Global markets in April were marked by a resurgent US Dollar, increasing crude oil prices, rising US Treasury yields and doubts over the sustainability of the synchronized global growth that underpinned market performances at the start of the year. Even as the US Federal Reserve held rates at its recent meeting, markets appeared to be certain of a hike in June with the Fed pointing to higher inflation. Markets appeared to be less focused on US-China trade tensions as other headlines took over in the month, including the dialogue between the two Korean leaders pointing to a reduction in geopolitical tensions in the East Asian region.
Foreign inflows to emerging markets appeared to have ground to a halt in April with $200mn in outflows from the EMs monitored by the Institute of International Finance (IIF). Further, the IIF stated that $5.6bn left EM stocks and bonds in the week to April 23. This could help explain why the JPMorgan Emerging Market Currency Index ended April with its biggest loss in 17 months. Given the broad weakness in most EM currencies, central banks in Argentina and Indonesia, in particular, were seen resorting to interventions in forex markets to stabilize their currencies.
Despite these figures, analysts have continued to stress that this is not a repeat of the 2013 ‘Taper Tantrum’ – where EMs suffered major outflows and deceleration in growth – which also happened in the context of rising US yields and a strengthening US dollar. Analysts point to improved fundamentals, like smaller current account deficits and higher foreign currency reserves, as evidence of EM resilience compared to five years ago.
Furthermore, it appears that the optimistic expectations for global growth persist with some arguing that growth will bounce back from the soft patch experienced in recent months. This is in line with the IMF’s April update to its economic outlook. However, the IMF did note that global growth could slowdown beyond the next two years as advanced economies close their output gaps.
Brent crude oil prices continued to rise in the past month, reaching the highest levels since November 2014. A major factor in this rise has been concern that President Trump will reimpose sanctions on Iran, which he did on the 9th of April, leading to a possible reduction in crude supplies from the country. In addition, supplies from Venezuela continued to contract amidst the country’s continued social and economic turmoil.
Source: Frontier Blog