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Emerging Markets Daily - December 13
Saudi Oil Minister Warns of Plunging Global Production, Israeli PM in UAE, Fed to Pivot Amid Inflation, Blinken in Indonesia, EM Central Banks: To Hike or Not to Hike?
The Top 5 Stories Shaping Emerging Markets from Global Media - December 13
Saudi Oil Minister Says Global Production Could Plunge 30% This Decade
“Saudi Arabia said global oil production could drop 30% by the end of the decade due to falling investment in fossil fuels. ‘We’re heading toward a phase that could be dangerous if there’s not enough spending on energy,’ Oil Minister Abdulaziz bin Salman said in Riyadh. The result could be an ‘energy crisis,’ he said.”
“The minister said daily oil output may fall by 30 million barrels by 2030. He urged energy companies and investors to ignore ‘scary messages’ about oil and gas. Prince Abdulaziz’s comments came shortly after the Saudi finance minister made a similar warning.”
“Their views differ from what most climate activists say is necessary to slow the warming of the planet. The International Energy Agency, which advises rich countries, has called for the cessation of new investment in fossil fuels if the world is to neutralize carbon emissions by 2050.”
“Saudi Arabia, the world’s biggest oil exporter, is among the few countries still spending billions of dollars to raise production. It’s trying to increase its capacity to 13 million barrels a day from 12 million by 2027.”
“Global expenditure on oil and gas projects slumped 30% to $309 billion in 2020 and had only recovered slightly this year, according to Riyadh-based think tank the International Energy Forum.” Salma El Wardany reports.
Geopolitics: Israeli PM Visit Reflects Region’s Shifting Geopolitics
Wall Street Journal
“The first-ever official meeting Monday between Israel’s prime minister and the United Arab Emirates’ de facto leader is the latest in a flurry of diplomacy reshaping the geopolitics of the Middle East amid fear that the Iran nuclear talks will collapse and worries over the shrinking U.S. role in the region.”
“The talks in Abu Dhabi—the first between the leaders of Israel and the U.A.E. since the two countries established diplomatic ties last year—gave Prime Minister Naftali Bennett and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al Nahyan their first chance to coordinate personally about their shared regional rival, Iran, and its expanding nuclear program.”
“It also marked an opportunity for the two leaders to discuss budding business ties between their countries, which normalized relations late last year after 50 years of no formal diplomatic ties. The deal led to agreements with several other Arab countries called the Abraham Accords, and billions of dollars in new business.”
“On Monday, Mr. Bennett and Sheikh Mohammed spent more than four hours in talks, both with broader delegations and in a 2½ hour one-on-one meeting at the prince’s palace. ..”
“The two countries have already increased registered bilateral trade by 10-fold year-over-year in the first 10 months of 2021 to $874.5 million. That sum doesn’t reflect some of the biggest deals struck between Israel and the U.A.E., including the $1 billion sale by Israel’s Delek Drilling of a stake in its Tamar gas field to Emirati wealth fund Mubadala.” (EW note - See photo below, courtesy of Gas to Power Journal)
“Monday’s meeting comes after Sheikh Mohammed traveled to Turkey late last month to begin patching up relations with President Recep Tayyip Erdogan, a supporter of Islamist political movements that the U.A.E. see as a national-security threat.’” WSJ reports.
Fed to Pivot to Swift Action on Inflation in the Face of Rising Prices
“Economists now expect the Fed to double the tapering pace and cease expanding the size of its balance sheet in March, setting the stage for a series of interest rate increases in 2022.”
“If Jay Powell needed further evidence to bolster the US Federal Reserve’s case for scaling back its enormous stimulus programme more quickly, he secured it on Friday after the release of November’s inflation report, which showed consumer prices rising at the fastest annual pace in nearly 40 years.”
“The consumer price index jumped 6.8 per cent in November from a year earlier and removed any doubt that price pressures are broad-based. Even before the latest inflation reading, the central bank had already changed tack, abruptly shifting from a patient approach to scaling back its ultra-accommodative monetary policy and instead assuming a much more aggressive stance against inflation.”
