 and the loss of investor and consumer confidence would be even more profound, leading to continued capital flight. The rating agency will examine the options available to the central bank and the government to support the economy in such circumstances.</p>
<p style="padding-left: 60px;">In particular, Moody's will focus on whether foreign currency reserves can be maintained at a level sufficiently higher than similarly rated peers with stronger institutional strength and policy predictability. In addition, the review will examine the extent to which the potential need to provide financial support of the corporate and banking sectors may erode the sovereign's financial strength and increase its susceptibility to event risks by reducing the central bank reserves, increasing the government budget deficit and/or increase the use of government guarantees.</p>
<p style="padding-left: 60px;">WHAT COULD CHANGE THE RATING -- UP</p>
<p style="padding-left: 60px;">Given the review for downgrade of the government's rating currently in effect, limited upward pressure is likely in the next 12-18 months. Moody's would confirm the current rating of Baa3 if the scenario analysis undertaken during the review were to show resilience in the country's external and fiscal position.</p>
<p style="padding-left: 60px;">WHAT COULD CHANGE THE RATING -- DOWN</p>
<p style="padding-left: 60px;">Russia's ratings would be downgraded should Moody's conclude, following the review, that the combination of risk factors identified above would likely lead to a more pronounced erosion of the government's external buffer and/or fiscal balance, leading to a loss of financial strength to a level inconsistent with its current rating. In that event, the most likely outcome would be a one notch downgrade, although more severe outcomes cannot be ruled out in the current volatile environment.</p>
<p style="padding-left: 60px;">GDP per capita (PPP basis, US$): 24,298 (2013 Actual) (also known as Per Capita Income)</p>
<p style="padding-left: 60px;">Real GDP growth (% change): 1.3% (2013 Actual) (also known as GDP Growth)</p>
<p style="padding-left: 60px;">Inflation Rate (CPI, % change Dec/Dec): 6.5% (2013 Actual)</p>
<p style="padding-left: 60px;">Gen. Gov. Financial Balance/GDP: -1.3% (2013 Actual) (also known as Fiscal Balance)</p>
<p style="padding-left: 60px;">Current Account Balance/GDP: 1.6% (2013 Actual) (also known as External Balance)</p>
<p style="padding-left: 60px;">External debt/GDP: 35.1% (2013 Actual)</p>
<p style="padding-left: 60px;">Level of economic development: Moderate level of economic resilience</p>
<p style="padding-left: 60px;">Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.</p>
<p style="padding-left: 60px;">On 14 January 2015, a rating committee was called to discuss the rating of the Russia, Government of. The main points raised during the discussion were: The issuer's fiscal or financial strength, including its debt profile, has materially decreased. The issuer has become increasingly susceptible to event risks.</p>
<p style="padding-left: 60px;">The principal methodology used in these ratings was Sovereign Bond Ratings published in September 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.</p>
<p style="padding-left: 60px;">The weighting of all rating factors is described in the methodology used in this rating action, if applicable.</p>

Moody's Just Downgraded Russia

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image"><p class="source"><span><a href="http://pictures.reuters.com/C.aspx?VP3=SearchResult&amp;ALID=2C0BF1FJWWOOI#/SearchResult&amp;ALID=2C0BF1FJWWOOI&amp;VBID=2C0BX4XLJOQH&amp;POPUPPN=10&amp;POPUPIID=2C0BF1FJ3XI0C">Reuters/Arnt Folvik</a></span></p><p class="caption">Francesca Baruzzi Farriol of Argentina crashes after losing her ski during the women's Alpine Skiing Giant Slalom at the Hafjell Olympic Slope at the Winter Youth Olympic Games.</p></div><p></p></div></div>Here is what you need to know.</p><p><strong><strong><a href="http://www.businessinsider.com/irans-mehdi-asali-on-oil-production-freeze-2016-2?r=UK&amp;IR=T">Iran won't join the oil production freeze</a>.</strong> </strong>Russia, Saudi Arabia, Qatar, and Venezuela announced an agreement Tuesday to freeze oil production in an effort to ease the oil glut. On Wednesday, Iran said it wouldn't join the effort, as its production just came back online. "Asking Iran to freeze its oil production level is illogical … When Iran was under sanctions, some countries raised their output and they caused the drop in oil prices," Iran's <span class="caps">OPEC </span>envoy, Mehdi Asali, said. According to Trading Economics, Iran's oil production makes up about 23% of the country's wealth. West Texas Intermediate crude oil is higher by 2.5% at $29.75 a barrel.</p><p><strong><a href="http://www.businessinsider.com/china-is-selling-us-government-debt-2016-2">China is selling US Treasurys</a>. </strong>China's holdings of US Treasurys <span>fell by $18.4 billion to $1.25 trillion in December, </span>hitting a 10-month low. The news coincides with the recent drop in China's reserves, which have seen a drawdown as Beijing looks to support its currency, the renminbi, through market intervention. <span>China's official foreign-exchange reserves fell by $107.9 billion to $3.33 trillion in December, making for the biggest drop on record.