Fed liftoff largely priced in by emerging markets: ABN AMRO

Dec 15, 2015 (LBO) – A first rate hike by the U.S. Fed in nearly a decade expected this week is largely priced-in and emerging markets may have already seen most of the adjustment to Fed hikes, ABN AMRO said in a research report.

“Fed message is likely to be relatively soothing, as we expect Fed to show a slightly more cautious path of rate hikes compared to September,” the report said.

After following near-zero interest rates, the U.S. Fed is expected to hike interest rates on Wednesday after a two-day FOMC meeting, with a 74 percent chance based on market data.

Funding conditions for emerging markets have tightened more abruptly than during the ‘taper tantrum’ of 2013 when treasury yields rose, the report said.

“In fact, because the rate liftoff was preceded by financial market turbulence, we think that the worst of the adjutment for emerging markets has already taken place.”

“This means that, there may be some bouts of volatility after the rate hike, we expect them to be short-lived. Particularly, we expect the path of rate hikes will be gradual,” it said.

Although some emerging markets have taken pre-emptive measures, including raising policy rates, economies with weaker fundamentals including Brazil and South Africa will feel a larger impact from the tightening, the report said.

Analysts say oil prices falling to near 11-year lows will affect net exporters of oil, especially Malaysia, in the Asian region although net importers will benefit from lower prices. Brent crude was at 37.83 dollars per barrel on Tuesday.

The full ABN AMRO report is below: