Emerging Markets Are Dreading Bernanke’s Next Move
The true depth of the United States Federal Reserve’s power has been on display recently, with emerging markets experiencing a slowdown as their U.S. and other large investors worry about a lack of future Fed stimulus. Banks including JPMorgan Chase & Co. (NYSE:JPM), HSBC (NYSE:HBC), and Standard Chartered Plc, could face a reduction in revenue, according to Cazenove, should Ben Bernanke decide to slow down the asset-purchasing program ‘quantitative easing,’ and allow interest rates to rise.
A recent selloff in emerging markets recently has induced a drop in foreign bond rates, with rates falling 3.5 percent in May, and Brazil experiencing its largest drop in rates since 2008. Cazenove, an investment firm owned by JPMorgan Chase, issued a report titled, “Fed Tapering: Who is Afraid of EM Selloff? We Are!” Analysts involved found that Credit Suisse Group AG (NYSE:CS) and Royal Bank of Scotland Group plc (NYSE:RBS) are the “most exposed to a slowdown in the securitization market.”
The ‘tapering’ of Fed easing will largely be tied to labor market improvements in the U.S. economy later this year, as well as manufacturing numbers, which are currently stagnant. However, economic confidence is up, and indicators point to momentum in manufacturing later this year — all signs that the Fed will look to move away from stimulus.