Asian equity markets have had a rocky start to the first full week of trading in 2008 after weak US employment data strengthened fears over a recession this year. The US Labor Department announced that job creation in December was at a 2-year low with only 18,000 positions added, considerably below the expected 70,000, pushing unemployment to 5%. Hong Kong’s Hang Seng index sank 2.7%, and Tokyo’s Nikkei index slipped 1.3%. While domestic consumption in Asia remains strong, intra-regional trade is overwhelming geared towards the US, prompting the losses.
The full extent of price instability in 2007 is confronting emerging market central banks at the start of the new year. In Chile, food and energy costs pushed annual inflation to a 12-year high of 7.8% for 2007. In Ukraine, year-on-year inflation in 2007 was 17% compared with 12% at the end of 2006. What’s more, Brazil’s general price index (IPCA) posted an annual inflation rate of 7.75%, more than double the 3.83% recorded in 2006. Inflationary pressure will remain strong for the foreseeable future, prompting a tightening bias in the emerging world in contrast to central banks in developed markets. Analysts say these developments should make EM carry trades attractive for investors, although local market bonds may lose value.
Venezuela’s finance minister Rodrigo Cabezas has resigned in order to run as governor in the province of Zulia in the upcoming elections. Rafael Isea, a former army officer and country representative to the Inter-American Development Bank, has replaced him. This is the part of a broader cabinet reshuffle after President Hugo Chavez’s constitutional referendum defeat in December. Analysts say Isea has a history of complying with politically-directed policy positions, and no change in economic management is expected.
Mikhail Saakashvili has been re-elected Georgian president with 52.8%, election officials have announced. Saakashvili called the election in an attempt to bolster his legitimacy after his imposition of a state of emergency during violent opposition protests last November. His victory, declared free and fair by international observers, should boost the so-called Rose Revolution that swept the president to power on his pledge to democratize the nation and revitalize the economy. But it is unclear how far Saakashvili will be able to deliver on his promise to strengthen ties with Nato and the EU, given Russian diplomatic pressure to prevent Georgia moving too far into the Western sphere of influence.