This week, investors have their hopes on crucial central bank decisions in some of the emerging markets that have been hit adversely for a prolonged reprieve from the latest collapse.
With the way Russia and Turkey took traders by surprise with more hawkish-than-expected policies, there is likelihood that the South African Reserve Bank will also increase its interest rates on Thursday as the nation’s currency, Rand has fallen to a two-year low. Policy makers in Brazil will have a meeting on Wednesday to decide interest rates as the nation’s currency earned the reputation as the worst-performing developing-nation means of exchange after Peso, the Argentine currency.
According to Per Hammarlund, the chief emerging-market strategist at SEB AB in Stockholm, he said there is an enormous pressure on South Africa and Brazil to increase their interest rates as their currencies have fallen in the current year. Nevertheless, with a modest inflation rate in Brazil and a rapid inflation rate in South Africa in July, it is likely that the central bank in Brazil will possibly stay on hold at 6.50 percent while South Africa might increase the rate by 25 basis points to 6.75 percent.
The emerging markets received a boost in the previous week as the central bank of Turkey offered a significant, unexpected 625 basis-point interest rate increase while Russia stiffened the rate regime for the first time in the last four years. Options traders still maintain a bearish position on the Turkish currency, Lira in emerging markets in the next month after the Turkey President Recep Tayyip Erdogan reiterated that increased rates would not slow the inflation pace and also issued a warning that his restraint is not long-term as it is for a short period.
According to Goldman Sachs Group Inc., it would instead utilize the stability of the Turkey’s Lira to re-engage in other profitable currencies badly affected by Turkey’s toxicity. The currencies are the Mexican Peso, Rand, Real, and the Ruble. In a report written by strategists and the New York-based Zach Pandl, it is confirmed that Turkey will face other challenges as its economy is decelerating at high speed.
According to Per Hammarlund, the trade conflict between the United States and China will not be ending soon as there would be no real progress in trade discussions between these two countries before the mid-term elections of the United States are conducted. The Wall Street Journal reported that Beijing is considering rejecting the offer of trade negotiations headed by the United States Treasury Secretary, Steven Mnuchin. Based on account of the individuals who are involved in the matter, President Donald Trump had gone ahead with the imposition of tariffs on $200 billion of Chinese products in spite of the efforts of the United States Treasury Secretary to begin discussions with Beijing in a bid to put an end to the trade conflict.
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