</span></p><p><strong><a href="http://www.bloomberg.com/news/articles/2016-02-17/japan-s-overnight-rate-goes-negative-for-first-time-since-2004">Japan's overnight rate turned negative</a>.</strong> According to Bank of Japan data obtained by Bloomberg, Japan's unsecured overnight rate fell to -0.002%, hitting negative territory for the first time since 2004. The negative print comes just a day after the central bank began charging some lenders interest on their excess reserves. Interestingly, Japan's 10-year yield fell below zero last week, but it has since ticked back up to 4.5 basis points (0.045%).</p><p><strong><a href="http://www.businessinsider.com/uk-unemployment-rate-and-pay-statistics-feb-2016-1?r=UK&amp;IR=T">The number of people claiming benefits in the UK hit a 40-year low</a>. </strong>In January, only 760,000 people claimed jobless benefits in the UK, the lowest total since 1976. But the drop by 14,800 claimants was unable to move the needle on the unemployment rate, which held at 5.1% versus expectations of a slip to 5%. The UK's employment rate is 74%, the highest since bookkeeping began in 1971. The British pound is little changed at 1.4310.</p><p><strong><a href="http://www.businessinsider.com/r-hedge-funds-place-bets-on-morgan-stanley-some-exit-valeant---2016-2">Hedge funds were buying Morgan Stanley in Q4</a>. </strong>Reuters reports that Dan Loeb's Third Point bought 3 million shares of Morgan Stanley in the fourth quarter, while Carlson Capital purchased 2.2 million shares and Adage Capital added 1.6 million shares to its existing position. Morgan Stanley shares are down more than 27% this year as the firm attempts to turn around its struggling fixed-income business. It's unclear whether the funds still own the positions, as SEC filings need to be made only quarterly.</p><p><strong><a href="http://www.bloomberg.com/news/articles/2016-02-17/mining-giant-anglo-american-s-long-term-rating-cut-to-junk-by-fitch">Fitch cut Anglo American to junk</a>.</strong> The ratings agency Fitch cut Anglo American's debt rating to junk, and it slapped on a negative outlook as the miner looks to lighten its debt load by selling assets. Fitch lowered Anglo's rating to BB+ from BBB- and said, "<span>The negative outlook primarily reflects the high level of uncertainty regarding the ultimate success of the group's restructuring plan." Bloomberg notes that the move to junk follows a similar measure taken by Moody's on February 15.</span></p><p><strong><a href="http://www.businessinsider.com/r-dutch-foundation-seeking-vw-damages-says-gets-investor-support-2016-2">Volkswagen might have more problems</a>. </strong>A Dutch foundation attempting to recover damages for Volkswagen shareholders says it has won the support of dozens of investors, since it was launched last week, according to Reuters. The Volkswagen Investor Settlement Foundation wants to "provide shareholders fair compensation for their losses," spokesman Anatoli van der Krans said. The foundation is attempting to apply Dutch law to the settlement and wants to make the agreement available to investors all over the world.</p><p><strong>Global markets trade mixed.</strong> France's CAC (+1.9%) paces the gains in Europe after Japan's Nikkei (-1.4%) led most markets lower in Asia. China's Shanghai Composite (+1.1%) outperformed. S&amp;P 500 futures are higher by 13.25 points at 1,902.00.</p><p><strong>Earnings continue to flow. </strong>Dr. Pepper Snapple, Priceline, and T-Mobile US are among the names reporting ahead of the opening bell. Barrick Gold, Marathon Oil, Marriott, and Newmont Mining highlight the companies releasing their quarterly results after markets close.</p><p><strong>US economic data is heavy. </strong>PPI, housing starts, and building permits kick things off with their 8:30 a.m. ET release. Next, industrial production and capacity utilization cross the wires at 9:15 a.m. ET. Finally, the minutes from the January FOMC meeting are due out at 2 p.m. ET. The US 10-year yield is up 1 basis point at 1.78%.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/cam-newton-carolina-panthers-press-conference-nfl-denver-broncos-super-bowl-2016-2"> Here's the question that prompted Cam Newton to storm out of his postgame press conference</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="VoZG5yMDE6VHP_GWa6so3qlVcSAMa9_y" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

10 things you need to know before the opening bell

<p><div class="KonaFilter image-container float_right"><div class="image on-image"><p class="source"><span>REUTERS/Erik De Castro</span></p></div><p></p></div><em><strong>FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.</strong></em></p>
<p><strong><a href="http://www.blackrockblog.com/2014/07/29/investor-fatigue-setting/">Aggressive Selling Of Risky Assets Suggests That Investor Fatigue Is Setting In</a> (BlackRock Blog) </strong></p>
