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Himalaya-high spreads: which emerging market sovereigns can acclimatise?

When mountaineers climb above 8,000 meters, they are considered to be in the death zone. At such high altitude, there is not enough oxygen. Their bodies…

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When mountaineers climb above 8,000 meters, they are considered to be in the death zone. At such high altitude, there is not enough oxygen. Their bodies experience huge stress until they descend to a safer elevation. 

High yield emerging market sovereign bond yields have ascended in 2022 while global monetary conditions tightened, recession risks reverberated, the US dollar strengthened and widespread investor risk aversion took hold. With non-investment grade sovereign spreads recording historic highs at over 1,000 basis points, the eurobond market has recently been closed to most high yield sovereigns. And, like mountaineers, they are suffering from altitude sickness. 

Source: Bloomberg, from JP Morgan’s emerging markets bond indices, 26 July 2022.
Acute mountain sickness

The highest mountain summits are harsh places to be, although some climbers do better at altitude than others. Investment grade emerging markets have become fitter, stronger and more robust over the past two decades: borrowing at home, building up reserves and keeping their deficits in check.

A big part of the global inflation problem comes from higher global prices for food and energy, which was exacerbated by Russia’s invasion of Ukraine. In this environment, countries exporting oil and gas have fared better. Flush with petrodollars, their economies have thrived, with less need to issue bonds. Where the surplus is largest, oil exporters have reduced their debt in 2022 (for example, Oman was able to buy back past debt at low prices). Others have been able to step up their investments abroad, helping other countries solve liquidity issues (for example, the Gulf economies have increased their deposits in Egypt and Pakistan).

Conversely, at the weaker end of the spectrum are high yield sovereigns that import commodities, which struggle most when energy and food prices spike. Such countries are downgrading their growth forecasts for 2022 while experiencing big jumps in inflation. But, those most in danger are high yield sovereigns that were counting on markets being open to refinance maturing bonds.

Sri Lanka had debt problems brewing over the past five years that were exacerbated by the pandemic. With foreign exchange reserves depleted, they defaulted on their eurobond debt in May 2022. Sri Lanka’s default, sour markets and a weaker global macro backdrop have prompted concerns over whether more emerging market defaults might follow. To answer this question, we need to go country-by-country and carefully assess their refinancing risks. 

Source: Bloomberg, 26 July 2022.
Sitting out the storm

Thankfully, most high yield sovereigns do not have large amounts of eurobonds maturing in 2022 and 2023, so they can get by even without market access. Those with eurobonds which need refinancing over the next 18 months will need a plan B. They can seek syndicated loans to bridge the financing gaps, or use their foreign exchange reserves – akin to putting up tents and sitting out the bad weather.

Sovereigns that have climbed with lower supplies will need to radio in a rescue from the IMF, multilateral banks or bilateral climbing partners – although that helicopter might only be dispatched if reforms plans are set out and debt stocks are deemed sustainable.

External public debt is not always the main debt pressure. For some countries, there are bigger near-term struggles with domestic public debt burdens (as seen in Ghana), hard currency corporate debt (as seen in Turkey) or debts to the IMF and multilateral banks (as seen in Argentina). If these debts are not rolled, then their ability to service the eurobonds would also be impaired. 

These near-term survival strategies suggest that an emerging markets crisis of a 1980s size is unlikely in 2022 or 2023. However, further pressures could mount if market conditions do not improve ahead of higher high yield sovereign bond maturities from 2024.

To the plains or plateau?

When past bouts of Himalaya-high spreads are analysed, the good news is that they have safely descended (for example, around the time of the global financial crisis and when Covid-19 became a pandemic in March 2020). This cycle could turn out to be similar, if advanced economy recession clouds pass, rates volatility calms and the flight to safety begins to reverse.

Whatever its timing, it is unlikely to be a straightforward descent from the summit. Rather than returning to the plains, there could be a new slog across a plateau – one made more difficult by heavier loads, as most high yield sovereigns have added substantially to their public debt stock since 2019. 

On such a plateau, there would be far more oxygen than at 8,000 meters, so altitude sickness would ease. But the air would still be thin. Here we should be thinking through how scenarios of a US 10-year treasury yield at 3% or 4% might play out, versus the average of 2.4% experienced between 2010 and 2019. Plans for longer maturity eurobonds (30-years or more) that became a common feature for the frontier between 2017 and 2019 might end up buried deep in a crevasse for lower-rated countries. And those sovereigns that have already struggled with shorter maturities when US treasuries were lower, would find the market more challenging than before.

Despite most emerging market bonds screening cheap at current spreads, there is a crucial need for country-by-country analysis. For many non-investment grade sovereigns, the descent from the summit back to market access will be tricky. Much effort will be needed to acclimatise. 

