Good morning. Here’s your Situational Awareness for Thursday, 15 September 2022.
INVESTORS WARY OF PENDING ASIAN FINANCIAL CRISIS: Regional banks in Asia are depleting their foreign exchange reserves as U.S. Federal Reserve interest rate hikes continue to strengthen the dollar against smaller Asian currencies. According to Divya Devesh at Standard Chartered in Singapore, developing Asian nations, excluding China, are sitting on their smallest piles of FX reserves since the 2008 financial crisis. As the U.S. Federal Reserve raises interest rates, it makes the dollar more competitive in the currency market, which in turn requires Asian countries to spend more of their currency to purchase dollars in order to pay for imports of consumer essentials. A more localized FX crisis led Sri Lanka to its bankruptcy and sovereign debt defaults earlier this year. – R.P.
CHINA SET TO IMPLEMENT BIGGEST ECONOMIC OVERHAUL IN DECADE: The Chinese Communist Party Congress is set to begin on October 16th, and reports coming out of China indicate a radical overhaul in economic leadership posts. China’s Premier and a collection of top officials are expected to step down amid worsening growth forecasts and mounting financial risks. The expected changes are due to a combination of China’s cratering property market and its zero-COVID policies, which have seen manufacturing output in major industrial hubs grind to a halt. Top officials, like Xi Jinping, are expected to remain in their posts, but moderate reform-minded economic leaders are being shown the door. In their place, China analysts expect to see a major shift toward state-driven economic management. – M.M.
IEA: GLOBAL OIL DEMAND EXPECTED TO REBOUND FROM PANDEMIC ECONOMIES: According to a report from the International Energy Agency (IEA) released Wednesday, global oil demand is expected to rebound strongly next year. The IEA report noted that a recession-related economic slowdown would only pause growth for a brief period around the turn of the year, but a rejuvenated Chinese economy is expected to drive up oil demand. The IEA also said it expected a shift from gas to oil for power generation to boost demand by 700,000 BPD in Europe and the Middle East. – M.M.
RUSSIA ELIMINATING INDEPENDENT MEDIA: Russian state-controlled media announced a ruling by the Moscow City Court that will shut down the independent Russian Journalists and Media Workers Union. The ruling comes after The Moscow Prosecutor’s Office requested that the union be “liquidated.” An earlier ruling by a Moscow district court found the organization guilty of “discrediting” Russian military forces and “spreading ideas related to a negative attitude” towards the war in Ukraine. – R.P.
SWEDISH PM RESIGNS AS RIGHT-WING SEIZES PARLIAMENT: Following the tally of votes in more than 99% of districts, Swedish Prime minister Magdalena Andersson announced her resignation. Andersson said the preliminary election results were “clear enough to draw conclusions” indicating a coalition of right-wing parties had won a “thin majority” in the Swedish parliament. Following the announcement, Swedish Moderate party leader Ulf Kristersson said he would begin forming a new government “for all of Sweden and all citizens” that “can get things done.” – R.P.
ARGENTINE ECONOMY SPIRALS UNDER CRIPPLING INFLATION: A day after its formal application to BRICS, government reports indicate the country’s inflation rate has spiked to 78.5%. The economic turmoil, driven by soaring food and fuel costs, has forced the Argentine government to implement price freezes and rationing of staple foodstuffs as consumers struggle to make ends meet amidst devalued salaries. Little relief is expected for the struggling population of the small Latin American country as Central banks forecasts predict the inflation rate will reach 95% by the end of the year. – R.P.
In today’s Early Warning, Mike provides his Weekly Economic Outlook and the team provides the latest domestic reporting. Get access to the full report, including analysis of the DailySA briefs, through an Early Warning membership: https://forwardobserver.com/subscribe