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Disappointing News From BoJ Negative For Emerging Markets

ByDanske Markets
Published 06/11/2013, 09:00 AM
Updated 05/14/2017, 06:45 AM
EUR/PLN
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NWSA
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Emerging markets have generally been under strong sell-off pressure since this morning, both fixed income and FX as the sentiment towards emerging markets is deteriorating further.

Emerging market countries with large external imbalances and domestic problems, such as South Africa and Turkey, are suffering the most, but Hungary and Poland have not been spared. We could see some central banks stepping in to halt the sell-off. While we see the possibility of the Turkish central bank intervening in the markets, the South African central bank is likely to stay away, unless something dramatic happens. Regarding Poland, given that the Polish central bank (NBP) intervened last Friday after the EUR/PLN hit above 4.30, we could see it stepping in again if the zloty moves close to this level. If EUR/PLN remains around 4.30 and markets remain so volatile, the NBP could refrain from cutting interest rates in July.

The situation in Turkey, where people continue to protest against the Turkish government, is becoming increasingly out of control. The domestic problems in Turkey, in combination with continued emerging market selling, mean the risk of a further sell-off in Turkish assets is high. Hence, we continue to recommend being cautious regarding both Turkish FX and fixed income markets, as we believe the sell-off is very likely to continue. Given the risk of a further sell-off and high volatility in the markets, it is likely the Turkish central bank might step in to halt the sell-off.

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