Bloomberg
Published Mar 16, 2020 06:05AM ET
Updated Mar 16, 2020 07:05AM ET
Wounded Emerging Markets Draw No Comfort From Big Fed Stimulus
(Bloomberg) --
It already seems clear that Friday’s rally was not the turning point that some emerging-market investors hoped for. Nor will the U.S. Federal Reserve’s emergency rate cut on Sunday night be enough to reverse what’s the fastest collapse in risk assets in more than a generation.
While governments increase efforts to slow the spread of the coronavirus, stimulus measures could be too late to prevent a global recession, with businesses suffering from both supply and demand shocks. The MSCI Emerging Markets Index of equities fell 4.6% on Monday, while a measure of currencies lost 0.5%, even after the Fed cut its key interest rate almost to zero and promised to boost its bond holdings by at least $700 billion. Along with the central banks of Japan, the Eurozone, the U.K., Switzerland and Canada, it also said it use swap lines to ensure the international supply of dollars.
South Korea and Sri Lanka each cut interest rates in emergency moves on Monday, while China pumped liquidity into its financial system.
“Global markets are facing their gravest challenge since the Great Recession,” Andrew Sheets, Morgan Stanley’s London-based chief cross-asset strategist, said in a note on Sunday. “Low rates don’t solve a shortage of semiconductors if a factory needs to shut down. A tax cut won’t show up as spending if consumers don’t have confidence in the broader public health response.”
Read: Central Banks Coordinate to Boost Global Dollar Liquidity
Emerging markets ended last week on a positive note, but it was small consolation. In the five days through Friday, MSCI Inc.’s index of developing-nation stocks crashed 12%, the most since the 2008 global financial crisis. The Mexican and Colombian pesos each depreciated more than 8% against the dollar to record lows, battered by Brent oil’s slide below $35 a barrel. Average sovereign dollar-bond spreads blew out by 122 basis points to levels not reached in more than a decade.
Listen: EM Weekly Podcast: All About the Virus and Monetary Responses
Asia Rates Bonanza
Written By: Bloomberg
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