A trader works in front of an electronic board displaying stock figures and currency exchange rates on the floor of the Philippine Stock Exchange in Manila, the Philippines.(Photographer: Julian Abram Wainwright/Bloomberg)

Traders Jittery About EM's Rally Seek Central-Bank Guidance

(Bloomberg) -- Just as investors were beginning to ponder if emerging-market assets have risen too far, too fast, the spotlight shifts to central banks.

Traders will be keeping a close eye on how policy makers from Thailand to Brazil will react to the Federal Reserve’s dovish turn. Some may be encouraged to shift away from further rate increases, according to TD Securities, and India’s central bank could become the first among Asia’s major economies to cut rates since the tightening cycle in the region began in 2017.

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The recent rally “has more legs to run,” said Mitul Kotecha, a senior emerging-market strategist at TD Securities in Singapore. “But given how much markets have already re-priced in terms of U.S. rate markets and ongoing trade risks against the background of slowing growth, the rally in emerging markets faces many headwinds.”

Traders Jittery About EM's Rally Seek Central-Bank Guidance

Read More: Bullish Emerging-Market Drivers Fade Amid Lingering Risks

It’s Decision Time

  • With China shut the whole week and some other Asian markets partially closed for the Lunar New Year holidays, central bank meetings in India, the Philippines and Thailand will take the limelight in the region. The latter two are expected to keep rates unchanged
  • The Reserve Bank of India may deliver an interest-rate cut on Thursday, with Goldman Sachs Group Inc. joining a chorus of calls for monetary policy easing due to lower inflation projections and expectations of a slower pace of rate hikes by the Federal Reserve. The rupee is the worst performer in Asia this year
  • Brazil is likely to keep its benchmark at a record low 6.5 percent on Wednesday, in what will probably be the final policy meeting under outgoing central bank head Ilan Goldfajn. Lower borrowing costs haven’t deterred real bulls
    • President Jair Bolsonaro is expected to submit his proposal to overhaul Brazil’s bloated pension system. Investors will look for signs the bill can win approval from Congress -- a key step toward balancing the budget
  • Mexican policy makers are expected to keep borrowing costs at the highest in a decade, following the peso’s rebound and signs that economic growth is losing steam. The nation also reports January inflation data, with analysts expecting the rate to slow down
  • Russia is also set to hold rates after surprising economists with two hikes at the end of last year
    • The nation withdrew from a landmark 1987 nuclear disarmament treaty, a day after the U.S. said it was pulling out of the agreement
  • Central bankers in Poland, Peru, Romania and the Czech Republic will also likely keep rates on hold
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