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Spread & Containment

Decrease in Japanese children’s ability to balance during movement related to COVID-19 activity restrictions

A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected…

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A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected their life habits and their abilities to perform physical activities. By comparing medical examination data before and after the onset of the pandemic, they found that physical functions among adolescents deteriorated, including their dynamic balance. They also found that the children had higher body fat levels and worse life habits. Rather than a lack of exercise time, this may have been because of a lack of quality exercise due to activity restrictions.  

Credit: Credit must be given when image is used

A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected their life habits and their abilities to perform physical activities. By comparing medical examination data before and after the onset of the pandemic, they found that physical functions among adolescents deteriorated, including their dynamic balance. They also found that the children had higher body fat levels and worse life habits. Rather than a lack of exercise time, this may have been because of a lack of quality exercise due to activity restrictions.  

During the COVID-19 pandemic, in Japan, as in other countries, schools and sports clubs tried to prevent the spread of infection by reducing physical education and restricting outdoor physical activities, club activities, and sports. However, children who are denied opportunities for physical activity with social elements may develop bad habits. During the pandemic, children, like adults, increased the time they spent looking at television, smartphone, and computer screens, exercised less, and slept less. Such changes in lifestyle can harm adolescent bodies, leading to weight gain and health problems. 

Visiting Researcher Tadashi Ito and Professor Hideshi Sugiura from the Department of Biological Functional Science at the Nagoya University Graduate School of Medicine, together with Dr. Yuji Ito from the Department of Pediatrics at Nagoya University Hospital, and  Dr. Nobuhiko Ochi and Dr. Koji Noritake from Aichi Prefectural Mikawa Aoitori Medical and Rehabilitation Center for Developmental Disabilities, conducted a study of Japanese children and students in elementary and junior high schools, aged 9-15, by analyzing data from physical examinations before and during the COVID-19 pandemic. They evaluated the children’s muscle strength, dynamic balance functions, walking speed, body fat percentage, screen time, sleep time, quality of life, and physical activity time.  

The researchers found that after the onset of the pandemic, children were more likely to have decreased balance ability when moving, larger body fat percentage, report spending more time looking at TV, computers or smartphones, and sleep less. Since there were no changes in the time spent on physical activity or the number of meals eaten, Sugiura and his colleagues suggest that the worsening of physical functions was related to the quality of exercise of the children. The researchers reported their findings in the International Journal of Environmental Research and Public Health.  

“Since the outbreak of the novel coronavirus in Japan after April 2020, children have not been able to engage in sufficient physical education, sports activities, and outdoor play at school. It became clear that balance ability during movement was easily affected, lifestyle habits were disrupted, and the percentage of body fat was likely to increase,” explained Ito. “This may have been because of shorter outdoor playtime and club activities, which impeded children’s ability to learn the motor skills necessary to balance during movement.” 

“Limitations on children’s opportunities for physical activity because of the outbreak of the novel coronavirus have had a significant impact on the development of physical function and lifestyle and may cause physical deterioration and health problems in the future,” warned Ito. “Especially, the risk of injury to children may increase because of a reduced dynamic balance function.” 

The results suggest that even after the novel coronavirus becomes endemic, it is important to consider the effects of social restrictions on the body composition of adolescents. Since physical activities with a social element may be important for health, authorities should prioritize preventing the reduction of children’s physical inactivity and actively encourage them to play outdoors and exercise. The group has some recommendations for families worried about the effects of school closings and other coronavirus measures on their children. “It is important for children to practice dynamic balance ability, maintaining balance to avoid falling over while performing movements,” Ito advised. “To improve balance function in children, it is important to incorporate enhanced content, such as short-term exercise programs specifically designed to improve balance functions.” 


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Government

Contradictions, Lies, And “I Don’t Recalls”: The Fauci Deposition

Contradictions, Lies, And "I Don’t Recalls": The Fauci Deposition

Authored by Techno Fog via The Reactionary,

Today, Missouri Attoney General…

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Contradictions, Lies, And "I Don't Recalls": The Fauci Deposition

Authored by Techno Fog via The Reactionary,

Today, Missouri Attoney General Eric Schmitt released the transcript of the testimony of Dr. Anthony Fauci. As you might recall, Fauci was deposed as part of an ongoing federal lawsuit challenging the Biden Administration’s violations of the First Amendment in targeting and suppressing the speech of Americans who challenged the government’s narrative on COVID-19.

Here is the Fauci deposition transcript.

And here are the highlights…

EcoHealth Alliance - the Peter Daszak group - is knee-deep in the Wuhan controversy, having been funded by the Fauci’s NIH for coronavirus and gain of function research in China (and having worked with the Chinese team in Wuhan). What does Fauci say about EcoHealth Alliance? Over two years after the COVID-19 pandemic began, and after millions dead worldwide, he’s “vaguely familiar” with their work.

In early 2020, Fauci was put on notice that his group - NIAID - had funded EcoHealth alliance on bat coronavirus research for the past five years.