<p>80% of companies that have reported earnings have beat profit estimates, and 69% have beat sales estimates, writes BlackRock's Russ Koesterich. Yet risky assets like U.S. stocks and high yield bonds have seen some selling. "This seems to be a sign of investor fatigue setting in," he writes. Investors pulled $4.2 billion from global exchange traded products, with U.S. large caps losing $6.8 billion. Meanwhile, $4 billion has exited high yield mutual funds and exchange traded funds (ETFs). Koesterich thinks the selling in high yield is "more surprising." </p>
<p>"High yield is often thought of as the most "equity-like" segment of the bond market. Good news on the earnings front and a strengthening economy usually translate into support for high yield bonds. In addition, default rates on high yield bonds are low." He argues that this is surprising consider the interest rate environment has been "remarkably stable" and that inflation has been low.</p>
<p><strong><a href="http://www.fa-mag.com/news/advisors-feel-need-to-justify-fees--survey-finds-18749.html">New Survey Finds That 74% Of Advisors Feel The Need To Justify Fees</a> (FA Mag) </strong></p>
<p>74% of advisors think they need to justify their fees to clients, according to a new quarterly survey of 150 advisors from Russell Investments. 65% want more resources to help them communicate more realistic return expectations to clients, writes Kathy Lynch at FA Mag. "Advisors surveyed said that the top two client-initiated conversations were about market volatility (54 percent) and their concerns about government policy (53 percent)," writes Lynch summarizing its findings. "Those were followed by global events (35 percent) and their fear about running out of money in retirement (34 percent)."</p>
<p><strong><a href="http://www.businessinsider.com/bi-most-important-charts-in-the-world-2014-7#joshua-m-brown-and-michael-batnick-ritholtz-wealth-management-5">'Diversification Works When You Need It To'</a> (Business Insider)</strong></p>
<p>"One of the unsung benefits of a diversified portfolio is a quicker recovery after a major negative market event," Joshua Brown and Michael Batnick at Ritholtz Wealth Management told Business Insider. "Below is the S&amp;P 500 since January 1st 2007 against our 'Diversified Portfolio,' which includes the S&amp;P 500, plus a 30% allocation to foreign stocks (EAFE index) and a 40% fixed income weighting (via the Barclays Aggregate Bond index). As you can see, the diversified portfolio regained its peak value 14 months before a portfolio consisting of just US stocks would have. Volatility was substantially lower, as was the maximum drawdown. Diversification works, especially when you really need it to."</p>
<p><div class="KonaFilter image-container display-table click-to-enlarge"><div><div class="image"><a title_source="Business Insider" title_caption="" class="zoomin" href="https://static-ssl.businessinsider.com/image/53d81330eab8eac82ec4475a-960/screen shot 2014-07-29 at 5.26.54 pm.png"><span class="sprites click-to-enlarge-icon" title="Click to enlarge"></span></a><p class="source"><span>Business Insider</span></p></div><p></p></div></div><a href="http://www.businessinsider.com/byron-wien-stock-road-map-2014-7"></a><strong><a href="https://www.franklintempleton.com/risingrates">5 Strategies To Consider For A Rising Rate Environment</a> (Franklin Templeton) </strong></p>
<p>When it comes to interest rates, it's a question of when they will rise, not if, write the folks at Franklin Templeton. They suggest five strategist to consider for a rising rate environment.</p>
<p>1. "Consider credit-oriented sectors - Non-investment grade credit sectors, such as high yield corporate bonds and bank loans generally have been less correlated to interest rates than they have been to the overall economic outlook and corporate earnings."<br />2. "Keep it short - Short-duration bonds typically have lower sensitivity to interest rate changes than their longer-duration cousins."<br />3. "Go global - A global or internationally focused fixed income fund can potentially capitalize on differing business cycles and economic conditions around the world and may therefore be less impacted by rate changes in the U.S."<br />4. "Take stock - Hybrid strategies (funds that invest in both stocks and bonds) can capitalize on both the growth potential of equities when rates are rising due to economic growth and the income offered by bonds."<br />5. "Stay flexible - Multi-sector fixed income funds have the flexibility to invest across various sectors of the fixed income market, and fund managers typically shift the fund's allocation over time to take advantage of different investment opportunities."</p>
<p><a href="http://www.businessinsider.com/byron-wien-stock-road-map-2014-7"><strong>Byron Wien Makes The Case For Another Huge Rally In Stocks</strong></a><strong> (Business Insider)</strong><a href="http://www.businessinsider.com/byron-wien-stock-road-map-2014-7"></a></p>
<p>In his latest market commentary, Byron Wein explains why he thinks the S&amp;P 500 could rise to 2300. "One of the problems limiting investor enthusiasm may be valuation," he writes. "If the S&amp;P 500 earns $115 in 2014, it is selling at 17.1x earnings. Market peaks have occurred historically at 25x-30x times earnings. On that basis, the market is fairly valued but not exceedingly expensive."</p>
