The prospect of higher inflation and higher US Treasury yields could dampen sentiment in emerging markets, even as encouraging Chinese trade data points to a faster global recovery from last year’s lockdown.
Exports from the world’s second largest economysoared in the first two months of the year, data showed on Sunday, reflecting a pickup in external demand and providing a much-needed boost to risk assets after a turbulent start to March. Meanwhile, the US Senateon Saturday passed a $ 1.9 trillion stimulus package that could provide additional impetus to countries like Mexico whose economies are most sensitive to U.S. growth.
Although stocks may take a boost, anxiety remains high in the bond market after Federal Reserve Chairman Jerome PowellLast week’s accommodating message stopped before trying to curb the surge in yields. An index of dollar-denominated debt in developing countries fell for a fourth week in its longest losing streak since 2018. Local currency banknotes also slipped amid sales from Poland to Hungary and Mexico .
“All fixed income assets face a tough market as rates and inflation become more of a threat,” said Abdul Kadir Hussain, Dubai-based manager of fixed income assets at Arqaam Capital. “Emerging markets are no different. We have already seen cash outflows from emerging market fixed income funds, and I suspect that will continue in the near term. “
This week’s inflation data will show whether this caution is warranted. Economists expect consumer prices to recover in countries like Taiwan, India and Brazil. Elsewhere, Peruvian policymakers are likely to keep the country’s key interest rate at an all-time high of 0.25%.
- Consumer prices in Taiwan likely rose last month after falling in January, according to a Bloomberg survey ahead of Tuesday’s report. Same-day export figures may reveal slower growth in February after the island exported asave the previous month
- ImprovementGlobal trade outlook and export backdrop will likely support the Taiwan dollar, says Gao Qi, currency strategist at Scotiabank in Singapore
- Consumer price inflation in India has likely accelerated further above the central bank’s 4% target, a Bloomberg survey showed. This could limit its ability to maintain accommodative monetary conditions
- These numbers could put upward pressure on Indian bond yields, which are already at a 10-month high
- A Thursday reading of consumer price inflation in Brazil in February will be the last before the central bank meets later this month to decide the policy rate.
- Economists expect inflation to have climbed last month
- Mexican February inflation likely rose amid rising non-essential prices, data shows Tuesday
- Argentina set to signal another month of high inflation when it releases February figures on Thursday
- Investors will also be watching Chile’s February inflation data on Monday, which will likely be slightly above the midpoint of the target of 3.0% +/- 1 percentage point, according to Bloomberg Economics.