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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (21255)	8/24/2018 6:56:56 AM
From: elmatador	Respond to of 33421

Emerging markets spur deflationary headwinds Percolating contagion hits major miners and eurozone financials Michael Mackenzie Emerging markets are in trouble and that’s not good news for the global economy, miners and banks as a deflationary headwind gathers momentum. Alongside Turkey, the likes of Argentina, Chile and South Africa are notably reliant on capital inflows. Also on that list is Russia, whose rouble has come under pressure this week. EM currencies are not just lagging the US dollar, they are also faring poorly across the board. In trade-weighted terms, the yen and euro for example are holding up. Beyond the current flirtation with a bear market for MSCI EM equities, a more worrying development has been the slide in prices of industrial metals. An index comprising futures prices for aluminium, copper, zinc and nickel has bounced this week, but still sits 18 per cent off its high set in April. A look at the biggest fallers on London’s FTSE 100 so far this month is dominated by miners such as Antofagasta, Rio Tinto and Anglo American. Another sign of percolating contagion is the poor performance of eurozone financials as markets price in the risk of an EM debt shock spurring losses for foreign lenders. The Euro Stoxx Banks index has slid nearly 9 per cent this month and loiters at its lowest level since late 2016. “The combination of stronger currencies, lower commodity prices, and potentially weaker bank credit creation is a disinflationary headwind for developed markets in the near term,” notes BCA Research. When we look at the US, a key market to watch is that of 10-year inflation break-evens. Expectations of inflation for the next decade have eased and are poised to test the 200-day moving average, a measure of momentum that the index has stayed above since last November. As the latest Federal Reserve meeting minutes revealed a number of policymakers watching bond yields for possible recession warning signals, the trigger for a much lower nominal 10-year Treasury yield appears well and truly primed. Read More: Commodity prices suffer as emerging markets tumble . ft.com