Weekly Overview: Emerging Market Rout; New Italian Government; Japan GDP; Oil surge continues

Emerging Markets are being routed with rising oil and a soaring US dollar

Here is the performance of the US dollar against emerging market currencies (figures in brackets are 1-month % change),

USD/MXN – Mexico 19.9450 (+8.17%)
USD/INR – India 67.9850 (+3.23%)
USD/TRY – Turkey 4.4894 (+10.07%)
USD/BRL – Brazil 3.7375 (+10.33%)
USD/ZAR – South Africa 12.7550 (+6.71%)

And emerging market bond yields are soaring, here are 10-year bond yields (figures in brackets are 1-month absolute change in yields),

Mexico 7.81% (+0.34%)
India 7.84% (+0.20%)
Turkey 14.53 (+2.26%)
Brazil 10.40 (+0.81%)
South Africa 8.63 (+0.62%)

Turkey has been particularly hit with political uncertainty about a potential election.

New Italian Government?

Even 11 weeks after the Italian parliamentary election, Italy doesn’t have a new government.

Inconclusive results have created political gridlock, but it appears anti-establishment parties League and 5-Star Movement might get together to form a government. Both parties want to massively increase government spending and are likely to get on a collision course with the European Union.

The Milan stock market index lost 3% during the week.

Italian bond yields soared during the week with the 2-year bond yield turning positive for the first time in over a year.

10-year yield 2.22% (up 0.33% during the week)
2-year yield 0.09% (up 0.22% during the week)

Japan GDP

Japan’s economy shrank in Q1 of 2018, the first time in 8 quarters, ending the longest stretch of economic growth since the 1980s. GDP fell at an annualised rate of 0.6%. Japan’s GDP numbers follows weak US, UK, German and French Q1 GDP growth. Private consumption and capital expenditure both slowed during Q1 2018. Private consumption has slowed globally during Q1 2018, probably a sign that wages are not keeping up with inflation.

Oil continues to soar

Oil has continued soaring with Brent topping $80 during the week, the highest since 2014.

Crude Oil closed at $71.35, up 40.65% during the past year
Brent Oil closed at $78.60, up 45.88% during the past year

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