This post was originally published on this site
https://i-invdn-com.akamaized.net/news/LYNXNPEC0L0PD_M.jpg
The signals are in the price swings anticipated by traders.
The gap between a JPMorgan Chase (NYSE:JPM) & Co. gauge of expected swings in developing-nation currencies and a similar Group-of-Seven measure is the widest since June, after evaporating in March. Likewise, the spread between the Cboe Emerging Markets Volatility Index and the VIX gauge for U.S. stocks has grown to 1.4 percentage points from a discount of as much as 10 basis points last month.
Indeed, the Mexican peso had a torrid morning in Asia on Monday despite U.S. equity futures climbing. An economic plan unveiled on Sunday by President Andres Manuel Lopez Obrador to counter the coronavirus fallout was “underwhelming,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc (NYSE:GS). Mexican authorities “seem to be underestimating the economic impact of the viral pandemic and the need for a deeper re-orientation of fiscal policy,” Ramos said.
Oil’s newfound vigor also hangs in the balance as a row between Saudi Arabia and Russia threatens to scupper a possible deal among global producers to curb supply. The lack of such an accord would hit the world’s two largest crude exporters and other energy-dependent economies including Mexico, Colombia, Nigeria and Angola. Brent crude fell 2.5% to $33.25 a barrel at 12:15 p.m. in London.
Developing-nation central banks, meanwhile, have already used up much of the monetary arsenal needed to support their currencies and economies in the face of the virus. With interest rates in emerging economies at multi-year lows — and near zero in the case of nations such as South Korea and Israel — the carry returns that attract foreign funds are diminishing.
“Uncertainty around both the supply-side and demand-side for oil should continue to effect volatility,” said Marshall Stocker, a money manager at Eaton (NYSE:ETN) Vance Corp. in Boston, which oversees about $520 billion of assets. “Policy adventurism can be expected at the country level as there is no history from which to identify an orthodox policy response. Therefore there will be health, fiscal, and monetary-policy mistakes and achievements made this coming and in future weeks.”
Government spending pledges in some emerging markets dwarf what’s ever come before. Even so, they pale in comparison with the trillions of dollars promised in Europe and America. That discrepancy threatens to set the asset class back and is partly to blame for the record $83 billion sucked out of developing-nation stocks and bonds in March alone.
South Korea, Israel, Poland Decide
Crude Wild Card
Inflation, Foreign Reserves
©2020 Bloomberg L.P.
