May 29th, 2008

Hu Jintao met with Wu Poh-hsiung, chairman of the KMT



Moodys said that high c/a deficits and rapid credit growth hurting Eastern Europe, mainly HUF, Lithuania, and Latvia

- 11 countries currently in the "danger" zone, including Iceland

- Romania, Poland, Croatia could face medium landings

- Iceland, Estonia, Bulgaria, Kazakh, and Czech all strong

- Romania and Hungary could have trouble refi their debt due to low investor bases



South Africa

April at 12.4% vs 11.9% in March; more speculation of greater than 50bp in 12Jun

Mboweni said as much as 200bp possible; "we need to move very strongly now. Drastic situations require drastic measures"

- "you dont have to be a genius to tell that interest rates have to tighten"

- said post-Mbeki administration woul dlikely retain inflation targeting

- "a central bank that misses its target for a long time loses its credibility. a central bank has to tighten in that case"

- should be in line with trading partners like EU if we "want to be in the big leagues"

Eskom said would be comofrotable with "phased adjustments" to electricity tariffs

- said power shortages will go on for years

- proposal to double prices over 2 years, facing opposition from ANC and labor allies => will hurt poor

Does higher rates help or hurt ZAR

- short term is positive for currency

- medium term equities will hold more weight

- relying on higher rates to attract capital means will be much more sensitive to market sentiment and swings

levels: 7.6194 20day; 7.6304 30day, 7.6616 100day, 7.6210 50% fib, 7.5820 38.2% fib





Vietnam

Debt rating lowered from stable to negative, and affirmed BB- long term currency rating

Govt said "too negative", unhappy with outlook change

- "we will accept slower growth with fighting inflation a priority now. They should give govt credit for its efforts"

USD denominated loans account for about 1/4 of outstanding loans, fall in dong make repayment more expensive

Main stock mkt "Ho Chi Minh City Stock exchange" closed on 27May from 'technical problems' will repoen tomorrow, had declined 16 straight days before closure



Thailand

THB fell to lowest as energy costs will widen trade deficit and slow growth

Govt aims to cap inflation at 5% in '08, was up 6.2% in April, highest since '05

Trade deficit in April was widest in 12 years as Thailand imports all of its oil



Russia

CB may allow RUB to rise as much as 1% against ccy basket to curb inflation

Bank said on 14May would inject volatility with small, unpublicized interventions to deter speculators



Iceland

CB may raise rates past record 15.5% after slump in Krona fed through to inflation faster than expected

- soared to 12.3% in May, highest in 18years

- very clear inflation will exceed banks 10.7% and 9.9% forecasts for 3rd and 4th qtr

- CB forecast -2.5% and -1.5% contractions in '09 and '10

- inflation has exceeded banks 2.5% target every month since april '04

- international market turmoil makes financing a c/a deficit more difficult