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Bloomberg: Rising Rates Darken Emerging Markets Horizons

Asian markets are mixed but tacky on Monday morning. While the Bank of China PBoC does not change rates, US 10- and 30-year bond yields, which are as high as Japan’s very weak February PMI data, are also cause for concern. The weakness of the US dollar this morning is preventing strong selling in Asian equity markets. Dollar / TL reached the level of 6.96-97, February data such as the critical capacity utilization rate and the Reeel Cut confidence index to be announced today will be followed.

 

In the Asian session this morning, while the 10-year indicative GDS performance for the whole world rose to 1.38%, experts say they expect 1.5% to be tested soon. Velakin said that if inflation and inflation expectations do not rise to a new rise in the US, it is difficult for the 10-year return to rise to 1.75%, defined as the critical barrier to the rally of the S & P500.

But despite the strong global wind blowing by TL highly resistant to Bloomberg.com, Turkey was included in the Emerging Markets Coverage (GOP Countries = GOI) began unease. In the article entitled “Rising US Yields Hovering Over Emerging Markets Debt to the Fed,” it was explained that rising US GDS interest rates triggered the rally in the US GDS. GOP last week. The importance of Fed Chairman Jay Powell’s remarks this week was stressed.

Last week, emerging market bonds denominated in local currency suffered the worst week since last September. Dollar-denominated bonds, on the other hand, have fallen sharply since January. Worse still, implied volatility in GOU FX and stocks, a fear signal similar to the VIX, has achieved the fastest rise in 2021.

While the Central Bank of Russia has decided to end the rate cuts, inflation data from the two Republican giants, Brazil and Mexico, will be closely monitored this week.

Global funds are still pouring money into the Republican Party with the vision that the Fed will give dollar liquidity almost free for a long time. Remarks by Fed Chief Jay Powell, who will report to Congress on routine monetary policy developments this week, will be closely watched. Powell will surely echo the FOMC’s view that there are still very weak holes in the US economy and that fiscal and monetary support will continue. But if the slope of the US yield curve (the widening of the gap between short-term and long-term interest rates) disturbs the Fed, your answer to this question is very important.

Speaking to Bloomberg, Saxo Bank’s chief currency strategist John Hardy said: “Loans from the US Treasury will multiply. “The Fed will continue to buy bonds on a mandatory basis so that interest rates do not rise.” According to Hardy, rising US government securities rates may not adversely affect risk assets. However, it is important that the real interest rate is low.

On the other hand, if the yield on US bonds increases 25bp / month or more, according to the original Bloomberg study, GOP FX is selling. The yield has already increased 27 basis points in February.

The oil outlook will also affect the Republican Party closely. On Friday WTI and Brent declined slightly as the cold snap left behind in Texas. Despite declining demand for crude oil, OPEC + Russia will have to extend quota restrictions at the next meeting.

In our world, where global funds are forced to seek returns in exotic and risky locations and assets, it is not easy to believe in the long-term selling waves in the GOP. However, if the dollar index adds to the rise in US interest rates, energy and food prices, the game plans are distorted. While the dollar index was trading around 90 sellers slightly in Asia this morning, open dollar positions in futures were observed to be closed.

 

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