How significant is Jay Powell’s U-turn for emerging markets?Pretty significant. The US Federal Reserve chair’s change of direction last Wednesday, when he indicated the Fed would hold off more rate rises, gave an extra lift to what was already shaping up to be the best month for emerging market bonds since 2016.Over the past year, the combined forces of US interest rates, the dollar, and dollar liquidity have driven EMs. They had a torrid time for the first three quarters of last year.While the Fed continued dialling up interest rates, the dollar strengthened and the central bank began to offload some of the assets it bought following the financial crisis, in a process known as “quantitative tightening” (QT). That began to change in the fourth quarter.Although QT was widely seen as on autopilot at $50bn a month, the Fed “introduced some flexibility” to the outlook on interest rates, said Paul Greer, portfolio manager for EM debt … [Read more...] about Market questions: Will the Fed’s U-turn boost emerging markets?
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SPARE A THOUGHT for emerging markets. When America’s economy falters, they often share the pain, because America is an indispensable market for their goods. But when America’s economy prospers, they can also suffer, because the Federal Reserve will raise interest rates, lessening demand for emerging-market assets. Get our daily newsletter Upgrade your inbox and get our Daily Dispatch and Editor's Picks. This catch-22 was vividly illustrated in 2018. America’s economy expanded robustly. But this boost to global demand was overshadowed by the Fed’s response to it: four rate increases that wreaked havoc on overvalued currencies and overstretched economies in the emerging world. An index of emerging-market equities compiled by MSCI fell by almost 17% over the year. Emerging markets were therefore relieved by reassurances offered by Jerome Powell, the Fed’s chairman, on January 4th. He emphasised that American inflation remained “muted”, that … [Read more...] about For emerging markets, a more fearful Fed is a less frightful one
Louise Cooper 6 October 2018 9:00 AM 6 October 2018 9:00 AM Share Twitter Facebook LinkedIn Email Whatsapp This year has been bad for investors in emerging markets. The MSCI index has dropped around 20 per cent since January — the definition of a bear market. Does that mean it’s time to get in ready for an emerging markets rebound? Or to remember the widely used stock market adage about not trying to catch a falling knife? Turkey had an attempted military coup, then a vicious political crackdown. China is slowing although no one knows by how much (the official data is questionable). Venezuela is experiencing inflation at more than 80,000 per cent after its ‘failed socialist experiment’. Argentina has been an economic disaster for years. There are many reasons for investors to shun emerging markets: over-indebtedness, weak commodity prices (emerging economies tend to be exporters of commodities), political failures, corruption and … [Read more...] about Has the tide turned on emerging markets?
A U.S. 10-year bond yield at 5 percent? Emerging markets positioned for any such possibility are being handsomely rewarded. Over the last month, Indonesia and the Philippines were among the world’s best-performing stock markets, with the Jakarta Composite Index gaining about 6 percent and the Philippine Stock Exchange PSEi Index up more than 9 percent.Some of this could be a relief rally, because both markets were battered earlier in the year, but the hawkish stance of those nations’ central banks helped. Bank Indonesia has increased the benchmark rate by a full percentage point over the past three months, including a bigger-than-expected half-point hike on June 29. The Philippine central bank pushed its rate up a half-point this year and is expected to raise by another 50 basis points at an Aug. 9 meeting.One can argue that Indonesia and the Philippines are insulated … [Read more...] about Why Emerging Markets Need to Keep Pace With the Fed
All you really need to know about the current state of markets was on display Tuesday. U.S. stocks rallied as Federal Reserve Chairman Jerome Powell suggested that the central bank is willing to slow the pace of interest-rate increases if needed. The dollar rallied as currency traders focused on Powell's comment that the Fed will continue to gradually raise rates. So, which is it? Don't look to the bond market for the deciding vote: Treasuries were basically flat on the day. Investors are being buffeted by any number of crosscurrents that are making it harder than usual to make informed decisions. Yes, U.S. economic growth is accelerating and corporate profits are booming, but inflationary pressures, geopolitical risks and — most importantly — escalating trade tensions threaten the outlook. Bank of America Merrill Lynch’s July global fund manager survey released on Tuesday showed that a majority of investors worldwide believe a trade war is the greatest risk … [Read more...] about Markets Hear What They Want to Hear From Powell