Noble Apex eNewsletter Issue 807- Emerging market central banks follow the dovish moves

2019-05-08 10:33
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6 May 2019 Issue 807

Global Market Commentary


  • US: Powell said that the recent low inflationary pressures may be just a temporary effect, implying that interest rates will not be cut in the near future, disappointing the market. For the entire week, the Dow fell by 0.14% to 26,504.95 points. The S&P 500 index rose by 0.20% to 2,945.64. The Nasdaq rose by 0.22% to 8,164.00.
  • Europe: The market keep putting an eye on interest rate decision of the Bank of England, the three major indices of European stock markets have developed separately. The UK stock market fell due to the decline in resources stocks. Over the week, the UK’s FTSE 100 index fell by 0.64%, the German DAX index rose by 0.79%, and the French CAC40 index fell by 0.37%. The STOXX 600 index fell by 0.16% for the week to 390.37 points.
  • Asia: The US financial channel CNBC reported that the Sino-US trade agreement will be reached by next Friday, which drove up the Asia-Pacific stock market last week. For the whole week, the Nikkei 225 index rose by 0.00% to 22,258.73 points. The MSCI Asia Pacific Index rose by 0.49 percent to 162.93.


  • US: Powell said that the recent low inflationary pressures may be just a temporary effect, implying that interest rates will not be cut in the near future. Throughout the week, the US 10-year bond yield rose by 3 basis points to 2.252%.
  • Europe: As the US Federal Reserve (Fed) hinted that it has no intention to raise interest rates or cut interest rates on Wednesday, German public debt and other high-rated public debt yields are facing some upward pressure. Throughout the week, the German 10-year bond yield rose by 5 basis points to 0.024%.


  • Oil: The effect of US sanctions on Iranian oil exports is smaller than expected. Also, the US crude oil inventories have increased, causing the investors worried about excess supply of crude oil. Over the week, New York oil futures fell by 2.15% to close at $61.94 a barrel.


  • US dollar: The US dollar index rose from a fall, as Federal Reserve Chairman Powell hinted that it will not cut interest rates recently. For the entire week, the Dollar Index fell by 0.496% to 97.520.
  • China: The US financial channel CNBC reported that China and the United States may announce a trade agreement by next Friday, which drove up Yuan. For the whole week, the Yuan rose by 0.021% against the US dollar to 6.735.


Economic-related News

  • US: On the eve of the next Sino-US negotiation, Trump complained that the progress of the negotiations are too slow. He threatened that US will raised the tariff on China’s $200 billion goods from 10% to 25%. He also claimed that US may impose 25% tariff on the additional $325 billion worth of Chinese imports.
  • U.S: The number of new non-agricultural employment in the US exceeded expectations in April. The unemployment rate hit a 49-year low. The wage growth was slightly lower than expected, indicating that the job market is still healthy and can continue to support economic growth without contributing to inflation.
  • U.S: The US ISM service industry index fell to its lowest level since 2017 in April. Moreover, the US merchandise trade deficit expanded from $70.9 billion in February to $71.4 billion in March, but it’s still lower than the economists’ estimation of $73 billion.
  • Euro-zone: The Eurozone’s CPI rose by 1.7% year-on-year in April, exceeds the economists’ expectation, which may help to reduce the urgency of the ECB’s additional stimulus policy.
  • Euro-zone: Juncker, the chairman of the European Commission said that German central bank governor Weidmann was the right person to succeed Draghi as the President of the European Central Bank.
  • Euro-zone: It is reported that officials of Theresa May’s administration are drafting a new customs law for Brexit deal with the opposition party, Labor Party.
  • Japan: The Ministry of Internal Affairs and Communications announced that Tokyo’s Consumer Price Index (CPI) rose from a 0.9% increase to a 1.4% increase in April, far higher than the market expectation of a 1.1% increase.
  • Japan: The Ministry of Internal Affairs and Communications announced that after seasonal adjustment, Japan’s unemployment rate rose by 0.2 percentage points to 2.5% in March, higher than market expectations of 2.4%.
  • India: According to Nikkei/Markit data, India’s Nikkei Manufacturing Purchasing Managers’ Index (PMI) fell for two consecutive months from 52.6 in March to 51.8 in April, the slowest growth rate within last eight months.


China Market Commentary
Economic-related news
• The Chinese government is committing its promise in opening the Chinese financial industry. During the Labour Day, the China Banking and Insurance Regulatory Commission announced that it will launch a series of new measures, such as lifting the restrictions on the shareholding ratio of Chinese commercial banks etc.
• The People’s Bank of China conducted a Medium-term Lending Facility for financial institutions in April for a total of 200 billion yuan, with a term of one year and an interest rate of 3.30%.

Emerging Market Central Banks Follow the Dovish Moves

Interest rate cuts by emerging market central banks outstripped rate hikes for a third month in April. Interest rate moves by central banks across a group of 37 developing economies showed three net rate cuts in April – the same number as in March and February. Their moves follow by the dovish major central banks from Fed and ECB.


Number of emerging market central banks hiking policy rates less those cutting

Data source: iFund; Reuters

Fed and ECB on hold last week

Aside from a technical adjustment on interest on excess reserves, the Fed hold interest rate steady last week, in line with expectation. The Fed officials believe recent weakness in consumer spending and business investment is transitory. So, the FOMC remain patient in next policy move.


ECB president Draghi signalled growing concerns about the persistence of euro-area weakness at last week press conference. In particular, he confirmed the ECB will consider if negative rates need mitigating. It hints that ECB may hold rates staying lower for longer than its forward guidance now.

The only way is cut

Third month of net rate cuts follows a tightening cycle that ended in early 2019. With help of dovish developed market central bank, there are room for emerging market central bank to cut. Because they do not need to battle the strong dollar, rising inflation and capital outflow.


India cut interest rate by 25 bps on April. The cut lift the economy before voting election which decide whether Modi gets a second term. Inflation in India remains subdued. And the farm incomes and GDP slide to 6.6% in 2018 Q4, the slowest in five quarters.


Three other Asian central banks also meet in this week, including Malaysia, Thailand and Philippines. The last says rate cuts are inevitable. But many expect the other two will deliver easing signals as well.

Investors keep piling into EM Bonds

Based on the Bank of America Merrill Lynch report, Global bond funds had another week of Hugh inflow. Investor’s search for high yielding assets look them emerging market debt funds, which had their biggest inflows in 12 weeks, pulling in 2.4 billion US dollar.


Monetary policy remains easy and for dips to be bought. As a result, flows into EM debt funds is at cumulative all-time highs. “Yield” theme is the most important investment focus over the past decade.


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