“The Fed, which begins a two-day meeting on Tuesday, now appears on track to push forward with its plans Powell, the Fed chair, laid the groundwork this month, stressing it was highly uncertain when inflation would moderate next year.”
“He also vowed to use the Fed’s tools to ensure inflation does not become entrenched — a pledge he backed up by signalling support for the central bank to wind down its asset purchases ‘perhaps a few months sooner’ than the initial June timetable.”
“Economists now expect the Fed to double the tapering pace and cease expanding the size of its balance sheet in March, setting the stage for a series of interest rate increases in 2022.” Colby Smith reports.
Diplomatic Juggling Act: Jokowi Meets Blinken, Russian Official on Same Day
“Indonesia demonstrated its balanced foreign policy on Monday as President Joko ‘Jokowi’ Widodo hosted U.S. Secretary of State Antony Blinken and top Russian security official Nikolai Patrushev in back-to-back meetings.”
“Widodo received Blinken at the presidential palace in Jakarta immediately after the secretary's arrival Monday afternoon. Blinken's visit -- the first leg of his maiden Southeast Asia tour this week, which includes stops in Malaysia and Thailand -- is widely seen as signaling Washington's greater outreach to a region where China has been wielding power.”
“During the meeting, Blinken expressed American ‘support for Indonesia's leadership in the Indo-Pacific as the world's third-largest democracy and a strong proponent of the rules-based international order,’ State Department spokesman Ned Price said in a statement.”
“Blinken also reiterated the U.S. commitment to the central role of the 10-member Association of Southeast Asian Nations in the region's affairs, as well as the ASEAN Outlook on the Indo-Pacific, which calls on countries in the area to respect international laws including the 1982 United Nations Convention on the Law of the Sea…”
“Widodo and Blinken also discussed efforts to boost bilateral relations. Indonesian Foreign Minister Retno Marsudi said the U.S. ‘seems very committed’ to strengthening economic partnerships with her country, including through infrastructure investment.” Nikkei Asia reports.
Emerging Markets Central Banks: Where to from Here?
Marc Chandler’s thoughts on EM Central Banks below:
“Emerging markets are not homogenous. Except for South Korea, which has hiked the bank rate twice this year (to 1.0%), most other central banks in the region have stood pat. Indonesia, the Philippines, and Taiwan are expected to standpat in the week ahead. The tightening cycle in central Europe and Latam is advanced.”
“All rate hikes are not the same. Russia and Hungary's central banks meet next week. They are experiencing solid growth and rising price pressures. The 100 bp hike that many expect from the Russian central bank (December 17) would lift the key rate above the inflation rate, albeit barely (8.5% vs. 8.4% November CPI). Since hiking the base rate 30 bp to 2.10% on November 16, the Hungarian central bank has lifted the 1-week deposit rate by 150 bp to 3.30. At December 14 meeting it is likely to raise the base rate by 50 or 75 bp.”
“Turkey's central bank meets on December 16. Since the central bank cut the one-week repo by 100 bp on November 18, the lira has depreciated almost 20% against the dollar and brought this year's drop to more than 45%. November CPI edged above 21.3%, and the core rate was a little above 17.6%. Some economists thought the lira was cheap to fair value months ago, but the loss of central bank credibility may not be quantifiable. Ultimately, the era of floating exchange rates is a confidence game to a large extent, and it has lost it.”
“The rate cycle is well underway in Latam, but the rate hikes are mainly coming despite soft growth. Price pressures seem to be the main driver. Chile (December 14), Mexico (December 16), and Colombia (December 17) are expected to extend their tightening cycle. Chile and Colombia are seen raising key rates 125 bp and 50 bp, respectively. The market anticipates another 25 bp hike by Mexico, but the risk of a 50 bp move at Governor Diaz's last meeting seems greater than standing pat, especially after last week's news that November CPI surged to almost 7.4% from about 6.25% in October.”
For the full analysis by Chandler on central banks rate policy worldwide, see here
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