Risk appetite sours on renewed faith from US

Emerging Asian equities which have been laggards against the US bourses, since the start of the month, will be under pressure this week as talks of tapering heats up on signs that the US labour market may be strengthening and the dollar rebounds.

While US investors cheer on tapering as good news for the economy, emerging Asian countries don’t have that luxury. The preview of what could happen when tapering occurs, was seen in the violent sell off in August where emerging Asian countries were punished, has barely given policy makers enough time to bolster up their economies.

Since August, the emerging Asian equity markets has recovered remarkably on the premise that the Fed is likely to keep monetary stimulus accommodative (Malaysia regained 8.4%, the Philippines 14%, Thailand 11%, India’s Nifty 20%, and Jakarta composite 16%). The debt ceiling debate added to the distraction and increased the probability of tapering being pushed further off further away, due to the damage caused by the partial shutdown was costly and devastating to Americans.

US labour market and participation rate

Any move from the Fed is unlikely to be in December, the market is starting to price in this eventuality, which will affect the interest in emerging Asian markets. The caveat is the US economic numbers coming out this month supports the notion that Americans are getting employed and the October number is a meaningful change in trend and not a reflection of volatility in the underlying labour market or cyclical.

The participation rate shows that the number of Americans in the workforce keeps shrinking. This month’s job report showed it went down by 720,000 or 0.4%, the largest monthly drop since Dec 2009. Analysts have been debating whether this data is an ominous sign or not and most conclude the number is unlikely to be correct, citing inclusion of furlough workers when they were officially employed. Other reasons causing a shrinking participation rate includes aging demographics and people delaying going into the work force. Regardless of the possible counting error in this month’s report, the trend is clearly on the decline and alarming for households when the economy is meant to be creating job opportunities.

Asian currencies

Asian currencies which have done well against the US dollar in October are returning some of these gains this month. The Thai baht is the worst performer with a 1.06% decline, followed by the Indian rupee 1% and the Indonesian rupiah with a 0.5% decline, against the greenback .

The Philippine peso is mostly unchanged despite the typhoon that has devastated the country and a reported 9.5 million Filipinos according to the government agency. As foreign aid pours into the country, analysts are estimating costs of the damage to be in the billions that will impact the country’s expenses and growth.

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