Egypt protests roil the market

Egypt's political turmoil has already reached Czech financial markets, but there may be bigger problems down the road with oil and food prices, according to some analysts.

Currency markets are already reacting to the unrest in Egypt, suffering from the curse of investors who lump together emerging markets as one, said Ivona Hrušová, an analyst at Next Finance. On Jan. 28, the crown weakened to 24.24 Kč to the euro.

"Today's discouraging results from companies and the continuing unrest in Egypt have not been very kind to the emerging markets," she said. "Therefore, it isn't surprising that the neighboring Central European currencies are also declining."

While the crown lost 8 hellers against the euro on the morning of Jan. 31, it recovered and closed at 24.23 Kč by the end of the day. Head economist at Next Finance Vladimír Pikora said Jan. 31 he expects the crown to recover, thanks in part to domestic data.

"The crown will once again find the room to return to stronger levels from last week," he said. "Today's prognosis coming from the Finance Ministry was in favor of strengthening."

The ministry released a revised forecast Jan. 31 that said GDP is expected to grow 2.2 percent this year, up from its November forecast of a 2 percent growth.

The euro similarly weakened Jan. 28, as investors "threw themselves into the safe haven of the [U.S.] dollar," but recovered Jan. 31, Pikora said.

The bigger and more long-term problem that could result from the situation in Egypt will be oil prices, which will also negatively affect food prices, Pikora said Jan. 31.

The price of Brent Crude oil, the marker that prices two-thirds of the world's internationally traded oil supplies, hit $101 Feb. 1. The last time Brent Crude reached the $100 mark was in September 2008. Last December, Pikora forecasted the price per barrel to break $110.

"Back then, we had no inkling unrest would sweep across North Africa," he said. "Now, it looks like the barrel level is not a question of months, but weeks."

If the unrest spills into the Gulf states, that upward pressure could skyrocket, Pikora added.

"It would quite simply catapult the price to new dizzying heights," he said.

Food prices are higher than before the beginning of the 2008 financial crisis, and if they continue to rise too rapidly, it will mean government intervention, at a high cost to state budgets, Pikora said.

"Financial markets have become very concerned about this notion, which means all countries in the region saw their debt insurance costs soar today," he said.

Claire Compton can be reached at
ccompton@praguepost.com