Assets decline as Fed tightens policy

Emerging market assets declined sharply on the announcement that the US Federal Reserve would introduce an interest rate increase, coupled with a more hawkish position than expected for the coming year.

“This is a Fed that could be tighter than we thought. That’s what really moved the market," said Mohamed El-Erian, the chief economic adviser at Allianz SE.

The Federal Reserve increased borrowing costs by 25 basis points and laid out a steeper forecast for 2017, worrying investors.

Emerging markets could be negatively impacted by this as higher dollar rates reduce proclivity for risker assets.

The Kingdom of Saudi Arabia, Qatar, Kuwait, the United Arab Emirates, and Bahrain raised interest rates following the Federal Reserve's announcement.

The MSCI Emerging Market Index declined 1.6 per cent, while the MSCI Emerging Markets Currency Index declined 0.9 per cent.

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Read more at Bloomberg.

 

China holds fate of Emerging Market currencies

Emerging market investors are looking to China as the US Federal Reserve becomes more hawkish with interest rates.

Despite recent global economic uncertainty, China has managed to handle the depreciation of the yuan to prevent an even larger flight of risky currencies.

The announcement by the Federal Reserve was immediately met by declining emerging market currencies all over the word, from South Korea's won to India's rupee. The yuan depreciated as well, but not as low as analysts expected.

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“If they were to allow the yuan to weaken at a faster pace than we have come to expect, that would definitely put pressure on other Asian currencies. To make another major change to the way the currency is managed now would confuse markets and lead to further volatility. It would be very disruptive," said Khoon Goh, head of regional research at Australia & New Zealand Banking Group Ltd.

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The MSCI Emerging Markets Currency Index declined the most since 2012 in August of 2015 when the People's Bank of China let the yuan depreciate to its lowest in two decades.

Many investors think, however, China may no longer play the role of currency-market stabilizer.

Read more at Bloomberg.

 

 

Stocks rise on ECB movements

Emerging market stocks rose the most in a month after the European Central Bank (ECB) signaled it would unveil a new stimulus package.

The MSCI Emerging Markets Index gained 1.4 per cent, its largest growth since early November.

The MSCI Emerging Markets Currency Index gained 0.2 per cent, a significant gain since experiencing lows earlier in the week.

The ECB's Governing Council said it would slow the pace of its bond-buying program in April to $60 billion euros from the current pace of $80 billion euros.

"The statement is pretty open-ended and leaves the possibility of increased size or duration later if needed. Also the amount of purchases is lower but for longer. There may be a short-term impact as the market digests the news but overall it should not derail the emerging-market story,” said Shamaila Khan, a money manager at AllianceBernsteinLP.

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Read more at Bloomberg.

Study reveals Nordic countries closer to Emerging Markets

A recent study by the Global Child Forum and the Boston Consulting Group revealed the Nordic region's companies were behind global competitors in regards to protecting children's rights.

The Nordic region scored 2.0 out of a maximum 9.0, closer to countries in Southern Africa and Southeast Asia than European counterparts.

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Historically, Nordic countries have an exemplary reputation for protecting children's rights within their borders. Outside of the borders, however, is another issue as of late. Retailers such as Hennes & Mauritz AB have found child workers in their suppliers. Other companies, such as Stora Enso Oyj, have found child labor in suppliers in countries such as Pakistan.

“Leadership in this area begins when business understands how children interact in their value chain, include children’s rights in their code of conduct and ensure that the highest level of company management is accountable,” said Fiona Rotberg, research director at Global Child Forum and one of the authors of the report.

Read more at Bloomberg.

Brazil real strengthens

Brazil's real strengthened after a weekend of mass demonstrations refrained from directly targeting President Michel Temer.

The real strengthened 0.5 per cent after sharp a 1.7 per cent decline last week.

Protestors took to the streets in Brazil to rail against corruption and a recent congressional vote seen by many as a move to curtail wide graft investigations.

Investors had feared that the weekend protests would focus on Temer, which would have severely impacted his administration's efforts to rally support for austerity measures. Temper's approval rates remain near record lows.

"Protesters can demonstrate against Congress. As long as they don't demonstrate against the government, the market will remain calm," said Thiago Castellan, a trader with Renascença
brokerage.

Across broader emerging markets, currencies remained calm as investors dismissed the resignation of Italian Prime Minister Matteo Renzi following a referendum defeat regarding constitutional reform.

Read more at Reuters.

 

Turkish inflation down

Turkey's inflation eased due to a slowdown in consumer prices in November, yet the central bank is still pressured to maintain strict monetary policy after recent months saw the lira decline to rates previously unseen.

The annual inflation rate declined 7 per cent, mostly due to low food prices.

Meanwhile, the central bank is headstrong in the maintenance of high borrowing costs, a policy put in place in November to stem the steep depreciation of the lira.

President Recep Tayyip Erdogan has pressured the bank to cut borrowing costs, as investors are concerned that central bank policy makers will continue to introduce more rate increases.

“The weaker lira will take its toll on prices from December, when consumer inflation will likely start accelerating again. If inflation is an indicator, Turkey needs to increase interest rates, but it will prove to be difficult because of concerns over growth," said Enver Erkan, Kapital FX economist.

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Despite recent policy changes, the lira declined 0.4 per cent to 3.5354 per US dollar. It has declined 11 per cent over the past month, the most among all emerging markets.

“For now, the lira is likely to remain the key driver of interest rate decisions in Turkey. But at the margin, today’s data, which are likely to be followed by the release of extremely weak third-quarter gross domestic product figures next Monday, may prompt the central bank to leave interest rates on hold," said William Jackson, senior emerging markets economist at Capital Economics.

Read more at Bloomberg.