Emerging Europe will weather storm from China

2016 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Developing Economies ◽  
Investor Sentiment ◽  
Content Type ◽  
Central Eastern Europe ◽  
Downward Pressure ◽  
Inflation Rates ◽  
Bond Funds ◽  
Primary Determinant

Significance The currency and debt markets of Central-Eastern Europe (CEE) are proving resilient to fallout from the turmoil in China's financial markets, now the primary determinant of investor sentiment towards developing economies. Negligible trade linkages with China and liquidity support from the ECB are helping underpin favourable sentiment towards the region. Impacts EM equity and bond funds will continue to suffer outflows, following record bond redemptions in 2015, which continued into early January. The dramatic slide in oil prices is putting further downward pressure on CE inflation rates; there is outright deflation in Poland. Hungary is mulling further cuts in interest rates. Despite Turkey's favourable status as a major oil importer, its currency has plunged by 31% against the dollar over the past year. For CE, the lower the oil price, the greater the likelihood of further ECB stimulus, buoying local bonds and currencies further.

Emerging Europe markets will be strong in 2016

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Developing Economies ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Commodity Prices ◽  
Oil Prices ◽  
Content Type ◽  
Central Eastern Europe ◽  
Equity Funds

Subject The prospects for Emerging Europe assets. Significance Despite record levels of outflows from emerging market (EM) bond and equity funds in 2015, the financial markets of Central-Eastern Europe (CEE) have remained remarkably resilient. They are likely to continue to outperform those of Latin America and Emerging Asia next year, because of a combination of relatively strong fundamentals and liquidity support from the ECB. Impacts Investor sentiment towards developing economies is now shaped almost entirely by dramatic declines in commodity prices. US monetary policy will now prove secondary to the plunge in oil prices. Growth in the CEE region picked up significantly this year and is still expected to remain relatively robust in 2016.

ECB's QE will buoy EM bond markets

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Developing Economies ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Central Banks ◽  
Capital Inflows ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Content Type ◽  
Large Current

Subject Opposite forces are shaping investor sentiment towards EM assets. Significance Investor sentiment towards emerging market (EM) assets is being shaped by the conflicting forces of a strong dollar and the launch of a sovereign quantitative easing (QE) programme by the ECB. While the latter is likely to encourage investment into higher-yielding assets, such as EM debt, the former will keep the currencies of developing economies under strain, particularly those most sensitive to a rise in US interest rates due to heavier reliance on capital inflows to finance large current account deficits, such as Turkey and South Africa. Impacts EM bonds will benefit from ECB-related inflows, while the strength of the dollar will keep local currencies under strain. Higher-yielding EMs will benefit the most from the ECB's bond-buying scheme since they provide the greatest scope for 'carry trades'. The collapse in oil prices is forcing EM central banks to turn increasingly dovish, putting further strain on local currencies.

Ultra-loose monetary policy will soon run its course

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Interest Rates ◽  
Mutual Funds ◽  
Investor Sentiment ◽  
Central Banks ◽  
Target Range ◽  
Content Type ◽  
Equity Mutual Funds

Significance Expectations that the Fed will refrain from hiking its benchmark rates from its target range of 0.25-0.5% and that the Japanese central bank will provide further stimulus are suppressing volatility in financial markets and fuelling demand for risk assets. However, evidence that "overburdened" monetary policy is losing its efficacy triggered a sell-off in bonds and equities on September 9, increasing the scope for sharper price falls as investors worry that central banks have run out of ammunition. Impacts Services expanded in August at their slowest pace since 2010, making it less likely that the Fed will raise interest rates this month. EM bond and equity mutual funds have enjoyed a surge in inflows since the Brexit vote as yield-hungry investors pour money into risk assets Oil, a key determinant of investor sentiment, will stay below 50 dollars/barrel unless major producers agree measures to stabilise prices.

