Fed hike raises risk of a politics-led market downturn

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Mutual Funds ◽  
Emerging Market ◽  
Oil Prices ◽  
Economic Data ◽  
Crude Oil Price ◽  
Content Type ◽  
Political Risks ◽  
Expected Inflation ◽  
Equity Mutual Funds

Significance The probability of a rise in interest rates has shot up to around 90%, from 40% at the end of February, on stronger-than-expected inflation and economic activity. In the euro-area, the surge in headline inflation to 2% in February and a series of robust purchasing managers’ index (PMI) surveys are putting pressure on the ECB to begin debating an exit from quantitative easing (QE). The stronger economic data is outweighing mounting political risks, particularly the uncertainty surrounding the outcome of France’s presidential election. Impacts Emerging market (EM) assets are benefiting from global reflation, with EM bond and equity mutual funds enjoying strong inflows in 2017. Oil prices are under strain again owing to renewed supply concerns, with the Brent crude oil price dropping to around 51 dollars per barrel. The dollar index has risen since end-January in response to stronger US economic data and further upside is likely. Higher US rates, a strong dollar and lower oil prices increase risks in EMs heavily reliant on dollar-denominated debt.

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.

US rates may rise but economic risks are rising faster

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Sovereign Debt ◽  
Emerging Market ◽  
Content Type ◽  
Political Risks ◽  
Bond Yield ◽  
Treasury Bond ◽  
The Face ◽  
Equity Index

Subject Global equity market trends. Significance The four main US stock market indices began March at record highs, including the benchmark S&P 500 index at 2,400. Driven by expectations of stimulative and pro-business policies under the new US administration, equity markets are flying in the face of signals from the Federal Reserve (Fed) that interest rates will rise three times this year. The probability of a hike at the Fed’s March 14-15 meeting has risen above 80% on growing price pressures and stronger economic data, buoyed by hawkish comments from several Fed governors, including those who were previously dovish. Impacts Despite the post-election US bond market sell-off, around one-third of the stock of euro-area sovereign debt remains negative yielding. The gap between the two-year US Treasury bond yield and its German equivalent has widened to a record, a sign of rising monetary divergence. The euro lost 2% against the dollar in February as political risks escalated in the euro-area, centred around the French election. The emerging market MSCI equity index is 8.6% up this year, after losing 4.5% from November 9 to end-2016, a sign of higher confidence.

Russian stock market is unlikely to repeat 2019 gains

2020 ◽  
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Stock Exchange ◽  
Emerging Market ◽  
Oil Prices ◽  
Output Growth ◽  
Private Firm ◽  
Annual Growth ◽  
Content Type ◽  
Russian Stock Market

Subject The Russian stock market. Significance The Russian stock market offered high returns last year, as the Moscow stock exchange posted the highest annual growth of any of its emerging-market peers. The momentum carried over into January and the market reacted positively to a change in government, but the spread of the new coronavirus hit global oil prices. Impacts Low and declining Russian interest rates will encourage further investment inflows into equities. New IPO issuance will improve large firms' financial firepower. Output growth by Novatek should keep it in top position as Russia's most valuable private firm.

Fed tightening deepens monetary policy rifts worldwide

2017 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Oil Prices ◽  
Inflation Expectations ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Political Risks ◽  
Bank Of England

Subject US tightening continued this month despite lower inflation expectations. Significance Monetary policy rifts have deepened since the decision by the Federal Reserve (Fed) on June 14 to raise interest rates for the second time this year despite inflation easing and oil prices falling below 45 dollars per barrel. Growing discord between central banks and bond markets has spread to the Bank of England (BoE), where three of the eight committee members disagreed with the June 15 decision to keep rates on hold despite inflation spiking to its highest since June 2013. The ECB and the Bank of Japan (BoJ) are also under pressure to set out plans to wind down their quantitative easing (QE) programmes. Impacts ‘Reflation trading’ continues to unwind; the world stock of negative-yielding government bonds has surged to nearly 10 trillion dollars. US equity markets are hovering near records despite a plethora of vulnerabilities, including lower oil prices and rising political risks. Emerging markets (EM) inflows continue to surge, but higher US rates may force EMs to raise rates before they are ready, hitting activity. The divergence between rising US rates and ultra-loose ECB and BoJ policy will cushion the dollar, protecting it from rising US risks.