This coincided with early reports - directly to Fauci, from Jeremy Ferrar and Christian Anderson - “of the possibility of there being a manipulation of the virus” based on the fact that “it was an unusual virus.”

Fauci conceded that he was specifically made aware by Anderson that “the unusual features of the virus” make it look “potentially engineered.”

Fauci couldn’t recall why he sent an article discussing gain of function research in China to his deputy, Hugh Auchincloss, telling him it was essential that they speak on the phone. He couldn’t recall speaking with Auchincloss via phone that day. But remarkably, Fauci did remember assigning research tasks to Auchincloss

Fauci was evasive on conversations with Francis Collins about whether NIAID may have funded coronavirus-related research in China, eventually stating “I don’t recall.”

The phrase “I don’t recall” was prominent in Fauci’s deposition. He said it a total of 174 times:

For example, Fauci couldn’t remember what anyone said on a call discussing whether the virus originated in a lab:

During that same call, Fauci couldn’t recall whether anyone expressed concern that the lab leak “might discredit scientific funding projects.” He also couldn’t recall whether there was a discussion about a lab leak distracting from the virus response. Fauci did remember, however, that they agreed there needed to be more time to investigate the virus origins - including the lab leak theory.

What else couldn’t Fauci remember? Whether, early into the pandemic, his confidants raised concerns about social media posts about the origins of COVID-19.

Yet Fauci did admit he was concerned about social media posts blaming China for the pandemic. He even admitted the accidental lab leak “certainly is a possibility,” contradicting his prior claims to National Geographic where he said the virus “could not have been artificially or deliberately manipulated.”

Fauci also couldn’t recall whether he had any conversations with Daszak about the origins of COVID-19 in February 2020, but admitted those conversations might have happened: “I told you before that I did not remember any direct conversations with him about the origin, and I said I very well might have had conversations but I don't specifically remember conversations.” And he couldn’t recall telling the media early on during the pandemic that the virus was consistent with a jump “from an animal to a human.”

Fauci said he was in the dark on social media actions to curb speech and suspend accounts that posted COVID-19 information that didn’t fit the mainstream narrative: “I’m not aware of suppression of speech on social media.” Yet it was Fauci’s proclamations of the truth, whether about the origins of COVID-19 to the effectiveness of hydroxychloroquine, that led to social media companies banning discussions of contrary information.

Regarding those removals of content, Fauci had no personal knowledge of a US Government/Social Media effort to curb “misinformation.” But he conceded the possibility numerous times.

Then there’s the issue of masks. In February 2020, Fauci informed an acquaintance that was traveling: “I do not recommend that you wear a mask.” Fauci would later become a vocal proponent of masks only two months later.

I’m near my Substack length limit - posting the excerpts does that - but you can see from Fauci’s testimony that his public statements about COVID-19 origins and the necessity to wear a mask didn’t match his private conversations. This has been known for some time, but it’s finally nice to get him on record.

Again, read it all and subscribe here.

Tyler Durden Mon, 12/05/2022 - 21:40

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International

Global Wages Take A Hit As Inflation Eats Into Paychecks

Global Wages Take A Hit As Inflation Eats Into Paychecks

The global inflation crisis paired with lackluster economic growth and an outlook…

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Global Wages Take A Hit As Inflation Eats Into Paychecks

The global inflation crisis paired with lackluster economic growth and an outlook clouded by uncertainties have led to a decline in real wages around the world, a new report published by the International Labour Organization (ILO) has found.

As Statista's Felix Richter reports, according to the 2022-23 Global Wage Report, global real monthly wages fell 0.9 percent this year on average, marking the first decline in real earnings at a global scale in the 21st century.

You will find more infographics at Statista

The multiple global crises we are facing have led to a decline in real wages.

"It has placed tens of millions of workers in a dire situation as they face increasing uncertainties,” ILO Director-General Gilbert F. Houngbo said in a statement, adding that “income inequality and poverty will rise if the purchasing power of the lowest paid is not maintained.”

While inflation rose faster in high-income countries, leading to above-average real wage declines in North America (minus 3.2 percent) and the European Union (minus 2.4 percent), the ILO finds that low-income earners are disproportionately affected by rising inflation. As lower-wage earners spend a larger share of their disposable income on essential goods and services, which generally see greater price increases than non-essential items, those who can least afford it suffer the biggest cost-of-living impact of rising prices.

“We must place particular attention to workers at the middle and lower end of the pay scale,” Rosalia Vazquez-Alvarez, one of the report’s authors said.

“Fighting against the deterioration of real wages can help maintain economic growth, which in turn can help to recover the employment levels observed before the pandemic. This can be an effective way to lessen the probability or depth of recessions in all countries and regions,” she said.

Tyler Durden Mon, 12/05/2022 - 20:00

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