<p>"The average trailing 12-month price-earnings ratio when the inflation rate is 0%-4% is 17... If the economy grows at a rate of 3% real during the remainder of the year and inflation is 2%, then nominal growth should be 5%. With productivity increases continuing and share buybacks, the S&amp;P 500 should be able to show improvement of 7% over the $108 in operating earnings of 2013 and that would put us at $115. With considerable cash on corporate balance sheets, share buybacks should continue. Therefore, if earnings reach my target and the S&amp;P 500 sells at 20x, we could reach 2300, which is 17% above the present level or more than 20% above the index price at the start of 2014."</p>

BLACKROCK: Investor Fatigue Seems To Be Setting In

<p>Many fixed income, currency and equity markets in central and eastern Europe have come under sustained selling pressure in January. There are various reasons for this, but clearly the catalyst has been the start of tapering by the US Federal Reserve, as well as some nervousness among investors about a slowdown in Chinese growth. Below, we outline where we believe the key areas of vulnerability (and strength) lie. Overall, we believe that the heavy January selling will not last for most countries, and emphasise that central and east European markets are in a much stronger position than during previous times of crisis, such as the late 1990s.</p>
<p>The first talk of tapering in May 2013-a reduction in the amount of debt securities that the Fed buys each month-caused a sell-off in many emerging markets during the middle of last year. However, for most countries in central and eastern Europe this was reversed in the later part of 2013 (Turkey was an exception). Since the Fed started tapering (it is now buying US$65bn of assets per month, compared with US$85bn per month until December 2013) selling pressure has resumed, and more savagely. This was exacerbated by the release of weak Chinese manufacturing data in January, which increased investor concerns about the growth outlook for the world's second-biggest economy.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span>The Economist</span></p></div><p></p></div></p>
<p>Since the global financial crisis of 2008-09, monetary stimulus by many of the world's most influential central banks, and robust Chinese demand, are two of the main factors that have underpinned the global economic recovery. How well assets in emerging markets-including those in central and eastern Europe-deal with the drawdown of the former, and the potential for a lower contribution from the latter, is now clearly at the forefront of investors' minds.</p>
<p>Overall, although selling pressure has been quite pronounced, we see a great deal of differentiation in how assets in central and eastern Europe have fared so far, indicating that recent market moves are not reflective of a general dash for the exits on the part of investors. This implies that those with good fundamentals will be rewarded, and creates a powerful incentive for reform in those countries that do not.</p>
<p>Several trends have been apparent during the January sell-off:</p>
<ul>
<li>Generally, apart from the obvious example of Ukraine, the countries worst affected have been Turkey, Russia and Hungary, and to a lesser extent Romania.</li>
<li>On some metrics Croatia has also suffered, while Poland and (particularly) the Czech Republic look much better positioned.</li>
<li>Equity markets have been hardest hit in Russia and Turkey; currencies in Russia, Hungary and Turkey; and sovereign debt in Russia, Hungary and Romania.</li>
</ul>
<ul>
<li>The response from central banks and governments has been uneven, although their room to influence events in the near term is limited.</li>
</ul>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span>The Economist</span></p></div><p></p></div></p>
<p>Based on this, we believe that the main factors driving the uneven impact of tapering are investor perceptions of political risk and policy creditability, as well as (low) interest rates. So far it appears that markets have been fairly indiscriminate in terms of the health of countries' external accounts, fiscal positions, debt loads and economic growth.</p>
<h2>What is driving the sell-off?</h2>
<p>Examining the countries where the biggest falls have taken place-Turkey, Russia, Hungary and Ukraine-it is not immediately clear why they have been more badly affected than other states. Clearly Turkey's large external deficit and reliance on short-term portfolio inflows and Russia's poor growth outlook are important factors for these countries. In Turkey we estimate that foreign-exchange reserves cover less than 100% of external debt, compared with an average of over 300% for emerging markets as a whole. However, traditional indicators of creditworthiness indicate no clear pattern between the four countries. Of the central and east European countries examined, Russia has the highest foreign-currency reserves/import cover ratio; Russia and Hungary have the largest current-account surpluses; and Russia and Turkey have the lowest external debt ratios.</p>
