This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Central Bank Uncertainty Threatens Emerging Markets

NEW YORK ( TheStreet) -- Commodities markets broadly sold off on Wednesday due to the uncertainty over the course of action in central banks of developed economies.

The Federal Reserve left markets with a dovish tone at its policy decision last week. Since the event Fed board members have come out and hedged their statements by claiming to be hawkish as well, setting their sights on policy tightening before year's end. Ben Bernanke has tried to maintain a balanced approach while figuring out how to rein in the Fed's record high balance sheet. Keeping investors in the dark while being completely transparent looks to be doing the trick.

Similarly, the Bank of Japan rattled markets recently as their commitment to stimulus has been called into question. They too have set out to balloon their central bank's balance sheet in order to elicit growth in investment for their economy. This initially led to the deterioration of the yen's value, but more recently uncertainty over the policies validity has pushed demand back into the currency. If Japan cannot keep its debt to GDP in check then it runs the risk of scaring off investors and pushing the borrowing rate to unsustainable levels.

All of this ties into the fear that the rest of the world suffers with regards to global demand. If major economies are dysfunctional, then the trickle down to emerging economies will have its consequences.

The chart below is of PowerShares DB Commodity Index Tracking (DBC). Commodities have borne the brunt of waning global demand expectations. Countries such as Australia have lowered their cash rate in order to ease the pain of lower commodity prices.

If major economies are not producing enough output and instead clinging onto growth to avoid recessions, demand will not show a sustainable improvement.

Continued uncertainty over monetary policy in major economies will weigh on global asset markets.

On the same note, iShares MSCI Emerging Markets (EEM), which bears a similar price action to that of the commodities chart above, has seen a strong sell off due to similar uncertainty.

Emerging market equities have rolled over slowly after bouncing back from its June lows. The initial reaction to U.S. policy tightening and a stronger dollar was to selloff.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
SYM TRADE IT LAST %CHG
DBC $17.98 -1.20%
EEM $42.75 0.35%
AAPL $132.48 0.83%
FB $81.20 0.89%
GOOG $541.46 -0.19%

Markets

DOW 18,246.53 -39.21 -0.21%
S&P 500 2,128.08 -2.74 -0.13%
NASDAQ 5,093.5090 +2.7150 0.05%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs