For those of you who – like Lewis Carroll’s Alice – have a liking for pictures, McKinsey’s study on the effects of QE is worth a read.
It categorises in great detail the true consequences of Ben Bernanke’s decision to buy trillions of dollars in government debt and other securities, and the result of reining this programme in.
Continue reading »
Florian von Hartig of Standard Bank
With nearly two months of the issuance calendar remaining until year end, African sovereign issuers have raised nearly double the amount of funding ($6.35bn) in the eurobond market compared to 2012.
While still representing a sliver of the total EM sovereign issuance in cross-border capital markets, African sovereigns – both seasoned and first-time issuers – are offering international fixed income investors a compelling investment case when confronted with insipid recovery and low rates offered from developed markets, lingering peripheral eurozone debt woes, and overall weariness towards undifferentiated traditional EM sovereign plays. Continue reading »
Too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their families. The Federal Reserve can help if it does its job effectively.
So said Janet Yellen on Wednesday in her first comments following her official nomination by President Barack Obama to be the next US Federal Reserve chair.
The comments – which suggest Yellen is unlikely to put an early end to the Fed’s $85bn-a-month stimulus programme given the shaky-state of the US economy – should be seen as a strong short-term positive for emerging markets. Continue reading »
Talk of an end to US monetary stimulus has caused turmoil in emerging economies, and now there are fears a US shutdown could affect global interest rates. Glenn Maguire, chief Asia-Pacific economist at ANZ Bank, joins the FT’s Lindsay Whipp to discuss the options for emerging markets.
It’s the question dogging central bankers across the emerging markets. When will the sell-off of EM assets take off, and who will be most badly hit?
While they wait, the Institute of International Finance (IIF) has produced two graphs that suggest which countries are most exposed to capital flight. Continue reading »
Cast your mind back, if you can, to Black Wednesday in 1992, when the UK lost billions trying to prop up the pound before being forced to withdraw from the banded exchange rate system known as the ERM.
It seems the lesson of (not) using reserves to prop up your currency in a crisis has been heeded by EM policy makers. The EM currency carnage of August may have been a big shock but it didn’t spark panic spending of forex reserves by central banks. When it comes to exchange rates, after all the talk of currency wars, there seems to be a new mantra of “what will be, will be”. Continue reading »
Central Europe was spared the worst of the downturn that hit emerging markets from May this year, but that means that the global rebound seen on Thursday following the US Fed’s taper surprise has been less pronounced in Poland, the Czech Republic and Hungary. Continue reading »
What do you do when you take out a massive loan for 100 years – as Mexico did three years ago, taking advantage of the Fed’s easy money policy… and then find the Fed backtracks on an expected end to quantitative easing?
Why, sit pretty and look smart. Well wouldn’t you, if, like Mexico, you had borrowed $2.7bn in the world’s longest-dated government debt, presciently locking in annual interest rates of 5.75 per cent? (Mexico reopened the bond in 2011, tapping another $1bn on top of the initial $1bn). Continue reading »
The Fed’s announcement that tapering can wait has given emerging market currencies and equities a big boost.
Here are a few key charts, which will update during the day. Continue reading »
If emerging market policy makers were quaking at the prospect of QE tapering, they must be jubilant at its decision to go on buying bonds at the same pace – even more so, after Fed chairman Ben Bernanke revealed in a post-announcement press conference that he was watching emerging markets “very carefully”.
If that sounds like he is taking a paternal interest in their welfare, on present evidence it is a style of parenting more likely to produce prodigal egotists than responsible adults. Continue reading »
The Federal Reserve decision to continue with Quantitative Easing is a relief for emerging markets in general and Asian markets in particular. Frederic Neumann, HSBC’s co-head of Asian Economic Research, tells the FT’s Josh Noble that when it ends the worst affected markets may be hit hard but further support may be on offer from Japan’s monetary stimulus and an economic rebound in China.
Thank you, Mr Bernanke
The most difficult job in central banking just got a little bit easier. But not much. This week Raghuram Rajan, the new broom at the RBI, must decide what to do with Indian rates.
With the Fed holding fire on the much-anticipated “tapering” of its asset purchase, Rajan and some some of his regional counterparts are likely to face calls to roll back some of the policies brought in to stem currency routs. But the message from economists – and not just for Rajan – is clear: stay the course. Continue reading »
What a day. Emerging markets currencies, stocks and bonds got a much needed respite on Wednesday after the US Federal Reserve surprised the market by deciding to keep its $85bn-a-month bond-buying programme unchanged.
EM currencies – which suffered their worst rout in two years during this summer’s sell-off – were the biggest gainers. The Brazilian real jumped 3.2 per cent to 2.186 to the dollar, its strongest level since late June, while the Mexican peso rose 2 per cent to 12.642 to the dollar, a one -month high.
In Europe, the Turkish lira rallied 2.6 per cent against the dollar, while the South African rand gained 2.25 per cent to change hands at 9.5811 a dollar.
The Indian rupee and the Indonesian rupiah maintained their overnight losses as spot trading in these markets is not open during US trading hours. But expect a big bounce when markets in Asia open on Thursday. Continue reading »
Ben Bernanke took the world by surprise on Wednesday by saying the Fed’s $85bn a month bond-buying programme would continue unchecked.
Investors around the globe had expected at least some reduction in the Fed’s quantitative easing programme, which has done so much to buoy up the prices of emerging market assets since the financial crisis of 2008-09. US stocks and bonds surged on the news and EM currencies rose strongly against the dollar. Continue reading »
Will the respite that emerging market currencies have enjoyed in recent weeks evaporate once the US Federal Reserve starts “tapering” for real, instead of just talking about it?
Takehiko Nakao, the new president of the Asian Development Bank, thinks not – at least if the leaders of India, Indonesia and other affected countries send “good messages” on fiscal discipline and structural reform. Continue reading »