LONDON Dec 2 Ukraine's debt insurance costs
surged almost 100 basis points on Monday and its dollar bonds
tumbled as massive anti-government protests threatened to
undermine the already troubled economy.
Political turmoil also weighed on Thai assets earlier in the
day, with the baht trading at 12-week lows to the dollar.
Manufacturing data across the developing world was broadly
positive, with Asian numbers at multi-month highs last month,
Japan expanding at the fastest pace in seven years and emerging
Europe showing continued signs of recovery.
But investor focus was on Thailand and Ukraine, with
Ukraine's dollar bonds falling 1.0-2.0 points in price across
the curve, with the 2020 issue hitting two-month lows
The Ukrainian central bank stepped in to sell dollars to
defend the hryvnia which is trading near four-year lows to the
dollar, while five-year credit default swaps surged
almost 100 bps to 1067 bps, according to Markit.
"The problem is that (political turmoil is happening
precisely at the moment when the country is facing major, major
economic challenges," said Regis Chatelier, global sovereign
strategist at Societe Generale.
"You can always predict inflation or growth, those kinds of
things, but what happens politically on the ground can evolve so
About 1,000 protesters blocked off the Ukrainian
government's main headquarters on Monday and surrounding
streets, preventing employees getting to work, in further
protests at Kiev's policy U-turn away from integration with
Europe And back towards Russia.
On Sunday, Ukrainian opposition leaders called on for
President Viktor Yanukovich and his government to resign at a
huge pro-Europe rally of about 350,000 people - the biggest
demonstration since the so-called Orange Revolution nine years
Fears are growing that the country, already stuck in
recession with a large current account gap and dwindling central
bank reserves, could be forced to default on debt if it fails to
reach a deal with either Europe or Russia.
Fears are also growing the country will not be able to
prevent a currency devaluation, as the six-month non-deliverable
forward rate spiked almost 1 percent to 8.95 per dollar,
implying roughly an 8 percent fall in the hryvnia's value
. NDFs price hryvnia at 9.6 in a year.
Political turmoil also rocked Thailand where the baht fell
to 12-week lows against the dollar, with many suspecting
central bank intervention. Thai stocks fell 1 percent
On Sunday, three people were killed in street clashes in
Bangkok, as police fired tear gas and grenades for the second
day outside the prime minister's compound.
Analysts have slashed expectations for Thai growth to 3
percent this year and the central bank cut interest rates last
week, citing weak growth. Fund managers said however fears of
large-scale outflows were misplaced, though a rush to hedge
exposure was putting pressure on the baht exchange rate.
"There hasn't been a large portfolio outflow from Thailand.
There has been currency hedging, and that's typically what
investors do when they are concerned about the short term effect
on markets," said Mirza Baig, head of currency and rates
research at BNP Paribas in Singapore.
Dollar/baht forward rates jumped, indicating
investors were buying dollar forwards.
One-month implied baht volatility hit 6 percent,
the highest in six weeks.
Broader emerging markets were lacklustre, with Chinese
mainland stocks ending down 0.8 percent, shedding
early gains triggered by steady factory expansion in the world's
No. 2 economy.
In emerging Europe, the biggest equity gainer was Athens,
which re-entered the emerging equity index last week. The
market rose 1 percent to the highest since August 2011 after the
purchasing managers index (PMI) hit a four-year high and
returned to growth after a four-year gap.
MSCI's emerging markets index was flat, weighed
down by the Chinese weakness.
Regional PMIs in general were robust, with Polish output
expanding for the seventh month in a row and Czech numbers
beating forecasts. Turkish manufacturing climbed to 32-month
But Hungarian forint fell to nearly three-month lows to the
euro as PMIs eased. That will encourage expectations
that the central bank will continue to cut interest rates.
The rouble too weakened against the dollar and its
euro-dollar basket , standing just off 2-1/2
month lows to the dollar and four-year lows to the basket. The
currency is being undermined by slowing growth and PMI data on
Monday confirmed the slowdown
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