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The EMs are all right

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

Argentina's central bank has made some big interest rate increases. This is an attempt to stabilize the peso's value. This is largely a local problem, however. Economic conditions are generally good for most emerging markets.

Recent trade data from China and Europe imply that fears of a global growth soft patch have been exaggerated. Export demand remains firm. China's commodity demand remains firm. The pace of global growth should be about the same as in 2017.

The US Federal Reserve is still draining cash from the US economy. This is in response to lower cash demand in the US economy. As such there is no reason to worry about a large loss of dollar liquidity outside of the US. US interest rate rises are quite moderate (especially when compared to rising US inflation). A set of gradual US rate rises poses little threat to emerging market growth.

The modest move up in the value of the dollar is not enough to change this. We do not expect dollar strength to last. The growing US current account deficit is likely to push the dollar down. Currency moves to date are within a normal trading range. They should have little economic impact.