Fed and ECB will ease Central European policy dilemmas

2019 ◽  
Keyword(s):  
Central Europe ◽  
Developing Economies ◽  
Emerging Market ◽  
Bond Yields ◽  
Treasury Bonds ◽  
Government Bonds ◽  
Content Type ◽  
Market Index ◽  
Dramatic Decline ◽  
Push Down

Subject Impact of global policy shifts on monetary policy in Central Europe. Significance The dramatic decline in euro-area government bond yields has helped push down yields across Central Europe, with bond markets now pricing in interest rate cuts in the Czech Republic, only a month after the Czech National Bank (CNB) increased borrowing costs to 2%. However, the scope for monetary stimulus in Central Europe is limited, thanks to inflationary pressures. Impacts MSCI’s index for Polish, Hungarian and Czech equities is rising, despite a slight loss for the broader emerging market index. Government bonds are rallying sharply in both developed and developing economies as ten-year US Treasury bonds fall. The Brent crude international oil benchmark has reached 65 dollars/barrel thanks to escalating US-Iranian tensions and dollar weakness.

Amid many unknowns, EM assets will remain strained

2017 ◽  
Keyword(s):  
Emerging Market ◽  
Treasury Bonds ◽  
Government Bonds ◽  
Content Type ◽  
Bond Yield ◽  
The Us ◽  
Equity Funds ◽  
Treasury Bond ◽  
Mexican Peso ◽  
Bureau Of Labor Statistics

Subject Emerging markets under strain from dollar rally. Significance The US Bureau of Labor Statistics reported on January 6 that average hourly earnings grew at the fastest pace since 2009 in December -- a further fillip to the ‘trumpflation trade’ that has gripped financial markets since the victory of Donald Trump in the US presidential election. Expectations of further Fed rate increases have driven the dollar index and the ten-year Treasury bond yield higher, straining emerging market (EM) assets. EM mutual equity funds have suffered a wave of uninterrupted outflows since Trump’s victory. The Mexican peso and the Turkish lira have plumbed record lows against the dollar. Impacts Many EMs are preparing to sell dollar-denominated debt in anticipation of higher borrowing costs, including Argentina, Brazil and Nigeria. Speculative bets against US Treasury bonds have risen to a record high amid expectations of higher US inflation and further rate hikes. The stock of negative-yielding government bonds stands at 10.8 trillion dollars, fuelling demand for higher-yielding securities. In April, the US Treasury’s next Foreign Exchange Report could label China a currency manipulator though the criteria would need to change.

The dollar will determine emerging market asset moves

2018 ◽  
Keyword(s):  
South Africa ◽  
Emerging Market ◽  
Bond Yields ◽  
Government Bonds ◽  
Content Type ◽  
Local Currency ◽  
Treasury Bond ◽  
Asset Class ◽  
Capital Outflows ◽  
Firing Line

Subject Emerging market asset gyrations. Significance Emerging markets (EMs) are under strain as the dollar has risen by nearly 4% since the middle of April, triggered by a sharp increase in US Treasury bond yields and increasing evidence of slower economic activity in the euro-area. Argentina and Turkey are in the firing line as they hold a high proportion of their external debt in dollars, but the entire EM asset class has suffered sizeable capital outflows, and year-to-date returns on dollar-denominated and local currency government bonds are now firmly negative. Impacts US sanctions could squeeze Iran’s oil exports, putting upward pressure on the oil price though US shale should cap prices below 80 dollars. Foreign holdings of EM local currency sovereign bonds, at risk of a sell-off, are highest in South Africa, Indonesia, Malaysia and Russia. Bank for International Settlements Chief Agustin Carstens recommends EMs build up reserves as “sometimes whatever comes in … will … go out”. For the Institute for International Finance, China, Argentina, South Africa and Turkey are high risk; Russia, Brazil and Philippines lower. US Fed Chair Jerome Powell has reminded investors that tighter monetary policy has been well signposted and should be “manageable” for EMs.

