Pakistan Panic: 3rd Currency Devaluation In 2018 Sends Sovereign Risk Soaring Above Argentina, Ukraine

While many of the world’s eyes are on the carnage in Argentina as EM collapses, Pakistan has quietly devalued the Rupee three times this year, amid tumbling reserves which has sparked enough investor anxiety to send CDS spiking.

Pakistan is now ‘riskier’ than Greece, Ukraine, and Argentina…

 

The country has been roiled by domestic political and economic turmoil and was not helped this week when Moody’s changed the outlook on Pakistan to negative from stable citing heightened external vulnerability risk.

Moody’s affirmed its B3 rating

Says foreign exchange reserves have fallen to low levels and will not be replenished over the next 12-18 months, absent significant capital inflows.

Moody’s says low reserve adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks.

It certainly looks like they are losing control of the currency…

 

And to pile on – Pakistan’s main stock index – down 33% YTD in USD terms – just suffered a ‘death cross’…

 

Notably all of this carnage has accelerated since the start of January which coincided with Pakistan’s decision to ditch the dollar (following Trump’s remarks) and get closer to China.

“SBP has already put in place the required regulatory framework which facilitates use of CNY in trade and investment transactions,” the State Bank of Pakistan (SBP) said in a press release late Tuesday, ensuring that imports, exports and financing transactions can be denominated in the Chinese currency.

“The SBP, in the capacity of the policy maker of financial and currency markets, has taken comprehensive policy related measures to ensure that imports, exports and financing transactions can be denominated in yuan,” Dawn news, Pakistan’s most widely read English-language daily, announced while quoting the SBP press release.

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Image source: WION News

As we reported in DecemberPakistan has been contemplating the move since last month’s formal launch of the Long Term Plan for the China-Pakistan Economic Corridor (CPEC), signed by the two sides on November 21. The CPEC is a flagship project of China’s Belt and Road initiative – the 3,000 km, over $50 billion corridor which stretches from Kashgar in western China to Gwadar port in Pakistan on the Arabian sea.

Will China step up?

end

Canada

the loonie tumbles to 1.3380 and then recovers a bit on ugly data:  Toronto, my home town shows the worst retail sales in 3 years

(courtesy zerohedge)

Loonie Tumbles After Ugly Canadian Data: Worst Toronto Retail Sales In 3 Years

The synchronized economic slowdown has hit again, this time striking America’s latest trade war opponent, Canada, which moments ago reported some very ugly inflation and retail sales data.

First, on the inflation front, Canadian CPI rose just 2.2% in May from 2.1% in April, badly missing what Wall Street estimated would be an increase to 2.6% due to higher gasoline prices. According to Statistics Canada, the largest upside contributor to the inflation print was the recreation, education category, 0.27 percentage points, while the largest downside contributor was the household operations category, -0.12 percentage points.

 

Broken down by the various CPI metrics, the data was as follows:

  • The average of CPI core measures was 1.90% y/y in May from 1.97% a month earlier
  • CPI-common at 1.9% y/y in May from 1.9% in previous month
  • CPI-median at 1.9% y/y in May from 1.9% in previous month
  • CPI-trim at 1.9% y/y in May from 2.1% in previous month

The retail sales data was even worse, with the headline number tumbling -1.2% in April, well below not only the consensus estimate of an unchanged print , but also below the lowest end of the forecast range which was -0.4% to 0.2%. Core retail sales, ex-autos, also missed, falling 0.1% in April, est. +0.5%

 

Just like in the US, a big contributor to the miss appears to be the rise in e-commerce, with online sales of C$1.33B in April, up 8.8% from a year earlier and representing 2.7% of total retail sales.

Broken down by region, there was weakness all round, however Toronto was an outlier, with retail sales falling most since Jan. 2015. Poor weather weather may have hurt retail sales.

  • Toronto retail sales -2.9% m/m
  • Montreal retail sales -2.60% m/m
  • Vancouver retail sales +0.2% m/m

Following the data, the Canadian loony tumbled by 100 pips, with the USCAD rising from 1.327 to 1.337, before regaining some losses.