Rules of the game in emerging countries: a new element

In a recent post I mentioned that the improvement in the greenback had an strong impact on emerging countries. Capital outflows and lower emerging currencies were mentioned as a source of concern. We have to add the interest rate spread that is now wider than it used to be. It was almost stable since the beginning of 2017 with an average spread close to 330 bp. This is no longer the case since mid-April with the change in the greenback profile.
Rules of the game are deeply changing for emerging countries even if every country is not hurt in the same way. Rules have changed, then be attentive
spread EM-en.png

Are the Fed’s interest rate projections credible?

At the FOMC meeting on September 19 and 20, members charted the central bank’s so-called dot plot of expected rates for the years out to 2020, involving one interest rate hike in 2017, three in 2018, two in 2019 and only one in 2020, leading to an end figure of 2.875% vs. 1.125% currently. These figures published by the Fed are generally extreme, as the US central bank endeavors to influence investors’ expectations to suit its own narrative. Continue reading

United Kingdom – Weak domestic demand and higher rates from the Bank of England – A recipe for a recession?

Negotiations on Brexit may lead to a negative and persistent shock in the United Kingdom as it will deeply change rules for the external trade. Therefore there is a need to carefully look at the domestic demand momentum in order to eventually counterbalance this negative and persistent shock.
At the same time, the Bank of England has mentioned (Carney in Sintra or Saunders here) that the monetary policy could be normalized. In other words, the BoE is wondering if there is still a need for stimulus. Here too it is interesting to carefully look at the domestic demand to see if the need for stimulus is superfluous or not. Continue reading