From Fed to summit, emerging market traders look for clues
TRUMP SAID HE MAY SIGN ACCORD WITH KIM TO END KOREAN WAR AFTER ALMOST 70 YEARS
Emerging-market investors were tiptoeing yesterday chastened by a week that saw two surprise interest-rate hikes, a market meltdown in Brazil, Argentina’s $50 billion (Dh184 billion) loan rescue, rising fears of a trade war and the realisation that the end is nigh for stimulus in Europe.
That’s not to mention an allbut-certain rate increase by the Federal Reserve tomorrow, and potential drama tied to Donald Trump’s meeting with North Korean leader Kim Jong-un in Singapore today. The European Central Bank’s meeting on Thursday may be under more scrutiny after comments from officials last week raised speculation that the monetary authority is ready to end its asset-purchase programme.
“Nobody will be surprised if the Fed hikes,” Ahmad Behdenna, senior strategist at the multiasset team at Aviva Investors, said in an interview in Singapore. “Probably the biggest surprise is if the Fed does not do anything. We continue to think the ECB will end quantitative easing this year. The peak of easing monetary policy is behind us.”
Trump said he may sign an accord with Kim to formally end the Korean War after almost 70
Probably the biggest surprise is if the Fed does not do anything. We continue to think the ECB will end quantitative easing this year. The peak of easing monetary policy is behind us.” Ahmad Behdenna | Senior strategist, Aviva Investors
years. Progress toward easing tensions in the peninsula is likely to boost the economic outlook for South Korea and the region.
Factored in
“Some kind of tension-reducing deal is, of course, basically good news, but markets have already priced this in,” said Leon Cornelissen, chief economist at Robeco in Rotterdam. “If the summit would fail and the US would return to beating the war drums, this basically should not unsettle markets too much.”
It would be one less risk for emerging-market investors to worry about after a rising dollar exposed shortcomings in monetary policy in some emerging markets this quarter. Currencies and bonds declined for a second week in the five days through Friday, but the dollar wasn’t to blame. The Bloomberg Dollar Spot Index dropped last week for the first time mid-April.
Elsewhere, Mexican peso traders will monitor the third presidential debate, taking place today, after leftist presidential front-runner Andres Manuel Lopez Obrador widened his polling lead. In the opposite hemisphere, FIFA expects more than 3 billion people to tune in as the World Cup kicks off in Russia.
Renewed trade tensions are also on the horizon as US tariffs on $50 billion worth of Chinese imports will be completed by June 15. This could end up in “some form of tit-for-tat,” which will have significant negative implications for global growth, according to Craig Chan, the global head of emerging-market strategy at Nomura Holdings Inc. in Singapore.