At Year’s End, Emerging Markets Beholden to Fed
Central banks are cramming in their last decisions of 2018.
(Bloomberg) -- Central banks are cramming in their last decisions of 2018, with at least seven in emerging markets scheduled to set monetary policy this week. But none will be as closely watched as the Federal Reserve.
Most traders expect U.S. policy makers to raise rates. The suspense centers on what Chairman Jay Powell has to say following the announcement, particularly about forecasts for interest rates and the economy, as investors question if the Fed will keep hiking amid tame inflation and doubts about global growth. Central banks in Japan and Britain will announce their rate decisions a day later.
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“‘King USD’ has started to lose its rate appeal of late, as the Fed has struck a more cautious tone,” Credit Agricole strategists, including London-based Valentin Marinov, said in a research note last week. “The recent underperformance of U.S. risk assets and the return of U.S. political risk could further mean that the USD outlook could deteriorate on a more lasting basis over the medium term.”
That’s good news for emerging-market assets, especially since currencies, stocks and bonds are headed for their first annual drop since 2015 and are relatively cheap.
Other than the flurry of central bank action, China’s leaders will hold their annual economic policy-setting meeting and Saudi Arabia will dominate headlines in the Middle East when it announces its 2019 budget. Mexican assets may react to President Andres Manuel Lopez Obrador’s budget plan, which includes more spending on social programs and infrastructure, while still preserving the fiscal framework established by his predecessors.
It’s Decision Time
- MEXICO: The nation’s TIIE curve is showing higher odds of a rate hike at Banxico’s meeting on Thursday as inflation remains above the 3 percent target
- THAILAND: Policy makers may raise the benchmark rate for the first time since 2011. Minutes of the monetary policy committee’s meeting last month underscored gradually curbing the need for the “extra accommodative” stance. The baht is the best-performing emerging-market currency this year
- “Policymakers’ concern on prolonged period of low interest rate leading to yield-seeking behavior and financial stability risks means that BoT would lift rates starting in December 2018 to build some policy space,” Morgan Stanley analysts including Deyi Tan wrote in a report
- TAIWAN: The central bank, which last raised its key rate in 2011, will hold its quarterly monetary policy meeting on Thursday. There are no real economic grounds for the nation to change policy just yet, according to a note from ING Groep NV
- HUNGARY: Rate setters will update their policy stance for the first quarter and publish new economic forecasts. While most investors expect the central bank to maintain its dovish-for-now approach, an eventual shift toward tightening is getting closer
- INDONESIA: Policy makers may leave the main interest rate unchanged on Thursday after the rupiah halted losses this quarter. Governor Perry Warjiyo has said authorities will maintain their “preemptive and ahead of the curve” monetary policy stance into 2019 to guard against external risks
- CZECH REPUBLIC: Governor Jiri Rusnok has signaled that one of Europe’s most hawkish monetary authorities may wait until the next meeting to raise rates, despite the koruna’s weakness
- COLOMBIA: The central bank is expected to keep its key rate unchanged at 4.25 percent as inflation stays contained. The peso is the worst performer in emerging markets this quarter
And Everything Else
- China’s policy-setting meeting is planned for Dec. 19 to Dec. 21, according to people briefed on the plans. Pressure is mounting on Beijing to address U.S. concerns over market access before a March 1 deadline for trade talks. The annual gathering lays down priorities for economic policy for the coming year, though detailed targets aren’t usually released until legislative meetings in March
- Saudi Arabia, the world’s biggest oil exporter, will release its budget for next year. It needs prices to climb beyond $80 a barrel to balance it, according to Fitch Ratings
- Brazilian swap traders will keep an eye out for minutes of the central bank’s meeting and its quarterly inflation report. A dovish statement that followed a Dec. 12 decision to keep interest rates at a record low prompted leading economists to push forward their expectations for a rate hike in 2019
- Ghana will post third-quarter data on gross domestic product, with investors looking out for whether the economy is picking up steam ahead of the country’s planned exit from an IMF-bailout program at the end of this year
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--With assistance from Alec D.B. McCabe and Tomoko Yamazaki.
To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Robert Brand in Cape Town at rbrand9@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net
To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Claudia Maedler, James Amott
©2018 Bloomberg L.P.