Global Rates – No Pause For You?
November 03, 2022
Read Time 2 MIN
Global Tightening Cycles
Developed markets (DM) doves are backing off for now, following yesterday’s 75bps hike by the U.S. Federal Reserve (Fed) and Chairman Powell’s “I am the boss” press conference, which scared the daylights out of many risky assets. The Fed Funds Futures effectively added one more 25bps rate hike in 2023, bringing the expected terminal rate to 5.16%. The European Central Bank (ECB) terminal rate expectations moved above 3%. Several ECB speakers said today that hikes should not be affected by political noise and that the policy rate should rise much higher.
EM Asia Inflation Pressures
Against this backdrop, today’s off-cycle central bank meeting in India raised concerns that there will be another emergency rate hike there. But it turned out that the central bank simply wanted (was asked?) to explain to the government why it missed the inflation target for three quarters in a row. A larger rate hike, however, seems imminent in the Philippines. The central bank signaled once again that it might raise its policy rate by 75bps on November 17 – moving in step with the Fed – due to inflation concerns (the October print is out this evening). Unlike the Philippines, central banks in Indonesia and Malaysia might have more policy room for the dovish pivot. The Bank Indonesia pointed out that the second round of inflationary effects was not as strong as initially feared. The central bank of Malaysia stated that it was not on a “pre-set course” after today’s expected 25bps rate hike.
EM Peak Rates
The “data dependent” argument was also made by the governor of the Peruvian central bank, inviting suggestions that it might stay on hold already next week, joining Brazil and (maybe) Chile. While LATAM is contemplating exits from the tightening cycles, most of EMEA is already there (see chart below). The region now has only two active “hikers” – South Africa and Hungary (shadow hikes) – and today’s “on hold” decision by the Czech national bank confirmed the status quo. The next important milestone for the region is Poland’s rate-setting meeting. The central bank surprised the markets by keeping the policy rate unchanged in September. Still, inflation accelerated more than expected last month, and the market continues to price in more hikes on a 12-month horizon. Stay tuned!
Chart at a Glance: EMEA Doves Come in Droves
Source: VanEck Research; Bloomberg LP
*Hungary’s official policy rate is on hold, but there is massive shadow tightening
**Romania hiked, but indicated that this is likely to be the last hike
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PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies. A reading above 50 indicates expansion, and a reading below 50 indicates contraction; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies. A reading above 50 indicates expansion, and a reading below 50 indicates contraction; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.