Beyond my control?

T-minus one day and counting.  Macro Man was intrigued to see bond markets come under the cosh yesterday ahead of the Fed.  Sure, retail sales were solid and the SPX rallied, though neither were particularly outstanding in their magnitude.  UK CPI, meanwhile, came out in line with expectations; given that those were for a headline print of zero, it's hard to pin global bond weakness on that.  Late betting on the Fed?  Perhaps, though no one bothered to tell the short end; October Fed funds futures were unched on the day.

Nevertheless, there were tens and especially bunds coming under pretty significant pressure; one can almost imagine Goldfinger intoning "Nein, Herr Bund, Ich erwarte, dass du sterben!"

Of course, some of this weakness has merely retraced the bond market's appreciation during the volatility of the last several weeks.  As such, it's probably best characterized as more of a "normalization" than anything else.  That being said, Bunds will encounter support at 152.75-153.00.  Should that shelf fail, then there's little but fresh air between there and 150.  At that point, a new narrative ("Blame it on the Fed!") will likely be in place.

Speaking of blaming it on the Fed,  Macro Man wanted to follow up on last Friday's post, specifically regarding the pressure faced by EM countries and their currencies/asset markets.  It seems as if a few have adopted a "woe is me" attitude or, to be more charitable, have merely quoted the Viscomte de Valmont from Dangerous Liaisons:  "It's beyond my control."

If this were true, then we'd expect to see little differentiation amongst EM countries of a similar stripe.   Certainly that's what we observed during the taper tantrum of 2013; the currencies of Brazil, India, and Turkey all pretty much went to hell in a handbasket.

Woe is me indeed.  But a funny thing happened on the way to oblivion; India appointed a highly credible central bank governor (Raghuram Rajan) and elected a reform-minded government (Narenda Modi's BJP.)  While one can certainly quibble with the degree to which reforms have been enacted (GST, anyone?), at the very least the intention to do the right thing appears to be there.

And so, as markets have veered between complacency and panic over the past couple of years, India has stood out as an oasis of relative stability.  Indeed, its nominal effective exchange rate has actually appreciated since the beginning of 2014, while those of Brazil and Turkey have been crushed- particularly this year.

And so rather than trying to shoulder the burden arising misguided policies and mis-allocated capital in emerging markets, at the next G20 meeting perhaps Janet Yellen can respond to her critics with a simple piece of advice: physician, heal thyself!