Slowdown may induce Czech loosening despite inflation

2020 ◽  
Keyword(s):  
Central Europe ◽  
Emerging Market ◽  
External Environment ◽  
Commodity Markets ◽  
Bond Yields ◽  
Content Type ◽  
Financial Conditions ◽  
Equity Funds ◽  
China’S Economy

Significance Domestic inflationary pressures have intensified, with headline inflation significantly above the CNB’s 2% target. However, the sharp deterioration in the external environment, exacerbated by the spread of the deadly coronavirus to Italy, is putting pressure on the CNB to reverse the hike in rates it announced this month, and potentially to start easing policy more aggressively if growth slows more sharply. Impacts Falling German bond yields are dragging down yields in Central Europe and contributing to a further loosening in financial conditions. The near-20% fall in Brent crude prices, part of a sharp sell-off in commodity markets, reflects mounting concerns about China’s economy. Investors’ continued ‘hunt for yield’ will still attract significant inflows into emerging market bond and equity funds this year.

US dollar has firm fundamentals despite market doubts

2017 ◽  
Keyword(s):  
The United States ◽  
Economic Policies ◽  
Stock Market Index ◽  
Treasury Bonds ◽  
Government Bonds ◽  
Content Type ◽  
Market Index ◽  
The Us ◽  
First Time ◽  
High Uncertainty

Subject The Dow Jones US stock market index rose above 20,000 for the first time on January 25 but in contrast the dollar has weakened recently, betraying investor nerves about upcoming US policies. Significance After surging by more than 5.5% in the seven weeks following the US election, the dollar has fallen by 2.7% since December 20 amid signs that investor enthusiasm for the shift to reflationary policies is waning. US President Donald Trump’s protectionist and anti-establishment inaugural address on January 20 reinforced the downturn. Trump has also questioned the United States' long-standing ‘strong dollar’ policy -- clouding the outlook further as more Federal Reserve (Fed) rate rises will increase the attractiveness of the dollar, potentially setting the Fed on a collision course with Trump. Impacts Fears of an abrupt end to the 30-year bull market in government bonds have eased because of high uncertainty over Trump’s economic policies. The yen has plunged 9% since the US election, leading to a double-digit rise in equities -- and restoring some confidence in ‘Abenomics’. The spread between the yield on two-year US Treasury bonds and its German equivalent is 187 basis-points, reflecting monetary divergence.

Monetary policy will remain loose in Central Europe

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Central Europe ◽  
Emerging Market ◽  
Central Banks ◽  
Currency Markets ◽  
Bond Yields ◽  
Content Type ◽  
Inflation Rates ◽  
National Bank

Subject Factors keeping monetary policy loose, despite stronger growth. Significance The Hungarian National Bank (MNB), one of the most dovish emerging market (EM) central banks, has cut its benchmark interest rate to a record low and called an end to its three-year-long monetary easing cycle. Hungary's inflation rate has only just turned positive after a period of deflation. The Czech National Bank (CNB) has been forced to intervene in the currency markets for the first time since 2013 in order to stem appreciation of the koruna, which is being buoyed by a stronger-than-expected growth pick-up. However, the prospect of subdued inflation should allow central banks in Central Europe (CE) to keep interest rates at current levels for a considerable period of time. Impacts The renewed decline in oil prices will exert downward pressure on inflation rates in many advanced and emerging economies. Exceptionally low CE local government bond yields could spark a sell-off if fallout from higher US interest rates is sharper than expected. The ECB's sovereign QE programme, to run at least until September 2016, should help mitigate any Fed-driven deterioration in CE sentiment.

