Key takeaways
August overview: The US dollar (USD) weakened modestly on average in August; it depreciated against most developed market currencies but showed somewhat mixed performance against emerging markets (EMs). Sovereign bond yields trended higher across developed and many emerging markets, while hard-currency EM bond indexes improved in aggregate over the month. Inflation remains at relatively high levels across a number of countries, with no clear recent trend—some countries have seen recent inflation data improve while others have recorded higher inflation prints. There were few central bank meetings during August, but policymaker speeches from the major central banks mostly indicated some hawkishness in the outlook. Global growth data remain relatively resilient.
Outlook: Global factors, including the conflict in the Middle East and continued flux in tariffs and trade, continue to lend uncertainty to the outlook. The economic background remains divergent, with some countries (such as energy importers and vulnerable economies) at risk from these factors, while others are benefiting from integration into the global technology value chain as the artificial intelligence (AI) demand cycle remains robust. We highlight that the latter group includes a number of EMs, particularly in Asia. These factors underscore the importance of analyzing countries based on their idiosyncratic fundamentals. For example, among EMs, while resilience remains a notable broad factor, differing sensitivities and policy require careful country-by-country analysis. Uncertainty about the path of monetary policy remains high, exacerbated by growth and inflation risks stemming from the conflict in the Middle East, though it appears that most countries are now in or heading towards a hiking cycle (with some idiosyncratic exceptions). Despite the current geopolitical backdrop, our thesis of “global rewiring” remains intact, and we expect global relations to continue shifting and realigning for some time yet.
This month’s Global Macro Insights offers a comprehensive update on regional developments, along with analysis of the key opportunities and challenges shaping the current macroeconomic landscape.
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