JPMorgan expects the Federal Reserve to raise rates again in December and maintains its call for a steeper U.S. Treasury curve. It remains overweight emerging-market currencies, but rate volatility and growth pressures are prompting the bank to narrow its selections. Meanwhile, economic growth in multiple countries is accompanied by falling oil demand.
Since the Iran conflict began, the hit to emerging-market growth and inflation has been smaller than Goldman Sachs initially expected, but further oil price increases could still have a significant impact. The bank estimates that supply-driven price increases do more damage to growth in oil-importing economies.
Emerging-market growth remains above trend, and inflation has risen less than expected. Goldman Sachs believes policy interventions and other growth drivers have cushioned the oil price shock, but net-importing economies still face pressure on growth and external balances if oil prices rise further.
JPMorgan believes that continually upward revisions to weather intensity forecasts, lower agricultural output, energy prices and narrowing policy space could together amplify risks in emerging markets; the impact on equities varies by sector and company.
Bank of America’s quantitative indicators remain biased toward emerging-market currencies, but upward revisions to growth expectations have peaked and the dollar-weakness trade is fading. Interest-rate markets are diverging, while external debt positioning and valuations constrain the scope for a rebound.
