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On The Move

October 2016

Emerging markets have had a good run so far this year. But will it last?

Dollar bullish investors were left empty handed in September following the Federal Reserve’s widely expected decision to keep US interest rates unchanged. It is becoming increasingly clear that the ongoing global uncertainties have created an unstable financial landscape which continues to keep most central banks cautious. According to FXTM Chief Market Strategist Hussein Sayed, although the decision to keep rates unchanged was warmly welcomed by global equities, the shocking divide between Fed officials is something which remains a cause for concern. With expectations hanging on a thin line over the Fed actually taking action this year, the Dollar could be vulnerable to further losses, he says.

EM Bonds Rally
Emerging market sovereign bonds continue to rally as yield-seeking investors flee ultra-low interest rates at home while expectations that the U.S. Federal Reserve would start to hike interest rates have yet to materialize. According to S&P Global Ratings the Fed is expected to start raising rates in December, “gradually bringing to an end the super-accommodative international financial environment from which emerging markets are benefiting.”

GCC Bonds Gain Momentum
The Gulf Cooperation Council (GCC) region’s bond market, which saw record sales in the first half of 2016, is expected to continue experiencing an increase in the volume of issuances. According to a note from Indosuez Wealth Management KSA and Kuwait inaugural bonds issuance are expected to generate significant interest from a broad range of international investors, similar to what was experienced with recently issued bonds from Abu Dhabi and Qatar. In the current environment of lower interest rates, the hunt for higher yields and longer bond duration is driving the demand for USD bonds higher. This situation is making bonds in ‘High Growth Markets’ a top performing asset class, with a growth of 11.5% on a year-to-date basis.

Yellow Metal Rallies, But…
Gold has had a great performance so far in 2016, and although prices dropped by 4% in first week of Oct, it’s still one of the best performing asset classes with 19.2% gains year-to-date. According to FXTM’s Sayed, of course speculations over a Fed rate hike and other central banks normalising monetary policy is not good news for the yellow metal which benefits from a world of negative interest rates. The recent selloff in gold was over exaggerated due to speculative positioning and breaking key technical support levels which triggered stop losses in derivatives markets. However, he still sees a couple of factors likely to support prices on the short to medium term.

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