EMs cannot withstand another taper tantrum, says IMF: Emerging Markets whose balance sheets are stretched due to covid-19 could see significant damage to their economies in the event that the US Federal reserve instigates a repeat of the 2013 so-called Taper tantrum IMF’s chief economist Gita Gopinath told the Financial Times. While already grappling with the havoc wrought by covid, EMs are not in the best shape to dodge “a tantrum of financial markets originating from the major central banks,” Gopinath said. Inflationary pressures pose an additional risk, and the US may be pressured to tighten policy even sooner if high inflation persists, Gopinath says.

What’s a “taper tantrum,” you ask? In 2013, an announcement by the Fed that it would roll back its large bond-buying program (rolled out during the “Global Financial Crisis” of 2007-2008) sooner than expected triggered an exodus of capital from emerging markets. The fear was that the move would push down US bond prices and drive yields higher. This triggered an exodus from EMs for fear of what rising rates in the US and a stronger greenback would mean for emerging economies. Statements by Fed head Jerome Powell at the Jackson Hole summit last week signalling that the Fed could begin rolling back its program as early as this year have put EMs on the alert.

The Fed’s tapering news is likely to add an additional burden to EMs, which have already been aggressively tightening in response to rising inflation. Russia, Mexico and Chile have all raised interest rates this year, while Brazil this month went ahead with a 100-bps rate hike — its biggest since 2003. That could ultimately put more pressure on Egypt to keep rates high as the country looks to maintain the competitiveness of the USD-EGP carry trade.

And some EM currencies are already losing steam as central banks change gear: Speculation concerning when central banks may reel in the pace of monetary-policy tightening have seen Brazilian and Russian currencies, which were among 1H2021s biggest gainers, sinking almost 4.5% since July, outstripping losses recorded by any other major currency tracked by Bloomberg.

A new covid-19 outbreak in Malaysia could prolong the global chip shortage: The major center for chip testing and packaging has been hit with a fresh wave of infections that has forced the implementation of strict lockdowns, hampering production at factories and jeopardizing plans for the rebound of global semiconductor supply chains, the Wall Street Journal reports. The delays have intensified pressures on automakers, who had already been forced to cut down production due to the ongoing chip shortage, which is now expected to continue into 2022.

THE CLOSING BELL-

The EGX30 fell 0.1% at yesterday’s close on turnover of EGP 1.65 bn (12% above the 90-day average). Foreign investors were net sellers. The index is up 2.5% YTD.

In the green: Heliopolis Housing (+4.9%), Raya Holding (+4.1%) and Cleopatra Hospitals (+3.7%).

In the red: Speed Medical (-5.1%), Pioneers Holding (-3.3%) and GB Auto (-1.9%).

It’s looking fairly bright out there this morning, ladies and gentlemen, with most Asian benchmarks largely in the green and futures suggesting the trading week will got off to a nice, green start at the opening bell in Europe and North America.