Chapters
Market background
Initial optimism around looser US monetary policy was tempered at the end of January, when the US Federal Reserve (Fed) updated the market. Recognising that market expectations were running ahead of the central bank, Fed Chair Jerome Powell made it clear that a rate cut was unlikely in March. US GDP and jobs data remained strong, further feeding the narrative of a soft landing for the US economy. On the geopolitical front, tensions remained high following an attack on a US air base in Jordan, while Houthi rebel attacks on commercial shipping in the Red Sea continued to disrupt supply chains, which prompted joint military responses from the US and UK governments.
Within emerging markets (EMs), inflation continued to fall and come in lower than expectations in Central and Eastern Europe, while growth data remained soft. In Latin America, central banks in Chile, Colombia and Brazil cut their respective interest rates, with the trend of falling inflation continuing. In China, Q4 GDP was weaker than expected, and the People’s Bank of China (PBoC) announced a 50bps cut to the reserve requirement ratio.
Turning to EM debt market performance, the local currency bond index (JP Morgan GBI-EM) fell 1.5%, driven by currencies, which came under pressure from the stronger US dollar. In the hard currency debt market, the sovereign index (JP Morgan EMBI) returned -1.0%, while the EM corporate debt market (JP Morgan CEMBI) gained 0.6%.