Policy risks will dog Europe's emerging markets

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Latin American ◽  
Emerging Market ◽  
Government Bond ◽  
Bond Yields ◽  
Content Type ◽  
Policy Regimes ◽  
Political Risks ◽  
European Economies

Subject Political and policy risks in Emerging Europe. Significance Although the currencies and government bond yields of Central European economies remain stable, the region's equity markets are coming under increasing strain, partly because of political risk. However, strong demand for Turkish local debt suggests there is still appetite for higher-yielding emerging market (EM) bonds. Impacts The recovery in oil prices is helping underpin favourable sentiment towards EMs despite persistent vulnerabilities and risks. Waning confidence in the efficacy of monetary policy will increase investors' sensitivity to political risks in EMs. This is particularly the case if these risks undermine the credibility of countries' policy regimes. Many Latin American economies have been forced to hike interest rates to counter a surge in inflation. By contrast, historically low inflation lets Central-Eastern Europe's central banks keep monetary policy ultra-loose.

The optimal thermal causal path analysis on the relationship between international crude oil price and stock market

Kybernetes ◽  
2018 ◽  
Vol 47 (6) ◽  
pp. 1242-1261 ◽  
Author(s):  
Can Zhong Yao ◽  
Peng Cheng Kuang ◽  
Ji Nan Lin
Keyword(s):  
Stock Market ◽  
Crude Oil ◽  
Stock Markets ◽  
Oil Prices ◽  
Oil Price ◽  
Chinese Stock Market ◽  
Crude Oil Price ◽  
Content Type ◽  
Crude Oil Prices ◽  
Causal Path

Purpose The purpose of this study is to reveal the lead–lag structure between international crude oil price and stock markets. Design/methodology/approach The methods used for this study are as follows: empirical mode decomposition; shift-window-based Pearson coefficient and thermal causal path method. Findings The fluctuation characteristic of Chinese stock market before 2010 is very similar to international crude oil prices. After 2010, their fluctuation patterns are significantly different from each other. The two stock markets significantly led international crude oil prices, revealing varying lead–lag orders among stock markets. During 2000 and 2004, the stock markets significantly led international crude oil prices but they are less distinct from the lead–lag orders. After 2004, the effects changed so that the leading effect of Shanghai composite index remains no longer significant, and after 2012, S&P index just significantly lagged behind the international crude oil prices. Originality/value China and the US stock markets develop different pattens to handle the crude oil prices fluctuation after finance crisis in 1998.

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.

Central bank action will drive global equity markets

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Equity Markets ◽  
Economic Data ◽  
Equity Prices ◽  
Monetary Policies ◽  
Content Type ◽  
Market Sentiment ◽  
The Us ◽  
Us Monetary Policy

Significance This volatility is driven by expectations of further monetary stimulus in response to a slowing economy. Despite persistent concerns about the fallout from the anticipated tightening in US monetary policy and many country-specific risks, such as the standoff between Greece and its creditors, equity market sentiment remains supported by accommodative monetary policies worldwide and expectations of the US monetary policy tightening being gradual. Impacts Market volatility could increase further, as better-than-expected economic data in the euro-area vies with weaker-than-anticipated US data. Decoupling of surging equity prices and weak economic fundamentals threatens the rally's sustainability, increasing scope for volatility. This decoupling is most pronounced in China, where weak economic data prompt buying of equities in anticipation of stimulus measures. The greatest risk in equity markets is uncertainty surrounding US interest rates and their impact on emerging markets.

Central Europe external risks still outweigh internal

2017 ◽  
Keyword(s):  
Mutual Funds ◽  
Central Europe ◽  
Federal Reserve ◽  
Political Crisis ◽  
Checks And Balances ◽  
Content Type ◽  
Political Risks ◽  
The Us ◽  
Asset Purchases ◽  
Law And Justice

Significance Investors are brushing off mounting political risks in Poland despite an erosion of democratic checks and balances under the nationalist Law and Justice (PiS) government. In Romania, despite the rapidly escalating political crisis, the leu has strengthened slightly against the euro since the start of this year, since when the yield on benchmark ten-year Romanian local bonds has risen by 25 bps to 3.6%. This is still significantly below the 5% level before the ‘taper tantrum’ in mid-2013, which stemmed from the unexpected decision by the US Federal Reserve (Fed) to end its asset purchases. Impacts After post-US election outflows, EM mutual funds are once again enjoying sizeable inflows, with EM debt funds reaching a four-month high. Some of the strain on EM currencies will be relieved by the 2.5% fall in the dollar index against a basket of its peers since end-December. Smaller export-led CEE economies will benefit from factory orders in Germany rising in December at their fastest pace in 30 months.

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