Emerging Markets Look to Vaccine Rollout, Stimulus for Next Spur

(Bloomberg) — Emerging markets are closing in on the final phase of 2020 with investors anticipating further stimulus while keeping a close eye on the rollout of vaccination programs.



a screen shot of a computer: A visitor views the electronic board displaying stock activity at the Brasil Bolsa Bacao (B3) stock exchange in Sao Paulo, Brazil, on Thursday, May 18, 2017. Brazil's Ibovespa Index tumbled 7.9 percent, the most since August 2011, as political crisis returned to the country after last year's impeachment process.


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A visitor views the electronic board displaying stock activity at the Brasil Bolsa Bacao (B3) stock exchange in Sao Paulo, Brazil, on Thursday, May 18, 2017. Brazil’s Ibovespa Index tumbled 7.9 percent, the most since August 2011, as political crisis returned to the country after last year’s impeachment process.

Continued support from central banks and optimism that coronavirus vaccine developments will sustain a global economic recovery next year have fueled a rush to riskier assets, sending gauges of developing-nation stocks, currencies and bonds to six straight weeks of gains.

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While at least 10 central banks in developing economies are scheduled to set monetary policy this week, none will be as closely watched as the Federal Reserve. The suspense centers on whether the U.S. central bank will adjust its bond-buying program or alter its guidance for future purchases.

“Policy makers look poised to continue to support the recovery with fiscal action, and given persistently low inflation, we think central banks will keep policy rates low for years,” said Madison Faller, a London-based global investments strategist at J.P. Morgan Private Bank. “Such policy support will continue to drive investment outcomes and underlines our view that risk assets have room to run from here. A modestly weakening dollar has also led us to consider beneficiaries like emerging markets.”

Economic data will likewise serve as a guide on the progress of the global recovery. China will release a slew of economic data Tuesday that’s likely to show a continued rebound from the pandemic.

After the Surprise

Central banks in Indonesia and the Philippines are expected to hold their key interest rates on Thursday after authorities in both nations delivered surprise rate cuts in NovemberSignals for an extended period of steady rates could boost their currencies, which are underperforming their peers in Asia this month“Bank Indonesia and Bangko Sentral ng Pilipinas are probably close to, if not already at, the end of their respective easing cycles,” said Eugene Leow, a fixed-income strategist at DBS Group Holdings Ltd. in Singapore. “With the magnitude of easing already comparable to what the Fed has done, room to do more may be limited. Financial stability considerations will start to weigh more heavily going forward”Bank Indonesia Governor Perry Warjiyo said earlier this month that monetary stimulus will “continue in 2021” while Bangko Sentral ng Pilipinas Governor Benjamin Diokno has said the central bank has ample room to keep an accommodative policy and stands ready to use a full range of tools

Leaving the Door Open

Ahead of Friday’s rate decision, the Russian ruble’s one-week implied volatility rose for the first time in six weeks in the five days through Friday following comments from Governor Elvira Nabiullina that suggested the central bank will put off easing until the new yearNabiullina said in an interview that the bank is running out of room to cut interest rates, but could bring its benchmark below 4% if conditions change substantially“We wouldn’t rule out a move on Friday, especially if the ruble continues to rebound,” Bloomberg Economics said in a report. “But caution favors waiting until February, when policy makers will have more data in hand”Policy makers in Hungary and the Czech Republic will probably keep borrowing costs on hold on Tuesday and Thursday, respectivelyRead: Hungary Inflation Slows Further to Put Deposit Tender in FocusRead: Slowing Price Growth Boosts Argument for Czech Rate-Hike DelayCentral banks in Kazakhstan, Uganda, Mozambique will also decide on policy

Mexico, Colombia Decide

Mexico’s central bank is expected to hold interest rates steady on Thursday as it waits for more information to resume its easing cycle, according to Bloomberg EconomicsColombian policy makers will probably also keep their monetary policy rate on hold on Friday, according to economists surveyed by BloombergOctober retail sales and industrial production data, to be released on Monday, may provide traders with clues on the scope of Colombia’s recoveryInvestors will watch meeting minutes out of Brazil on Tuesday. The central bank surprisingly last week signaled it may be unable to fulfill its pledge to keep interest rates at a record low for long, due to rising inflation expectationsThe Mexican peso was the worst performer in emerging markets last week, while the Colombian peso and Brazilian real were among the top gainers

Data and Events

China’s industrial production, retail sales and fixed-asset investment are all expected to see acceleration, according to Bloomberg EconomicsFurther evidence of China’s recovery is almost sure to stoke optimism on the country’s stocks for 2021. Fund managers surveyed by Bloomberg see the Shanghai Composite Index rising about 10% from current levels by the end of next yearThe People’s Bank of China will conduct liquidity operations via medium-term loans on TuesdayIndonesia and India will report November trade figures on Tuesday. Exports in the former are seen rising for the first time since JuneStronger growth and a low interest-rate environment will continue to benefit lagging stock markets like those of Indonesia and India, which will likely see a much better 2021, according to Blackrock Investment InstituteIn what might be a welcome change for policy makers, India’s inflation numbers due Monday are likely to show a slowdown in NovemberPrice pressures are still turning out to be more persistent than expected, Bloomberg Economics said, just as the government is said to be considering recommending a looser inflation target for the central bankSouth Korean employment data on Wednesday may show joblessness edged higher in NovemberArgentine inflation for November, scheduled for Tuesday, may show another relatively high reading for the month, despite currency and price controls, Bloomberg Economics forecastsOn Wednesday, investors will home in on third-quarter gross domestic product figures for insight on how the South American nation is faring amid the pandemic.

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