Emerging Markets Look to Vaccine Rollout, Stimulus for Next Spur

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

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.

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. Thesuspense 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 deliveredsurprise rate cuts in November
    • Signals 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 saidearlier 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 afull 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 year
      • Nabiullina 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”
      • Read:Hungary Inflation Slows Further to Put Deposit Tender in Focus
      • Read:Slowing Price Growth Boosts Argument for Czech Rate-Hike Delay

      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 toBloomberg Economics
      • Colombian policy makers will probably also keep their monetary policy rate on hold on Friday, according to economists surveyed by Bloomberg
        • October retail sales and industrial production data, to be released on Monday, may provide traders with clues on the scope of Colombia’s recovery

        Data and Events

        • China’s industrial production, retail sales and fixed-asset investment are allexpected to see acceleration, according to Bloomberg Economics
          • Further evidence of China’s recovery is almost sure to stoke optimism on the country’s stocks for 2021. Fund managerssurveyed by Bloomberg see the Shanghai Composite Index rising about 10% from current levels by the end of next year
          • The People’s Bank of China will conductliquidity operations via medium-term loans on Tuesday
          • Stronger growth and a low interest-rate environment will continue to benefitlagging stock markets like those of Indonesia and India, which will likely see a much better 2021, according to Blackrock Investment Institute
          • Price pressures are still turning out to be more persistent than expected,Bloomberg Economics said, just as the government is said to beconsidering recommending a looser inflation target for the central bank
          • On 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.

          — With assistance by Karl Lester M Yap, and Aline Oyamada

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