<p>Two important factors are common among most or all of these four countries, however:</p>
<ul>
<li>Political risk</li>
</ul>
<p>This is a much more significant issue in these four countries than in the others. Ukraine has seen months of increasingly violent unrest, and we do not rule out an intensification of the conflict between the government and the protesters. Turkey saw significant anti-government protests in 2013, and since mid-December the prime minister, Recep Tayyip Erdogan, has been engaged in a destabilising power struggle with former allies-supporters of a US-based cleric, Fetullah Gulen, who include influential members of the police, the public prosecution service, the judiciary and the ruling party. For Russia and Hungary there is less chance of large-scale unrest, but there are serious concerns over the politicisation of key institutions.</p>
<ul>
<li>Monetary and fiscal policy credibility</li>
</ul>
<p>Elevated political risk is linked to policy credibility, particularly regarding the independence of the central bank and monetary policy, which are areas of vulnerability for all four countries. In Turkey, the prolonged delay in raising interest rates (key rates were hiked by 425-550 basis points after a central bank meeting on January 28th, in response to the lira's slide), and the bank's perceived susceptibility to government interference have undermined the credibility of the country's monetary policy framework. In Russia, although monetary policy credibility is greater, we believe that the central bank's willingness to allow the rouble to float more freely has been an important factor driving the sell-off in the currency.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span>The Economist</span></p></div><p></p></div></p>
<p>In Hungary, the central bank-which is now headed by Georgy Matolcsy, a close ally of the prime minister, Viktor Orban, and previously the economy minister in the Fidesz government-has cut its main refinancing rate by a cumulative 415 basis points since mid-2012. This has drastically reduced the interest rate premium over the US base rate (as well as the euro and regional peers), reducing the incentive for investors to hold the forint. Monetary easing on such a scale has been made possible by low inflation, although to a significant extent this has been caused by government-mandated energy price cuts (of around 20% in 2013). Core inflation-which strips out energy and food prices-remains well above the central bank's 3% target rate.</p>
<p>The sharp sell-off for the forint since mid-January indicates that investors are less willing to tolerate the currency's lower carry premium now that tapering is under way. However, unlike in Turkey, there has been no monetary response, with Mr Matolcsy indicating plans to keep cutting the benchmark rate (this will lead us to revise our view that the weakness of the forint would be limited this year-we had expected concerns over foreign-currency loans to lead the central bank to stop cutting the benchmark rate if serious forint weakness emerged).</p>
<p>In Ukraine the fixed peg regime has remained a key tenet of monetary policy, despite weak foreign demand and falling steel prices. This has dampened economic activity, exacerbating the widening of the current-account deficit and leading to a rapid fall in reserves. In both Turkey and Hungary, upcoming elections create further political risk concerns. Hungarians will go to the polls in April, and Turkey has elections in both March and August.</p>
<p>A third country suffering from a lack of policy credibility is Croatia, largely because of developments on the fiscal side. We estimate that the budget deficit widened to the equivalent of 6.1% of GDP in 2013, from 3.3% in 2012. The Croatian sovereign was downgraded to BB by Standard &amp; Poor's (S&amp;P), a ratings agency, on January 24th, pushing it further into non-investment grade status. On January 30th the government released new budget plans, laying out how it will cut the deficit to 4.6% of GDP this year, in line with entry into the EU's excessive-deficit procedure (EDP) for countries running fiscal deficits larger than 3% of annual output. However, we do not believe that the measures on the expenditure side are enough to reassure markets that the government is serious about fiscal reform.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span>The Economist</span></p></div><p></p></div></p>
<h2>Sustained weakness remains unlikely for most</h2>
<p>There is clearly a potential for the sharp sell-offs of recent days to become self-sustaining. The weakening of assets can trigger stop losses, leading to further selling pressure and the triggering of new stop losses, resulting in more significant falls in emerging-market assets. However, at present this is not our core view.</p>
