SINGAPORE: It may come down to the will of central banks, trade negotiators and voters this week to set the tone for emerging markets headed toward 2020.
Traders are standing by for the Federal Reserve and European Central Bank’s last policy decisions of 2019. The central banks’ new forecasts will provide insight into their ability and willingness to provide further stimulus for a global economy that the IMF predicts will grow at the slowest annual pace this year in a decade.
"Emerging markets will clearly benefit from any mildly dovish tone which will boost risk assets and oil the wheels of the global carry trade,” said Paul Greer, a London-based money manager at Fidelity International, whose developing-nation debt fund has outperformed 95% of peers this year. The fund is bullish on emerging-market credit, local-currency debt and currencies, he said.
Emerging-market stocks and currencies rose for the first time in four weeks in the five days through Friday as a better-than-expected U.S. payrolls report gave the Fed more reason to hold interest rates steady after three straight cuts. Investor sentiment is likely to get another boost from the U.K. election, which could finally pave a more resolute course for an exit from the European Union, and the probability that the US and China will close in on a phase-one trade deal, according to NatWest Markets.
"If we do get a phase-one deal and a Brexit, the stage could be set for a decent first quarter for emerging markets,” said Abdul Kadir Hussain, head of fixed-income asset management at Dubai-based Arqaam Capital. Any disappointment could lead to "a very sharp negative reaction, especially given the time of year, when liquidity is starting to thin out,” he said.
As a reminder that growth in some developing economies remains sluggish, central banks in Turkey, Russia and Brazil will likely cut interest rates this week.
Developing-nation dollar bonds are headed for their best yearly performance since 2012, while stocks and currencies have held on to the bulk of this year’s gains even as the market remains hostage to the ups and downs of the trade talks. The US side expects a phase one deal to be completed before the Dec. 15 deadline when new American tariffs on Chinese goods are scheduled to take effect, according to people familiar with the matter.
Turkey’s central bank is expected to deliver another big rate cut on Thursday, adding to the 10 percentage points of easing that Governor Murat Uysal has already overseen under his watch. The bank will probably slash rates by 150 basis points to 12.5%, according to economists’ median estimate. That would still leave Turkey with one of the highest real rates among its peers.
The Philippine central bank will probably hold its benchmark rate on Thursday, according to almost all of the economists surveyed by Bloomberg. That will likely help the peso to hold on to its spot as the best-performing Asian currency this quarter.
Trade data is due this week from India, Taiwan and the Philippines as Asia, a trade-dependent region, struggles with faltering exports as the trade war endures India, which unexpectedly held its key rate last week, will report inflation data on Thursday. - Bloomberg Article type: free User access status: 3