With respect to the FOMC minutes that signalled that “A few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level,” analysts at Rabobank emphasised the downside risks for EM’s
Key Quotes:
“Aaaarghhhhh!” said Emerging Markets in the next trading session not so calmly, in all probability.”
“The last thing they, or the US yield curve or equities want is a reminder that US rates are going to keep go up: especially after former Fed Chair Yellen has said that in her view the yield curve can invert and it doesn’t mean what it used to because the Fed has so fiddled with the long end of the curve that it doesn’t mean what it used to. (That’s obviously my translation of her technical talk of term premia.) Could higher rates hurt a highly levered and asset-based economy, and EM with too much USD debt? “It’s elementary, dear Watson.” Expect EM FX wobbles to show just how elementary again soon.
Meanwhile, it’s going to be a double EM whammy today it seems. The Fed talked about the trade war extensively, the minutes show. Yet just before I am about to give a speech on that subject in Canberra, the trade/Cold war has stepped up another notch. I can’t make a new slide in time to reflect this reality, but I can make sure the Daily covers it.”
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