The 2023 IMF working paper sheds light on the importance of US economic news on emerging markets, stating that it is not just monetary policy but also economic news that affects financial conditions in these markets. The report highlighted that news related to employment in the US has the most significant impact on emerging markets, followed closely by news about economic activity. Furthermore, inflation news was found to have the least effect on average. The report emphasizes that these effects are felt almost instantly, within two days of the news release, indicating the rapid transmission of information across global markets.
The research underscores the significance of news regarding the US economy and monetary policy as a fundamental risk factor in pricing assets in emerging markets. It suggests that there are predictable relationships between news and risk premia on these assets. The transcript of US Fed Chair Jerome Powell's press conference on March 20th provided additional insights into the US economic outlook, highlighting concerns about high inflation and uncertainties regarding future progress in bringing it down. Powell also mentioned improvements in the labour market and solid economic expansion in recent times, with GDP growing by 3.1 percent in 2023 driven by strong consumer demand and supply improvements.
The positive performance of the US economy, especially regarding inflation trending towards its target of two percent, is viewed as good news for emerging markets, including several African nations looking to engage in Eurobond markets. The resurgence of the Eurobond market in Africa this year, with oversubscribed bonds from countries like Ivory Coast, Benin, and Kenya, raises hopes for lower credit dollar spreads on emerging market government bonds if the positive trend in US employment continues. The possibility of refinancing and extending the average maturity of debt in African countries with upcoming maturities is also highlighted as a potential outcome of lower yields. However, the uncertain economic outlook and cautious approach of the US Federal Reserve Chair underline the unpredictability that lies ahead, as emphasized in Powell's statement during the press conference.