Market watch: September begins
Breaking into the second half of the year and August played the pace with yet another round of turmoil across the market unsure if there will be any signs of relief.
On Thursday Argentina's central bank reported an emergency rate increase from 45% to 60% vowing not to have further cuts until at least December. The two-day plunge saw the peso USDARS, +0.0339% at an all-time low. By Friday the market left the currency going down more than 16% for the week and approximately 50% in the year to date.
The drop in the market had also affected Turkey's lira as on Thursday USDTRY, +1.0776% also dropped sharply after the country's deputy central bank governor had resigned.
Economist has noted that Turkey and Argentina sufferage as unique due to their homegrown problems as the countries carry large account deficits and that a measure of a nation's balance of trade, net earnings on foreign investments and net cash transfers is needed.
Nations with large current account deficits have suffered the most, economists have noted (As shown in the chart above). Being left vulnerable due to the large dollar debts, that becomes more difficult to service as their domestic currencies weaken against the greenback. Example countries like India, Colombia and South Africa with similar debt profiles and current account deficits have also come under the spotlight.
When we look at how Turkey and Argentina stand out as the two emerging economies with the most obvious vulnerabilities, sporting the largest current-account deficits going into 2018 and insufficient reserves relative to debt. Some have feared ructions in emerging markets will have the potential to spill over to other countries in other ways.
The index-tracking iShares MSCI Emerging Markets exchange-traded fund ended the week down 0.5%. Wall Street paid little heed, with the S&P 500 SPX, +0.01% posting a 0.9% weekly rise to cap a 3% August rally.
The trouble still continues as analysts are still unsure over President Donald Trumps $200 billion worth of tariffs on China.
Read about the tariffs: Bank of China at go to war
Could this be the missing link between emerging-market weakness and U.S. markets, which have been inured to trade tensions, to date? With the second largest economy, China is a linchpin of international trade. A slowdown in China could therefore weigh on neighboring economies and result in a knock-on slump in global growth.
