Emerging markets on the slide, Real money selling EUR/USD

It’s like deja vu all over again. Forget the G7, the TARP, the SARP and the rest of the global alphabet soup. The markets remain on the edge of panic and need these programs to begin gushing capital in a big, fat hurry.

Emerging markets are getting hammered again. Brazil, the shining start of the BRICs is down 10% at the moment with trading halted for a cooling off period. US investors have returned to the sell-side in EUR/USD, pushing prices down the 1.3510, the 50% retracement of the Friday/Monday rally. These guys have been selling in waves for the fourth session running.

AEP warns developing countries risk going bust

The rapidly spreading global economic crisis risks dragging emerging economies into bankruptcy, Ambrose Evans-Pritchard warns. Strategically important countries like Pakistan and Ukraine are at risk he reports.

Makes me wonder whether the newly rich Soviet Un…err, Russia, might try and take advantage of the situation.

Another day, another 10%

In Latin America, that is. The MSCI LatAm index is tumbling. down another 10% today. The US is down less than 2%, a relative victory compared to other markets, like Tokyo. I know, I know, it’s early yet.

It is going to be tough for EUR/JPY, and other JPY crosses, the best barometers of risk in the currency markets, to rally much against this backdrop.

Mexicans intervene for first time mid-1990s

The Mexican central bank intervened in the open market for the first time since the devaluation back in the 1994/95 time frame when they devalued. Spot dropped about 15 big figures in 3 minutes, dealers report. This may raise caution flags for JPY longs as the BOJ could certainly do the same thing.

Emerging markets jitters explode

Rumors are running wild that two US mega-banks are pulling operations out of Mexico. The Peso has extended its freefall this morning, down an additional 7.5% this morning. EUR/JPY has come under pressure one again, as have equities. Stocks are down in the US after rallying after the rate cut.

Let’s see how long that EUR 4 bln lasts…

Iceland has secured EUR 4 bln from Russia and has announced a temporary peg for the Krona. Lets see how long those EUR 4 bln in reserves last…, they’ll be gone by the close of business, I suspect….

Russia is also pumping billions into its own banking sector.

Emerging markets lead race to the bottom

Escalator up, elevator down. That’s the pattern in emerging markets and it is playing out as it has many times in the past. Markets in Eastern Europe and Latin America are taking the brunt of the selling now after a messy night in Asia earlier. Mexico and Brazil are hard hit, Iceland was is a mess and Russia opens and closes about as often as a typical traffic light turns from red to green. This is all part of the deleveraging process, compounded by fears of a global recession which will cut demand for commodities.

US investors, correctly forecasting sluggish US growth, poured money into emerging markets on the assumption that they had matured enough to break their reliance on the US as China soaked up resources. Maybe someday, but not today…As dollars flow home with their tails between their legs the greenback surges across the board, except against the Yen and Swiss franc which often were used to fund these trades as investors sought to exploit wide interest rate differentials.

Exacerbating the strong dollar trend is massive intervention from central banks to support their local currencies. Russia is reported to have sold $5 bln to defend the rouble today. To keep the Russian reserve basket in balance, about half of that will flow through EUR/USD as Russia sells Euros to maintain its 55% dollar/45% euro basket.

I’ve heard of bank runs, but never a food run

Panic over the state of the Icelandic economy has reached the point where people are hoarding food. I’ve joked about stocking canned goods and ammunition amid continued bleak economic data but never dreamed anything resembling this would develop in a rich nation.

Amid reports of panic buying at Icelandic foodstores Iceland’s central bank governor David Oddsson said the central bank had enough reserves to cover the cost of all imports for eight to nine months, a stronger buffer than it had had in the past.

Iceland a growing focus along with the rest of Europe

Iceland is seen as somewhat of a microcosm for fears that the European banking system is spinning out of control. Tons of money flowed into Iceland in recent years, much of it Russian, according to media reports, inflating the tiny economy out of all proportions. The bubble began to collapse on its own and Russian troubles are only exacerbating the problem. Icelandic money has been recycled into the UK at a huge rate and the implosion in Iceland has only helped drag the UK down with it. An amazing, but ugly story.

Hopes for a US bank bailout are running high and remind the market that Europe would be hard pressed by the lack of pan-European institutions beyond the ECB to do the same. Submerging markets and overextended banks are coming together to support the greenback in new and unexpected ways.

Russia halts stock trading again

Russian stocks are down nearly 8% and have been halted for a second time today.

On the TARP vote, a House Republican leader says the fact that the bill is being bought to the floor is a sign that the it is expected to pass.