Rollout Gives Fresh Spur to Low-Rate-Loving Emerging Markets

(Bloomberg) -- Emerging markets are closing in on the final phase of 2020 with investors anticipating further stimulus while keeping a close eye on the rollout 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. The suspense 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.”

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Mexico became the first in Latin America to join the U.K., Canada and the U.S. as countries that have granted emergency use of the Pfizer vaccine. Egypt said it will start vaccinating after it took delivery of the first shipments of the Chinese-made Sinopharm Group Co.’s vaccine late last week.

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 delivered surprise 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 said earlier 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 a full 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”
• Policy makers in Hungary and the Czech Republic will probably keep borrowing costs on hold on Tuesday and Thursday, respectively
  • Read: Hungary Inflation Slows Further to Put Deposit Tender in Focus
  • Read: Slowing Price Growth Boosts Argument for Czech Rate-Hike Delay
• Central banks in Kazakhstan, Uganda, Mozambique will also decide on policy

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 to Bloomberg 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
• Investors will watch meeting minutes out of Brazil on Tuesday. The central bank surprisingly last week signaled it may be unable to fulfill its pledge to keep interest rates at a record low for long, due to rising inflation expectations
• The Mexican peso was the worst performer in emerging markets last week, while the Colombian peso and Brazilian real were among the top gainers

Data and Events

• China’s industrial production, retail sales and fixed-asset investment are all expected 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 managers surveyed 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 conduct liquidity operations via medium-term loans on Tuesday
• Indonesia and India will report November trade figures on Tuesday. Exports in the former are seen rising for the first time since June
  • Stronger growth and a low interest-rate environment will continue to benefit lagging stock markets like those of Indonesia and India, which will likely see a much better 2021, according to BlackRock Investment Institute
• In what might be a welcome change for policy makers, India’s inflation numbers due Monday are likely to show a slowdown in November
  • Price pressures are still turning out to be more persistent than expected, Bloomberg Economics said, just as the government is said to be considering recommending a looser inflation target for the central bank
• South Korean employment data on Wednesday may show joblessness edged higher in November
• Argentine inflation for November, scheduled for Tuesday, may show another relatively high reading for the month, despite currency and price controls, Bloomberg Economics forecasts
  • 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.

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