South Africa’s rand. Peru’s nuevo sol.
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In the minutes, Fed officials appeared to move closer to raising interest rates for the first time in almost a decade but remained concerned that the economic slowdown in China could pose risks to the U.S. economy. Investors there worry that China and other major emerging economies will reduce their imports.
The dollar also lost its edge against other major currencies.
The Dow Jones industrial average fell 284 points, or 1.7 percent, to 16,706 as of 11:11 a.m. Eastern time. Tokyo’s Nikkei index shed 3 percent Friday.
By applying competitive devaluation, all of these emerging countries have an opportunity to “import” growth from developed economies. Most emerging markets are not that cheap. “It could be because of massive capital outflows”, he said.
Consider Peru. Three years ago, its capital, Lima, was chosen to host an worldwide Monetary Fund’s meeting of global finance officials in what was seen as a celebration of Latin America’s arrival in the economic big leagues.
And Peru boasts one of the region’s healthiest economies.
Great challenges will therefore continue to persist until the end of this year and beyond, in the effort to restore balance in the global economy. Its currency, the real, is down 7 percent the past month and more than 30 percent the past two years.
It’s hardly just Latin America. U.S. stocks were set to fall as well. Turkey’s lira and the Russian rouble also dropped.
In early trading, France’s CAC-40 declined 0.6 percent to 4,752.29 points and Germany’s DAX was off 0.5 percent at 10,374.54. The institute is on the verge of cutting that forecast further. “We expect this distortion to correct in the coming months“. The result can be a potential decline in global trade, eventually harming all countries.
The Chinese economy is slowing more sharply than most people had expected from the double-digit growth rates of the mid-2000s. Netflix, which is up about 130 percent since January, fell 8 percent. That step ignited a semi-panic.
China’s economic slowdown will actually force positive reforms, Forbes says. Analysts predicted the likes of Egypt and Nigeria could be next to devalue their currencies.
Nariman Behravesh, of IHS Global Insight, said emerging markets are arguably facing “the toughest environment since the Asia Crisis of the late 1990s” and predicted that they will drag on global growth into next year.
South Africa is battling labor strife.
Investors will look for clues about when the U.S. central bank will begin to raise interest rates for the fi…
“There is tremendous risk in this market right now; in addition, you haven’t had a more than 5 percent correction (in U.S. stocks) in years, so we are so overdue for a correction”.
U.S. Treasury yields fell and money market futures rolled back expectations of a rate raise in September.
In metals, silver rose 34 cents to $15.52 an ounce and copper rose 4 cents to $2.32 a pound.
“The bank credit analysts said there will be a bloodbath in emerging economies – we already had one to a large extent”.
But the picture is less alarming now, analysts say. If their currencies are allowed to float, their cost of living will skyrocket as they heavily rely on imports even for essentials, such as wheat for making bread.
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What’s more, emerging market companies that borrowed in dollars in recent years tended to take out longer-term loans, notes Joaquin Cottani, Standard & Poor’s chief economist for Latin America.
