US Central Bank Chair Signals Rate Hike

Fresh signals for a US interest rate hike have sent emerging-market assets tumbling for the
second day. Federal Reserve Chair Janet Yellen reinforced expectations for a rate hike after nearly
a decade.
The MSCI Emerging Markets Index, designed to measure equity market performance of emerging
markets, fell 0.3% in Hong Kong. Stocks of industry giants Cnooc Ltd. And PetroChina Ltd.
dropped as US crude oil futures fell below $40 per barrel.
The Hang Seng China Enterprises Index plunged on Thursday, the first time in three days.
Meanwhile, South Koreas Kospi dropped 0.9% with Samsung Electronics declining 0.9%. The
smartphone maker was the biggest contributor to the MSCI Emerging benchmarks downward
trend.
Stock indices in India, Malaysia, Indonesia and the Philippines also retreated amid increased
speculation on an US rate hike.
Currencies in the emerging markets also depreciated. Indonesias rupiah fell 0.4% against the US
dollar, hitting its lowest level in nearly two months. Indonesia is struggling with declining prices
of major commodities such as coal and metals.
The currencies in India, Poland, Bulgaria and Romania all slumped 0.2% versus the greenback on
December 3. Colombias peso dropped 1.5%. Chiles peso and Brazils real were nearly flat
before Ms. Yellens recent statement.
Aside from the possibilities of higher US rates, emerging market assets were also affected by a
drop in oil prices. The oversupply of oil is pushing down crude in global markets.
Fresh signals from the Fed
On Wednesday, Chair Yellen remarked that the US is ready for higher borrowing costs. The
worlds largest economy has kept its interest rates near zero since the aftermath of the global
financial crisis.
Speaking before the Economic Club of Washington, Ms. Yellen said: I currently judge that US
economic growth is likely to be sufficient over the next year or two to result in further
improvement in the labor market. Job gains rose to near-record and unemployment rate is
expected to hold steady at 5%.
Ongoing gains in the labor market, coupled with my judgment that longer-term inflation
expectations remain reasonably well anchored, serve to bolster my confidence in a return of
inflation to 2% as the disinflationary effects of declines in energy and import prices wane, the
central bank boss added.
The record-low rates have boosted the demand for riskier assets in developing markets. The
Feds fresh signals stimulate speculations that investors will be shifting back to US assets.
Analysts predict the Fed will be raising borrowing costs before the year ends. It is also expected
that the US central bank will start tightening policy this month, driving capital away from
emerging market assets.
According to Standard Bank analysts, a positive response is anticipated if investors can be sure
that the US economy is solid. The Fed might even abandon life-off altogether if it feels the
economic risks are too great, they added.
Meanwhile, the European Central Bank (ECB) forecast to further cut its deposit rate and expand
its asset-buying program. Sim Moh Siong, a foreign exchange strategist at Bank of Singapore,

said: The Fed is on course for a December rate hike. Theres a small chance the ECB may overdeliver, but the market has already priced in significant easing.
Emerging Markets, ECB, Fed, Rate, Yellen