Commodities rout will fuel EM concerns and volatility

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Emerging Market ◽  
Commodity Prices ◽  
Content Type ◽  
Bear Market ◽  
Political Crises ◽  
Downward Pressure ◽  
Advanced Economies ◽  
Country Specific

Significance This drop has taken oil into its second bear market in the space of just over a year amid a broader rout in the prices of commodities, notably copper and gold. The commodity sell-off is fuelled by mounting concerns over the economy and financial markets of China, the world's top crude importer and its largest energy user. The sell-off is exacerbated by fears over the fallout from a US interest rates rise, which could come as early as September. Country-specific risks are weighing on emerging market (EM) assets, notably the currencies of large commodity exporters such as Brazil and Russia. Impacts The sharp fall in commodity prices will exert further downward pressure on inflation in both emerging and advanced economies. Re-emerging disinflationary trends will bode ill for the ECB efforts to boost inflation in the euro-area. The commodity sell-off will exacerbate economic and political crises in Brazil and Russia. The EM currencies fall is forcing many central banks to signal an end to monetary easing or to tighten policy.

CEE's own risks pose a greater threat than China

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Latin American ◽  
Investor Sentiment ◽  
Government Bonds ◽  
Content Type ◽  
East European ◽  
Asset Class ◽  
Trade And Financial Linkages ◽  
Better Than

Subject CEE markets' resilience to China-induced sell-off. Significance While investor sentiment towards emerging markets (EMs) has deteriorated further because of mounting concerns about China's economy and financial markets, the currencies and government bonds of the main Central-East European (CEE) economies have proved remarkably resilient. Even equity markets, which have suffered sharp falls across the EM asset class, have fared better than in other regions, with Polish, Hungarian and Czech stocks falling by 5.0-6.0% in dollar terms in August, compared with 10.0% and 9.5% for emerging Asian and Latin American shares, respectively. CEE markets' resilience stems from the region's negligible trade and financial linkages to China, relatively strong fundamentals and the sentiment-boosting effects of the ECB's programme of quantitative easing (QE). Impacts EMs' significantly stronger fundamentals make comparisons between the current China-led sell-off and earlier crises in the 1990s misleading. There will continue to be a strong correlation between CEE financial markets and price action in the euro-area. The ECB's full-blown QE should help mitigate the adverse effects of a rise in US interest rates. Very high foreign participation in Polish and Hungarian government debt poses a risk should sentiment towards EMs deteriorate more sharply.

Turkey looks to ride out financial assets volatility

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Banking Sector ◽  
Investor Sentiment ◽  
Military Coup ◽  
Bond Markets ◽  
Financial Assets ◽  
Content Type ◽  
Inflation Rates ◽  
Government Bond Markets ◽  
Global Government

Significance The Central Bank is expected to keep its main interest rates on hold, despite the lira continuing to fall sharply against the dollar and headline and core inflation rates that are more than 2 percentage points above the TCMB's 5% target. The toxic combination of an escalation in the crackdown following the botched military coup in July and, crucially, a sharp deterioration in investor sentiment towards emerging markets (EMs) since Donald Trump's election as US president have put Turkish assets under renewed strain. Impacts EMs are currently on the sharp end of a fierce sell-off in global government bond markets. Investors are repositioning their portfolios in anticipation of more aggressive hikes in interest rates during a Trump presidency. The sell-off comes amid improving EM fundamentals, unlike the 'taper tantrum' after the Fed unexpectedly shrank asset purchases in 2013. Turkey's creditworthiness will continue to suffer after the botched military coup. Limiting the scope for a full-blown financial crisis is its banking sector, among the emerging world's best capitalised and most resilient.

