August 15, 2022 14:37 GMT
- Brazil has seen the largest financial conditions tightening since the beginning of 2021 according to the GS FCI, with a 7.9% increase from January 2021 to the mid-July high. The speed of tightening by the Brazilian central bank is largely accountable for this sharp shift in tightness, hiking by 11.75% over this period.
- Following Brazil, GS FCI tightening over the period from Jan 2021 to June/July 2022 highs is Turkey (up 7.4% albeit largely due to economic instability powered by a stark depreciation of the lira), Mexico (+3.3%) and South Africa (+2.4%).
- The GS FCI has seen a recent shift towards a loosening trajectory since mid-July. With both Brazil and Indonesia seeing some of the swiftest loosening, commodity exporters could have the upper hand here, however it is too early to confirm the onset of a more persistent downwards trajectory.
- Financial conditions seeing some relief again is underpinned by the USD coming off its peak and equities coming off bottoms following the substantial sell-off. Furthermore, markets have already largely priced in the bulk of US hiking. This morning the PBOC unexpectedly cut rates after a slew of weak economic data, adding to the general consensus of global monetary tightening coming to a close around year-end as real rates begin to move out of negative territory (more on this here).
- Despite this year's rash global tightening, financial conditions remain relatively loose for EMs compared to historical levels.
Source: MNI / Bloomberg
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