Countdown to FOMC and German election – Societe Generale research

What Fed tightening will entail for EM economies remains top of our clients’ key questions, says Societe Generale.

In view of the Federal Open Market Committee’s meeting on 17-18 September and of the German federal elections on 22 September, Societe Generale Cross Asset Research has listed some of its clients’ major concerns.

The worry about a possible EM crisis following the Fed’s tapering announcement is one of the top ones, Societe Generale research showed.

While remaining skeptical that the Fed will attempt to sell assets, Societe Generale Cross Asset Research believes that eventual balance sheet reduction is more likely to be achieved via Treasury redemptions.

“We look for normalization of the size of the Fed’s balance sheet within 5.5 years.

“The memories of the notable crises that were caused by higher US interest rates, the LatAm debt crisis of the early 1980s, the Tequila Crisis of 1994 and the Asia Crisis of 1997, are clearly haunting investors. And what Fed tightening will entail for EM economies remains top of our clients’ key questions,” the report said.

Looking at the German elections, Societe Generale’s report expressed concerns over a possible unstable scenario.

“The deeper point around the German elections that we also have taken away from recent conversations with experts is the Germany will be politically more volatile over the next four year term as it seems increasingly unlikely that a strong majority will emerge from the German election,” the report said.

The research also included a series of central bank meetings with the Bank of Korea, the Bank of Chile and the Bank of Russia.

Click here to read full report: [asset_library_tag 7021,On Our Minds – Week Ahead – Countdown to Fomc and German Election]

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