UBS | Improved EM asset performance this year has been driven by a) the tremendous credit stimulus from China, b) a change in the reaction function of the Fed, which helped EM currencies rally against the USD, and, c) the rebalancing in the oil market. Investors are already questioning the first two, but oil has continued to trade very well.
James Alexander via Historinhas | A new book has just been released on problems with central banks. The best chapter looks like the one on group-think. John Taylor, one of the book’s editors describes it thus: “Kevin Warsh’s (ex-FOMC member) report on the lack of effective deliberations at the FOMC is one of the most surprising parts of the book.
The recent disclosure of the April FOMC minutes has come as a shock. Investors expected a cautious wait-and-see stance by the Federal Reserve at that meeting. But now we discover that a majority of its members openly supported a rate hike at the June gathering, should macro-economic delivery prove reasonably upbeat.
Zhu Haibin via Caixin | A recent government plan to invest 4.7 trillion yuan in over 300 infrastructure projects from 2016 to 2018 received wide attention and raised questions about whether this was another massive stimulus similar to the one rolled out in 2008 in the aftermath of the global financial crisis.
The way companies are behaving is creating distortions in the stock markets, particularly on the other side of the Atlantic. Share buybacks over there have increased by 20% in the first quarter of 2016 from end-2015 and by 31% in year-on-year terms, based on S&P Dow Jones Indices.
UBS | The recent credit market sell-off, spate of defaults, spike in Chinese yields and spreads, bond issuance cancellations basically reflect: 1) investors re-pricing credit risk and policy easing expectations.
AXA IM | Argentina’s 200-year history is rich in sovereign debt defaults. The sovereign issued its first bond in 1824 with a maturity of 22 years, but it defaulted four years after issuance. Resolving that default took almost thirty years. Since then, the sovereign defaulted seven more times, most recently in 2001 and 2014.
Caixin | Financial markets have been jolted by a number of defaults on corporate debt in recent weeks, with state-owned Dongbei Special Steel Group Co. missing a 700 million yuan repayment on May 5.
James Alexander | At first glance the abstract of this brand new research piece, The Macroeconomic Risks of Undesirably Low Inflation, from the Federal Reserve Board sounds rather dry and innocuous.
China’s Transport Ministry has announced a $770 billion three-year investment plan to improve the country’s infrastructures. For Bankinter’s analysts the investment may look very significant, but there are some uncertainties which call its effectiveness into question.