from Dollar Collapse:
Oil is plunging again, this time in the wake of OPEC’s inability to limit its members’ production. The US dollar, meanwhile, is up on the divergence between Fed tightening and ECB/BoJ/BoC easing.
This widening gap is a perfect storm for the many, many entities that have borrowed dollars to speculate in foreign currencies or drill for oil. Some examples:
(Bloomberg) – The commodity-price slump and the slowdown in China’s economy are crippling developing nations’ ability to borrow abroad, even as international debt sales from advanced nations remain at a five-year high.
Issuance by emerging-market borrowers slumped to a net $1.5 billion in the third quarter, a drop of 98 percent from the second quarter, according to the Bank for International Settlements. That was the biggest downtrend since the 2008 financial crisis and reduced global sales of securities by almost 80 percent, the BIS said in a report.
Emerging-market assets tumbled in the third quarter, led by the biggest plunge in commodity prices since 2008 and China’s surprise devaluation of the yuan. The average yield on developing-nation corporate bonds posted the biggest increase in four years, stocks lost a combined $4.2 trillion and a gauge of currencies slid 8.3 percent against the dollar. Sanctions on Russian entities and political turmoil in Brazil and Turkey also affected sales by companies in those countries.
(CNBC) – After years of safely reaching for yield through risky assets like stocks and speculative-grade bonds, Wall Street is heading into 2016 rethinking the strategy.
That trend of low defaults has begun to turn the other way, with the trailing 12-month rate rising to 2.8 percent in November, the highest level in three years, according to ratings agency S&P, which expects defaults to climb to 3.3 percent by Sept. 30, 2016.
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