Monetary tightening will spread through Central Europe

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Central Europe ◽  
Developing Economies ◽  
House Prices ◽  
Investor Sentiment ◽  
Political Crisis ◽  
Content Type ◽  
Equity Funds ◽  
National Bank ◽  
Economic Outlook

Subject Central banks’ divergent monetary policy stances in Central Europe. Significance The Czech National Bank (CNB) has raised interest rates twice in three months and plans further hikes in the coming months, as surging wages and house prices fuel inflationary pressures. The Hungarian National Bank (MNB) continues to ease policy as inflation remains below its 3% target. The National Bank of Romania (NBR) is preparing to raise rates as the economy overheats, but the National Bank of Poland (NBP) is in no hurry to tighten policy, owing to persistently low core inflation. Impacts Emerging markets are now suffering outflows, with investors withdrawing money from local currency debt and equity funds. Dearer Brent crude will fuel inflationary pressures and contribute to the more positive economic outlook for developing economies. Germany’s political crisis is having only a muted impact on investor sentiment towards Germany and the euro-area. This will help underpin favourable market conditions in both the single currency area and Central Europe.

Hungary's return to investment grade is likely in 2016

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Euro Area ◽  
Credit Rating ◽  
Investor Sentiment ◽  
Content Type ◽  
East European ◽  
Rating Agencies ◽  
The Core ◽  
Investment Grade

Significance Moody's, another agency which also rates Hungary one notch below investment grade, has just raised its outlook on Hungary's rating to 'positive' from 'stable'. Hungary's financial markets are closely correlated with those of the core of the euro-area and are benefiting from heightened expectations that the ECB will provide a further burst of monetary stimulus at its next policy meeting on December 3. Impacts Financial markets have already 'priced in' the credit-rating agencies' assessments so other factors will drive investor sentiment changes. Forex-denominated mortgages are considered to be one of the main sources of financial vulnerability in Emerging Europe. Hungary is the only Central-East European (CEE) country to have resolved this vexed issue. CEE is the EM region likely to benefit the most from aggressive ECB monetary stimulus offsetting the fallout from higher US interest rates.

Market conditions will outweigh Polish political risk

2017 ◽  
Keyword(s):  
Emerging Markets ◽  
Financial Markets ◽  
Interest Rates ◽  
Rule Of Law ◽  
Developing Economies ◽  
Emerging Market ◽  
Content Type ◽  
The Rule Of Law ◽  
Low Interest Rates ◽  
The Impact

Subject The impact of the European Commission decision to escalate the ‘rule of law’ procedure against Poland to its third and final stage. Significance The escalation in tensions between Warsaw and Brussels over reforms that threaten the independence of Poland’s judiciary is having a muted impact on sentiment in financial markets. More important are investors’ bullish stance on emerging markets (EM), and expectations that the ECB is in no rush to withdraw monetary stimulus. Impacts The dollar index against other currencies has fallen to its lowest level since May 2016, providing a major fillip to emerging market assets. Sentiment towards developing economies is buoyed by the prospect of persistently low interest rates. The severe escalation in US-North Korean tensions is having only a muted impact on financial markets, judging by the Vix Index ‘fear gauge’.

Testing fisher effect for the USA: application of nonlinear ARDL model

2019 ◽  
Vol 12 (2) ◽  
pp. 293-304
Author(s):  
Serdar Ongan ◽  
Ismet Gocer
Keyword(s):  
Interest Rates ◽  
Linear Representation ◽  
Fisher Equation ◽  
Fisher Effect ◽  
Ardl Model ◽  
Content Type ◽  
Nonlinear Ardl ◽  
Inflation Rates ◽  
Nonlinear Ardl Model ◽  
The Usa

Purpose This paper aims to investigate the presence of the Fisher effect for the USA from a new methodological perspective differing it from all previous studies using the common linear representation of the Fisher equation. Design/methodology/approach The nonlinear ARDL model, recently developed by Shin et al. (2014), is applied for the 10-year US Government bond rates over the period of 1985M1-2017M10. Findings The empirical findings indicate that the US Federal Reserve (FED) is a more predominant arbiter in the determination of interest rates during periods of declining inflation rates than periods of rising inflation rates. This finding may allow the FED to apply more proactive and prudent monetary policy. Additionally, this study newly describes and introduces a different version of the partial Fisher effect and extends the Fisher equation to some degree in terms of the partial Fisher effect. Originality/value To the best the authors’ knowledge, this method is applied for the first time in testing the Fisher effect for the USA.

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