Emerging markets are now more resilient to US tapering

2021 ◽  
Keyword(s):  
Emerging Markets ◽  
Emerging Market ◽  
Bond Market ◽  
Oil Price ◽  
Inflation Expectations ◽  
Content Type ◽  
Dramatic Decline ◽  
Equity Funds

Significance The rise in yields is stirring memories of the 2013 ‘taper tantrum’, which led to a dramatic decline in emerging market (EM) currencies and local bonds, prompting three years of net outflows from EM debt and equity funds. Investor fears of US tightening have risen with growth and inflation expectations. Impacts If the trade-weighted dollar index rises further, this will threaten EM currencies, especially those with large dollar-denominated debts. The Brent oil price has gained 70% since November to USD68 per barrel but further upside is limited, with no commodities ‘supercycle’ ahead. Recent moves fuel fears of the normally staid US bond market becoming volatile; stable ten-year Chinese yields are being seen as a haven.

Corruption and corporate risk-taking: evidence from emerging markets

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Quoc Trung Tran
Keyword(s):  
Emerging Markets ◽  
Risk Taking ◽  
Information Disclosure ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Content Type ◽  
Financing Cost ◽  
Market Index ◽  
Public Enemy ◽  
Corporate Risk

PurposeThis paper investigates the relationship between corruption and corporate risk-taking in emerging markets where corruption is considered as “public enemy number one.”Design/methodology/approachThe study measures corruption based on Corruption Control Index annually published by World Bank and examines how corruption affects corporate risk-taking in emerging markets covered in MSCI Emerging Market Index.FindingsWith a sample of 75,338 observations from 8,326 firms across 20 emerging stock markets during the period 2005–2016, the author finds that corruption negatively affects corporate risk-taking. Robustness checks with a reduced sample without China and India, alternatives of corruption measures, various measures of risk-taking and Generalized method of moments (GMM) estimator also show consistent results. Moreover, additional analysis shows that information disclosure mitigates the effect of corruption on risk-taking.Originality/valueThe extant literature implies that corruption may decrease corporate risk-taking behavior through two channels including operational cost and debt financing cost.

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.

Negative bond yields will fuel global equity rally

2016 ◽  
Keyword(s):  
Stock Market ◽  
Sovereign Debt ◽  
Asset Prices ◽  
Central Banks ◽  
Oil Price ◽  
Bond Yields ◽  
Fiscal Stimulus ◽  
Government Bonds ◽  
Content Type ◽  
Risk Appetite

Significance The gains in global equities stem from the expanding universe of negative-yielding government bonds, which now account for nearly a third of the stock of global sovereign debt. This is pushing yield-hungry investors into riskier assets, despite concerns about the sustainability of a stock market rally with weak fundamental underpinnings and central banks' ultra-loose policies driving asset prices. Impacts Sterling will remain under pressure because of the BoE's aggressive monetary easing, both conventional and unconventional. The recent oil price rebound will support equity valuations and risk appetite. Fiscal stimulus will benefit stocks in the construction and defence sectors.

Weaker euro-area may affect Emerging Europe

2016 ◽  
Keyword(s):  
Euro Area ◽  
Credit Rating ◽  
Emerging Market ◽  
Corporate Bond ◽  
Bond Yields ◽  
Content Type ◽  
Central Eastern Europe ◽  
Political Risks ◽  
Government Bond Markets ◽  
The Uk

Subject The fallout in Central-eastern Europe (CEE) from Brexit. Significance While CEE government bond markets are being supported by investor expectations of further monetary stimulus in response to the uncertainty stemming from the UK decision to leave the EU ('Brexit'), the zloty is suffering from both its status as one of the most actively traded emerging market (EM) currencies and concerns about the policies of Poland's new nationalist government. A sharp Brexit-induced slowdown in the euro-area economy would put other CEE currencies and equity markets under strain. Impacts The ECB's full-blown QE is helping keep government and corporate bond yields in vulnerable southern European economies historically low. Uncertainty generated by Brexit reduces the scope for further US interest rate hikes later this year, lifting sentiment towards EM assets. The Brexit vote will increase investors' sensitivity to political risks, auguring badly for Poland. Poland has already suffered a downgrade to its credit rating mainly as a result of the interventionist policies of the PiS government.

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