The week's top news in world financial markets from Maximus Capital

USA

For all the concern over the $1.6 trillion U.S. budget deficit and record debt load, the dollar is as valuable now as 35 years ago. Measured against a basket of currencies from the Group of 10 nations, proportioned by how they trade against each other, the greenback is up about 3 percent since 1975. That was four years after the Bretton Woods agreement, set up in 1944 to link currencies to the price of gold, collapsed. The U.K. pound has dropped 34 percent and the Canadian dollar has fallen 6 percent. The U.S. dollar gained 6 percent since November after losing 12 percent in the first 11 months of 2009 as measured by the Bloomberg index. Barclays Capital and Morgan Stanley say the U.S. will grow faster than the rest of the developed world this year and 2011. At the same time, Europe faces worsening finances in Greece, Spain and Portugal, Japan’s economy is struggling and concerns about valuations in emerging markets are increasing.

Euro zone

The European Central Bank may be forced to delay the withdrawal of emergency lending measures because it could inflame financial-market concerns about Greece, Spain and Portugal, economists said. Investors are already dumping those countries’ assets as their governments struggle to rein in budget deficits, making it more expensive for them to finance the debt. Should the ECB press ahead with its exit strategy by pulling its unlimited cash support for euro-area banks, interest rates could rise, further undermining confidence in Europe’s economic recovery. Experts think that banks in Greece, Spain and Portugal are disproportionately dependent on cheap ECB cash so any whiff of that drying up and weakening the banking sector further will rattle markets. That “strengthens the case for the ECB to slow down its exit.”
 
CIS countries

Russia’s central bank views credit risks and the possibility of an equity market bubble as the main threats to the economy. Delinquent loans at the country’s lenders, not including Russia’s biggest bank OAO Sberbank, stood at 5.4 percent of the total as of Jan. 1, Alexei Simanovsky, who heads Bank Rossii’s financial regulation division, told reporters in Moscow. He also noticed that bad debt probably won’t rise by the end of June. Non-performing loans in the world’s biggest energy exporter may climb to 20 percent of total lending this year, based on international definitions, Deutsche Bank AG said on Jan. 28. Investors are ‘underestimating’ the risks and may expect too strong a recovery. Banks have held back on lending, even after 10 central bank rate cuts, on concern borrowers may be unable to service their debt. At the same time, last year’s 83 percent surge in crude oil has spurred gains in the country’s benchmark equity index. Russia’s RTS index of the country’s 50 most-traded stocks soared 129 percent last year and is up 12 percent since the end of September.

Yanukovych, the Ukrainian opposition leader whose first presidential election victory was overturned by the courts after the 2004 Orange Revolution, won yesterday’s vote on a promise to end years of turmoil. Yanukovych took 48.68 percent over 45.73 percent for Prime Minister Yulia Timoshenko, with 98.97 percent of the ballots counted, according to the Central Electoral Commission’s Web site. Timoshenko, 49, has yet to concede the election, while Yanukovych urged her to concede and step down as premier.

Written using materials from Bloomberg and  Reuters Research