How Rising US Economy is Impacting Emerging Markets?
The US economy managed to attract all the attention in the week ending on October 5, 2018. The higher rates, Fed’s Chairman Jerome Powell’s strong outlook as well as wage growth fueled the optimism in the minds of the global investors. However, increase in the US dollar is not beneficial for the emerging markets as the currencies of these economies generally experience a hit. Therefore, the Australian dollar has seen a downtrend; however, the central bank of the country is perfectly okay with its prevailing trend. Apart from the currency headwinds seen by the emerging economies, higher prices for oil is also another area in which these economies are experiencing transitions.
The gap between the US 10Y treasury yield and that of Australian counterpart is expected to further rise primarily because the US would increase the interest rates at a faster pace in the coming year and the Australian central bank might hold the rates at the present levels. The oil prices are being fueled by the concerns regarding the Iran sanctions which would be starting from November 2018. The sanctions imposed on the Iran’s crude exports would make the oil market tighter leading to higher prices thus, making the lives of the emerging economies more difficult. Moreover, the exports of crude from Iran have witnessed a declining momentum.
Is Inflation a Concern for the US?
The strong economy is an indication for the higher inflation. It seems like the market participants are least concerned about the increase in the inflation. The primary reason for this could be that they know Federal Reserve would help in the case of higher inflation. However, one matter of concern is elevated prices of oil due to the difficulties arising from the production as well as supply. However, tariffs could also be considered as one of the reasons.
A Look at Australian Retail Numbers and Broader Market
The retail sales numbers released today exceeded the market expectations as the retail sales witnessed the rise of 0.3% in the month of August because of the increased spending among the consumers. The metrics released by Australian Bureau of Statistics stated that restaurants, cafes as well as takeaway food outlets recorded an increase of 0.7% in their sales in the August month. However, retail sales with regard to personal accessory, footwear as well as clothing witnessed the rise of 0.8%. The market participants believe that the growth might be temporary and would not last as the oil prices would continue to dent the sentiments.
The S&P/ASX200 ended the day on the positive note. The index closed at 6185.5 which implies an intraday increase of 9.2 points or 0.1%. Lynas Corporation Limited (ASX: LYC) advanced 9.846% while St Barbara Limited (ASX: SBM) rose 6.322%. However, Appen Limited (ASX: APX) and Beach Energy Limited (ASX: BPT) ended the day by witnessing the decline of 4.066% and 3.653%, respectively.
What to Look Out for Next Week?
The entry of the Chinese market in terms of trade on the global stage, post a long holiday, could impact the Australian markets. Due to the absence of activity at Chinese front, there were not many updates regarding the trade wars. In the upcoming week, market participants would be tracking the performance of Yuan. Another important metric that would be of interest for the market players would be the inflation data of the United States which would provide a view on the consumer prices.
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