According to Greg Gibbs, Analyst at Amplifying Global FX Capital, the USA is soaking up a bigger share of global savings, making it harder for EM markets.
Key Quotes
“The central role the dollar plays in global finance and the pseudo-safety that US government bonds provide, allows the USA to crowd out and take first dibs on capital that might otherwise be available for EM countries.”
“The way the USA government crowds out EM borrowers is by offering somewhat higher yields, and indeed US yields have moved up moderately. Not so much yet to significantly tighten US financial conditions, but sufficient, it seems, to place pressure on weaker less attractive asset markets abroad.”
“The tightening in financial conditions is also apparent at the shorter end of the yield curve, where a higher issuance of US T-bills has contributed to wider spreads in dollar interbank money market funds.”
“Another contributing factor is thought to be the US tax policy changes that have encouraged US company repatriation of offshore retained earnings and more onshore borrowing by foreign companies’ subsidiaries in the USA.”
“This has added to dollar funding costs.”
“The global economy may still appear in reasonable shape, but certainly, we should expect some moderation in global growth confidence as rates and yields rise in several emerging markets, and availability of capital diminishes.”
Share
