Emerging Market’s Laughing Off a “Hawkish Fed”

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Rate Hikes?  What Rate Hikes?

CBOE’s Emerging Markets ETF Volatility Index getting closer to a three year low this week, after a 17% plunge in since Friday.

Something happened on the way to the Fed rate hike tomorrow, global markets forgot to take the U.S. central bank seriously.

In 2015-16, the Fed promised the world seven rate hikes, then only delivered one before the U.S. presidential election and another after the election of Donald Trump.  There’s a price to pay for playing politics with rate hikes, and now the FOMC is paying it.

The Boy that Cried Wolf

Globally, investors are laughing off the Fed.  “Fool me once shame on you, fool me twice shame on me” is their thinking.

To add further insult, the world’s biggest bond traders see no reason to stay away from long-term Treasuries as the Federal Reserve is on the brink of its most aggressive round of rate hikes in more than a decade.  The U.S. 5s – 30s curve is the flattest in years, there’s strong demand for long term bonds even in the face of Trump’s growth agenda and “rate hikes.”

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CBOE Emerging Markets ETF Volatility Index

EM Vol

“Volatility isn’t just fading in U.S. stocks any more, if option-based indicators similar to the VIX Index are any guide. A CBOE index linked to an exchange-traded fund for European and Asian developed markets recorded its biggest-ever loss on Monday. The gauge closed at its lowest since calculations began in 2008.”

Bloomberg

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