Something Just Snapped In Saudi Arabia

• Something Just Snapped In Saudi Arabia
  by Tyler Durden, www.zerohedge.com  
  Following yesterday’s budget (deficit) and the ‘sacrifice-the-people’s-comfort-for-the-death-of-US-Shale’ plan that we detailed here, it appears market concerns about Saudi Arabia’s forward-looking health are rising. As Bloomberg reports, USDSAR 12-month forwards jumped 250pts (the most since December 2007) to 725bps (the highest level since March 1999) implying expectations of a looming de-pegged, devaluation. Perhaps just as worrying is this is the same pattern that played out in August as Yuan weakness sparked HIBOR stress, leading to SAR forward weakness and then US equity market collapse.
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  Be that as it may, the Saudis are boxed in as long as they insist on, i) keeping oil prices depressed, ii) maintaining the riyal peg, and iii) holding subsidies steady. If something doesn’t give with at least one of those imperatives, then the kingdom will continue to burn through its SAMA reserves which fell by $12.55 billion in November from October.
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  But now it seems the market is pricing in the probability of breaking the peg too…
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  Saudi Riyal Forwards blew wider (implying weaker Riyal relative to the USD) by the most since 2007 and to the weakest since 1999… (chart top of post)
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  And, more worryingly, we have seen this pattern of global pass the illiquidity hot potato contagion before…
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  read more.

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