Fed More Important for EM Assets Than Trump and Trade

LAGOS (Capital Markets in Africa) – That’s the message EM investors can take on board as they weigh up U.S. rate reductions and next week’s G-20 meeting — and a dovish Fed should overcome trade fears.

There are opposing forces at play. Donald Trump’s desire for lower interest rates — markets say there’s an 84% chance the Fed cuts by the end of July — is making EM traders giddy about a weaker dollar. But his penchant for trade tariffs is something they fear will slow U.S. and global growth.

For now, the prospect of lower rates matters the most. Trump’s bark is often worse than his bite. His threats against Mexico last month and subsequent announcement of a deal were seen by some investors as a mere publicity stunt. Moreover, investors are already pricing in little progress on the trade front at this month’s G-20 meeting, according to Bank of America Merrill Lynch, adding the meeting would probably have to end in “complete acrimony” to rock EM all that much.

The situation might change if Trump thinks doubling down on trade wars is the best way for him to win re-election next year. Right now the Fed should propel gains in

Source: Bloomberg Business News