<p>Overall, fundamentals in emerging markets are much better than in previous periods of volatility. Apart from Ukraine, all the countries discussed here have healthy levels of foreign-exchange reserves relative to imports, and none except Turkey and Ukraine have significant current-account deficits. These factors make them much better able to withstand sustained capital outflows. Only Hungary and Croatia have public debt loads close to 60% of GDP (the EU limit), and only Croatia and Ukraine have serious fiscal issues. Moreover, in most countries the monetary and political authorities have significantly more room to take action to stem weakness than in previous bouts of emerging-market crisis. Seasonal trends are also likely to provide support-in Russia the current account should strengthen in the coming months, lending support to the rouble.</p>
<p>In addition, there will be some opportunities in the crisis. One obvious point is that the weakness of emerging markets' currencies-where not so long ago the concern was about many of them being too strong-will improve export competitiveness, as well as lifting inflation, a positive for countries that have moved perilously closed to deflation in recent months. Moreover, market pressure may well force fiscal reform in countries where it is required, notably Croatia.</p>
<h2>Differentiation will continue</h2>
<p>One key point for central and eastern Europe is that emerging markets can clearly no longer be seen as a single asset class. Some of the countries examined here-notably the Czech Republic and Poland-are likely to perform more like developed markets as the Fed's monetary stimulus is unwound, whereas others-Turkey, Ukraine and Hungary in particular-continue to demonstrate some of the traditional signs of emerging markets' vulnerability, and may well be in for further currency weakening. Croatia and Russia also look susceptible to further weakness on some measures-the rouble will be less supported by central bank intervention than previously, and investors remain concerned about political risks; while the Croatian government is likely to have to do more on the expenditure side of the fiscal accounts to assuage investor concerns. Tapering was always likely to have an impact, given the scale of the Fed's asset purchases in recent years. However, whereas the past few years have been marked by a strong and fairly indiscriminate compression of global yields, the exit from monetary stimulus by the Fed is likely to see a great deal more differentiation on the part of investors.</p>
<p>Click <a href="http://www.store.eiu.com">here</a> to subscribe to The Economist</p>
<p></p>

Emerging Markets Can No Longer Be Seen As A Single Asset Class

Tapering - Assessing Damage So Far In Europe 

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span><a href="http://www.flickr.com/photos/12218772@N00/162041457/in/photolist-fjvhe-u9vYf-u9AbT-uhcsQ-wVHc7-DTE4R-HdoiG-HdoK1-Nrxeq-S8cdB-29V6gS-2ZWtSd-4FXW6D-4QUFKU-4XiYGk-54dnrw-5uTaP2-5B8zTj-5JoMgB-5RnnE1-5RPb7F-6xjCPv-6xG6aN-6B7tNM-6Ccnhm-6Tqg7e-71CYhc-71Mzh9-787xgG-akA5zh-dHJmuq-9Zskvc-ddx1iA-dESe8B-dESdVx-8KwRMh-8KtHiP-8KwJvw-8Ktn7x-cd6Xpy-doo3oA-du5GJ7-dFTiZG-8yKu6w-bncj2L-dHD2YM-dHD4Ta-dHCZQM-dHCXbK-dHJnDs-dHCWoX">Flickr/JasonLangheine</a></span></p></div><p></p></div></div>Happy Leap Day!</p><p>Stocks fell on the final day of February, the 29th day of the month which only comes around once every four years. For the month, the major US averages finished just about flat but slightly in the red.</p><p>First, the scoreboard:</p><ul><li><strong>Dow:</strong> 16,511.1, -128.9, (-0.8%)</li><li><strong>S&amp;P 500:</strong> 1,932, -16, (-0.8%)</li><li><strong>Nasdaq:</strong> 4,557.9, -32.5, (-0.7%)</li><li><strong>WTI crude oil:</strong> $33.80, +3%</li></ul><h2>Economy</h2><p>We got three pieces of economic data out Monday morning and they were all disappointing. (Well, there were four, with the ISM Milwaukee reading hitting 55.22 against expectations for 50.00. As niche regional economic indicators go this is very niche and very regional.)</p><p>The latest <a href="http://www.businessinsider.com/chicago-pmi-february-2016-2016-2">Chicago PMI report indicated contraction</a> in manufacturing activity in the Midwest during February, with the reading hitting 47.6, down from 55.6 the prior month and below expectations for a reading of 52.5.</p><p>"If one looks beyond the gyrations seen over the past three months then trend activity has been running a little below the 50 neutral mark, highlighting continued sluggish activity levels, with manufacturers under particular pressure," said Phillip Uglow, chief economist of MNI indicators, in the <a href="https://s3.amazonaws.com/images.chaptermanager.com/chapters/b742ccc3-ff70-8eca-4cf5-ab93a6c8ab97/files/mni-chicago-press-release-2016-02.pdf">release</a>.</p><p>Also out Monday was <a href="http://www.businessinsider.com/dallas-fed-manufacturing-survey-february-2016-2">Dallas Fed's manufacturing activity index</a>, which hit -31.8, better than the -34.6 report in January but still worse than expected.</p><p>This report has been among the worst pieces of economic data out over the last year or so as Texas and the greater south central US has been the epicenter of the fracking boom and subsequent crash (only North Dakota, really, has been hit harder).