Contents

Market Overview

Macro Review

Volatility was the theme of the week. Investor caution was evident with the soon-approaching U.S. election, strong economic data, question marks around Chinese stimulus, and ever-pressing geopolitical risks. Yields on U.S. Treasury bonds moved to an intra-day peak of 4.25% last week. The recalibration of sticky inflation, strong jobs data and limited fiscal discipline from either U.S. Presidential candidate weighed on markets. The idea of “Trump trades” being priced-in stole most of the market narrative, with Polymarket and Betfair implied probabilities of a Trump presidency rising above 60%. These factors contributed to the MOVE index rising to 130pts, which is the volatility index of U.S. Treasury yields. Meanwhile, the Bank of Canada cut policy rates by 50bps, but the comments from Governor Macklem were more telling that price pressures are no longer broad-based. The Central Bank also upgraded its 2025 GDP projections in a positive move. A similar sentiment on inflation was shared by the Bank of England’s Governor that inflation is fading faster than expected, but this was complicated by the presence of the Labour Government budget due on October 30th. Elsewhere, the focus was on global PMIs, but the theme remained consistent with weak Eurozone data and strong Indian readings. In fact, the softer U.S. PMI allowed for U.S. Treasury yields to decline briefly on Thursday. The next question for U.S. data is seasonality with Hurricanes Helene and Milton. With a mixed global economic outlook, gold moved to another all-time high. However, oil for the most part was lower on EIA inventory data.

EM Credit Update

Emerging market sovereign credit (cash bonds) ended the week down -1.0% with credit spreads 6bps wider. Sovereign outperformers were Argentina, Ukraine and Honduras, while Sri Lanka, Mozambique and Bolivia underperformed.

The Week Ahead

The Treasury quarterly refunding announcement on Monday will determine the fiscal path ahead for the U.S. economy and the deficit for 2024. The week will then close out with the non-farm payroll report, just days before the U.S. election. In the near-term, a key Parliamentary Election over the weekend will take place in Georgia. The “Georgian Dream” has not faced strong opposition in 12 years, but its authoritarian support has waned in favor of smaller parties. It is set to be the most contested election in its recent history. Elsewhere, the UK budget is due on October 30th, which will be a key driver for Gilt yields. The event shares the same date as the South African Medium-Term Budget Policy Statement. South Africa could see some heightened volatility given that its development bank (DBSA) was rumored to have secured a credit line from Russia’s VEB (a U.S. sanctioned bank), although it was subsequently denied. We can also expect PMIs out of China. Global interest rate decisions are limited to Colombia, Japan and Ukraine.

Highlights from emerging markets discussed below: IMF World Economic Outlook showed a stable but underwhelming growth picture.

Fixed Income
Equities
Commodities

Source for data tables: Bloomberg, JPMorgan, Gramercy. EM Fixed Income is represented by the following JPMorgan Indicies: EMBI Global, GBI-EM Global Diversified, CEMBI Broad Diversified and CEMBI Broad High Yield. DM Fixed Income is represented by the JPMorgan JULI Total Return Index and Domestic High Yield Index. Fixed Income, Equity and Commodity data is as of October 25, 2024 (early-morning).

Emerging Markets Weekly Highlights

IMF World Economic Outlook showed a stable but underwhelming growth picture

Event: The World Economic Outlook reaffirmed its global growth forecast for 2024 at 3.2% (the forecast was increased 0.1% in July). However, global growth in 2025 was reduced by 0.1% to 3.2%. The IMF increased the U.S. growth forecast by 0.2% to 2.8% in 2024 and by 0.3% for 2025 to 2.2%. Meanwhile, the IMF downgraded Euro Area growth by 0.1% and 0.3% in 2024 and 2025. Advanced economies are set to grow 1.8% in 2024 and 2025, while emerging and developing economies are expected to grow at 4.2% over the same points.

Gramercy Commentary: The EM-DM differential slipped to 2.4ppts. This was attributed to higher advanced economy growth. However, it was 0.1% lower than the July report and now 0.4% lower than the April report. The IMF forecasted EM growth of 4.2% in 2024 and 2025, while the 2025 growth figure was revised down 0.1%. The Chinese slowdown is expected to be gradual. The persistent weakness in the real estate sector and low consumer confidence weighed on growth forecasts. However, the IMF has only projected growth to slow to 4.8% in 2024 but down to 4.5% in 2025. The IMF does cite that better-than-expected net exports has improved the outlook for the Chinese economy.

Emerging Markets Technicals

Emerging Markets Flows

Source for graphs: Bloomberg, JPMorgan, Gramercy. As of October 25, 2024

For questions, please contact:

Kathryn Exum, CFA ESG, Director, Co-Head of Sovereign Research, [email protected]

Petar Atanasov, Director, Co-Head of Sovereign Research, [email protected]

James Barry, Director, Deputy Portfolio Manager, [email protected]

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IMF