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Morning Commentary: Investors digest ECB news; South Korean leader impeached; Turkey eyed
By Christine Van Dusen
Atlanta, Dec. 9 – South Korea stepped into the spotlight on a Friday that saw emerging markets investors digesting the news that the European Central Bank will slow but extend quantitative easing.
“The extension would add a total of €540 billion to its current €1.7 billion stimulus, making the size of the program double what the ECB initially announced in January 2015,” according to a report from Schildershoven Finance BV. “Policymakers also kept the main refinancing rate at zero.”
Meanwhile, South Korea’s parliament voted to impeach president Park Guen-hye. Prime minister Hwang Kyo-ahn will take over while a court decides if the impeachment can be made permanent. That ruling could take up to six months to complete.
“If approved, fresh elections will have to be called within two months,” according to a report from Commerzbank. “The lack of an administrative leadership comes at a time when the economy is facing increasing challenges on both the external and domestic front. We see downside risks to our growth forecast of 2.8% and 2.9% for 2016 and 2017.”
This comes as South Korea faces a contracting bond market, with high yields stemming from the uncertainty created by Donald Trump’s presidential win. In response, the sovereign’s financial regulatory commission is looking to restart its bond stabilization fund.
Looking to Turkey, the government is planning some measures to support the economy, according to a report from Schildershoven Finance.
“The government will help commercial banks lend up to an additional 250 billion liras,” the report said. “It will be the guarantor for up to 100% of new commercial loans that will be taken out by exporters and small and medium-sized enterprises.”
This move is designed primarily to “strengthen the non-financial sector’s access to credit,” the report said.
But the measures don’t include direct cash injections, so the impact on the market is likely to be limited, the report said.
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