</p><p>Among the disappointing comments out of the Dallas Fed's survey were comments from a chemical manufacturing executive who said they didn't know, "if it is the weather, uncertainty created by the presidential election, or just a slowdown in the world economy, <strong>but</strong> <strong>things are definitely slowing down."</strong></p><p>Another executive in the fabricated metal manufacturing industry said, "Our backlog has declined (50 percent less than the same time last year). We are receiving a very high volume of requests for proposals, but either are not winning them or the projects are on hold. Pricing to obtain any work has decreased for the benefit of the owner/contractor."</p><p>Finally, a disappointing report on the housing market crossed as the <a href="http://www.businessinsider.com/pending-home-sales-january-2016-2">January report on pending home sales</a> showed a 2.5% decline in January compared to the prior month, the biggest monthly decline in two years.</p><p>Lawrence Yun, chief economist at the National Association of Realtors, said, "<span>While January's blizzard possibly caused some of the pullback in the Northeast, the recent acceleration in home prices and minimal inventory throughout the country appears to be the primary obstacle holding back would-be buyers."</span></p><h2>Recession Watch, 2016</h2><p>Commentary out of US Treasury specialists at <a href="http://www.businessinsider.com/inflation-increase-means-recession-is-already-here-2016-2">Kessler Investment Advisors over the weekend offered</a> the argument that the recent uptick in inflation we've seen over the last couple months is a sign that the economic cycle has already turned and that perhaps we are in recession now. </p><p><span>It's worth keeping in mind that recessions aren't declared by the NBER until after the fact - so, for example the Great Recession was called in December 2008 when the economy had obviously been in the tank for months before that - and so we won't <em>really</em> know we're in recession until, I guess, it's too late or whatever. </span></p><p><span>But here's Kessler on the thinking here:</span></p><p style="padding-left: 60px;">Counter-intuitively, <strong>the recent increases in core inflation are normal in the sequence of how a recession evolves</strong><span><strong>.</strong> The typical business-cycle sequence is that the manufacturing sector weakens first, then employment and consumer spending, and lastly, inflation. In fact, it is often not until the recession is over that inflation begins to come down. Inflation is the longest lagging indicator.</span></p><p><span>Now, some folks on <a href="https://twitter.com/James_v_S/status/704034163138109440">Twitter noted </a>that with this call we've got US Treasury specialists basically recommending investors go long Treasurys. This is a fair point. </span></p><p><span>But it's a view. </span></p><p><span>Elsewhere, <a href="http://www.businessinsider.com/markets-data-tell-two-stories-of-the-us-economy-2016-2">Bob Bryan breaks down</a> the two views that markets and the economy are outlining for investors to digest about just what is going on in the US right now. </span></p><p><span>Basically you've got markets saying that things are bad while data says that while things might not be great, they are probably not that bad, either. </span></p><p><span>Barclays' Michael Gapen wrote in a note to clients that, </span>"In particular, US data will need to firm enough to substantially reduce fears that the economy is on the brink of recession ... <strong>We stand by our original thesis: something's got to give. The longer financial market uncertainty persists, the more likely it is that the give will come from activity." </strong></p><p>And so this is basically the idea that perceived weakness in the economy displayed in financial markets but not explicitly clear in the data will create the data that makes this perceived weakness actual. Reflexivity, or something. </p><h2>Saudi Arabia</h2><p>Saudi Arabia was the <a href="http://www.businessinsider.com/saudi-gained-back-oil-market-share-in-china-because-imports-down2016-2">largest exporter of oil to China in January</a>, leapfrogging Russia after falling behind them in the prior month. </p><p>But, there's a catch. </p><p>Here's Barclays:</p><p style="padding-left: 60px;">Russia ESPO blend has been popular among Chinese teapot refineries, which received crude import quotas and started importing crude oil last year. <strong>However, according to [research firm] Argus, teapot refineries are facing credit constraints from banks.</strong> At least two ESPO cargos were defaulted by Chinese teapot refineries due to credit issues.