Chapters
Market background
With ongoing signs of a slowing global economy and falling inflation, government bond yields (rates) continued to fall, reflecting in positive returns across fixed income markets.
Surprisingly weak data in the US labour market caused some alarm among market participants early in the month, before subsequent data releases again supported the outlook for a soft economic landing in the US, rather than a recession. More dovish rhetoric from the Federal Reserve (Fed) provided additional support for bond markets and risk sentiment later in the month.
All of this led to a weaker US dollar over the month, with many EM currencies benefiting from this, although rising interest rates in Japan are reducing the relative attractiveness of holding EM currencies against the yen – this was again reflected in traditionally 'high carry' markets in Latin America underperforming. In contrast, 'Asia's EM local currency debt markets were key beneficiaries of the dovish shift by the Fed; falling US interest rates will allow Asian central banks to bring forward their own rate cuts.
Against this backdrop, the asset class had a strong month. In the local currency space, the JP Morgan GBI-EM returned 3.1%, driven primarily by EM FX but with healthy moves in rates markets. While concerns over the global macroeconomic outlook weighed on some high-yield hard currency markets early in the month, a subsequent rally in risk assets prompted a recovery there; overall, the sovereign index (JP Morgan EMBI GD) rose by 2.3%.
