The Emerging Markets Debt Evolution

My colleagues Mauro Ratto, Head of Emerging Markets, and Yerlan Syzdykov, Head of Emerging Markets – Bond & High Yield, offered these thoughts on emerging markets.

The emerging markets (EM) bond space experienced significant changes in the last decade, surging in size, improving in quality, offering investors a composite asset class with higher liquidity, transparency and potential for diversification. Continue reading

Emerging Markets Feel the Ripples of Fed Tapering

Wardwell’s Weekly Market Report
Observations on the Capital Markets – Week Ended August 23, 2013

  • Emerging markets/Asian currencies see sell-off
  • Software glitches caused two trading mishaps in one week
  • In the U.S.: FOMC minutes suggest some agreement. Economic data upbeat
  • Europe watch: upbeat economic data, Germans talk about Greece
  • China saw upbeat economic data; Japan pledged “whatever it takes”

Emerging Markets/Asian Currencies See Sell-off
Many Emerging Market currencies (notably those of India, Brazil and Indonesia) have been weak since the beginning of May. The declines accelerated sharply in recent weeks, leading to something approaching panic in several markets last week.

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So, How’s Our Recovery Going?

Over the last 2 1/2 months the markets have been very interesting, to say the least. We’ve seen the beginning of what most people believe is the transition between portfolio flows from only fixed income to a more balanced approach that includes equities and multi-assets. All of a sudden fixed income, which was once perceived to be a less risky asset class, produced some negative returns and heightened volatility. In fact, there has been more volatility in the fixed income market some days than in the equity markets. So clearly, this once-perceived “safe haven” is starting to show some cracks.

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A Lot Of Action In What Was Expected To Be A Quiet Week

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended August 16, 2013

  • Most of the U.S. economic data released last week was rather ho-hum, consistent with continuing slow growth, but markets weren’t boring. Maybe markets are thin because it’s August, but the U.S. Treasury market had one of its worst weeks in a long time, and the selling spilled over into the U.S. stock market.
  • The Fed has signaled that employment will be what drives its policy, and employment-related data has been strong enough for the Fed to begin to taper in September. It’s not a done deal, but even the Fed “doves” seem open to the idea . . . so the big question is now becoming “how fast will the Fed taper?” Signs that Europe and China are strengthening gave no comfort to bond bulls.
  • Inflation remains restrained and growth remains muted, so we can’t blame “bond vigilantes” for last week’s sell-off. Instead, it seems increasingly apparent that Quantitative Easing (QE) did blow a bubble in the bond market (size unknown) and that bubble has now been punctured. (Note: this is not a market forecast: markets typically overshoot, so yields may well fall back after this sharp rise, but it’s hard to see how bond prices return to their prior highs.) Continue reading

Markets Calm Despite Tones of Tapering from the Fed

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended August 9, 2013

  • Last week in the capital markets: relatively quiet outside Japan
  • U.S.  economic data was generally upbeat
  • More positive data from the housing market
  • Europe watch: generally positive economic data
  • China watch: a bunch of upbeat data points—no hard landing visible
    Japan watch: Increasing concerns about Abenomics
  • Washington watch: Congress is on recess
    Fed watching: waiting for the September taper
  • The week ahead: relatively quiet Continue reading

Is the Story of Emerging Markets Intact?

Two new important macro developments have surfaced recently, which deserve our attention for their likely impact on financial markets:

  1. The debate on the so-called tapering of the U.S. Federal Reserve’s (Fed) current loose monetary stance
  2. The changing economic outlook in China Continue reading

Will Soft Q2 GDP and Jobs Data Influence Fed Tapering?

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended August 2, 2013

  • Q2 GDP was soft.
  • The jobs report disappointed
  • No reason for the Fed not to taper.
  • Europe watch: beneath the headlines, hints of improvement

Q2 GDP Data was Soft.
There are a million ways of saying, “It could have been worse.” And, while they could have been worse, last week’s economic releases still were not good.

Second quarter U.S. Gross Domestic Product (GDP) growth came in at 1.7% (flash estimate) better than the 1%-ish growth that some feared, but Q1 growth was revised down from 1.8% to 1.1%, so first-half growth did not surprise on the upside, despite the decent Q2 report. The details weren’t inspiring either…still 2.9% nominal year over year (y/y) GDP growth keeps the default/foreclosure rate down. Again – not terrible, but still not good.

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