</p><p>So! It's a China credit story as much as anything else. Which is interesting and also slightly concerning. Of course, the important thing to Saudi Arabia is that they continue exporting oil and maintaining its dominant position as an exporter in the global oil markets. </p><p>The concern for markets concerned about things like China is, well, credit conditions in China. </p><p>Russia, like Saudi Arabia, wants to export lots of stuff, too. </p><p>Elsewhere in the House of Saud, <a href="http://www.businessinsider.com/saudi-arabian-fx-reserves-decline-to-lowest-levels-in-nearly-three-years-2016-2">Will Martin notes</a> that the decline foreign exchange reserve in Saudi Arabia dropped to their lowest level in three years in January, indicating another area of financial stress in the kingdom. </p><p>Here's HSBC on the problem (emphasis ours):</p><p style="padding-left: 60px;">The government has continued to drawdown on its savings to cover budget shortfalls, with oil prices averaging USD/bbl 35 in January. Lower oil receipts have also been reflected in tighter domestic liquidity. <strong>Commercial bank deposits have contracted m-o-m in four of the last six months, helping - along with a recent pick-up in credit - to push the loan-to-deposit ratio to its highest reading since 2009. </strong></p><h2>Twitter</h2><p>Fred Wilson likes Twitter and Saturday's NBA game of the year between the Golden State Warriors and Oklahoma City Thunder is a prime example of why. </p><p>(The short of it is that Stephen Curry, the best player in the NBA right now, had a historic night that was capped off with one of the most outrageous shots you'll see. Even if you don't like basketball,<strong> <a href="http://www.businessinsider.com/stephen-curry-overtime-game-winner-thunder-2016-2">watch this video</a></strong>.)</p><p><a href="http://avc.com/2016/02/the-twitter-contradiction/?utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed%3A+AVc+%28A+VC%29">Wilson writes</a> (emphasis ours):</p><p style="padding-left: 60px;"><span><strong>Steph's opponents expressed their appreciation for what he is doing on Twitter in the moment. Not on Facebook. Not on Instagram. Not on Snapchat. Not anywhere else.</strong> And you don't have to be on Twitter to see that. You can see that </span><a href="http://bleacherreport.com/articles/2620343-stephen-currys-legend-continues-to-grow-at-unprecedented-pace">here</a><span> and many other places.</span></p><p style="padding-left: 60px;">Here's the thing about Twitter. You don't need to be logged into Twitter to see these tweets. You can see them on Twitter logged out. Or you can see them embedded in other places on web and mobile or on TV and elsewhere. You only need to be logged into Twitter to tweet.</p><p style="padding-left: 60px;"><strong>So anyone who is focusing on the logged in monthly active user number is missing something bigger. </strong></p><p>Wilson also notes that Donald Trump is using Twitter as his primary - and really, only - media tool to communicate with voters and storm through the Republican primaries. </p><p>And look, we're journalists here at Business Insider and as members of the media really, really like Twitter. But the reality is that investors simply don't like to see companies that aren't growing. And while revenue growth at Twitter is still strong its user growth has been flat. </p><p>But this metric is what Wilson is taking issue with. And it's a good argument. </p><p>Twitter is the kind of thing that people who don't use it all the time don't understand, or are intimidated by. But when you use Twitter a lot you realize it is the most powerful and amazing network of just raw information you could ever have hoped to stumble upon. </p><p>Growth is important, but Twitter's coming of age might be among growing the <em>value</em> of its users rather than the <em>number </em>of its users, and this is both scary and uncertain because really, no company that is, at heart, a software company has made a successful shift at this scale in the Tech Bubble 2.0 era. </p><p>So we'll see. </p><h2>Additionally</h2><p><a href="http://awealthofcommonsense.com/2016/02/bogle-vs-golitath/">Ben Carlson on Jack Bogle vs. university endowments</a>. </p><p><a href="http://ieor.columbia.edu/bloomberg-radio-interviews-prof-emanuel-derman-masters-business">Emanuel Derman on Bloomberg Radio</a>.</p><p>It was a <a href="http://www.businessinsider.com/moodys-put-valeant-under-review-for-a-downgrade-2016-2">no good</a>, <a href="http://www.businessinsider.com/the-sec-is-investigating-valeant-2016-2">terrible day</a> for Valeant Pharmaceuticals.  </p><p><a href="http://www.businessinsider.com/the-stock-market-is-over-china-2016-2">The US stock market is done following China's every move</a>. </p><p><a href="http://www.ft.com/intl/cms/s/0/beb88a52-dcb0-11e5-8541-00fb33bdf038.html#axzz41Z5psUyZ">CD sales stink and vinyl sales are soaring</a>. Because nostalgia. </p><p><a href="http://www.businessinsider.com/mitt-romney-donald-trump-kkk-david-duke-2016-2">Mitt Romney on Donald Trump's latest comments</a>. </p><p><a href="http://www.businessinsider.com/american-express-selling-costco-portfolio-to-citi-2016-2">American Express officially sells Costco business to Citi</a>.  </p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/lg-g5-new-phone-design-and-accessories-2016-2">This phone has the most unique design we've ever seen</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="VqcWgzMTE6efFh7YkKTQrdcyeakcINQl" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

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