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The Fed and the Oracle of Delphi

Weekly investor research

22 April 2014

Emerging Markets (EM) performance has been relatively resilient in the face of US dollar strength on the back of stronger US data and dovish comments from the Fed. EM fixed income benchmarks ended the week close to flat, currencies posted a mildly negative performance, and EM equities had strong positive performance. In a relatively quiet week, the main focus was the meeting between Russia and Western powers in Geneva over Ukraine, which produced a joint statement pledging to disarm the militias in eastern Ukraine, though pledging is easier than implementation. An unambiguously strong set of economic data in the United States set the tone for markets during a week when US company earnings were also stronger than expected. Into this mix, Fed Chairwoman Janet Yellen added fuel by issuing a very dovish message. These factors helped to revive momentum in the US equity market, taking the S&P 500 up 2.26% over the week, while the US Treasury curve bear flattened. The 5-year Treasury underperformed with yields rising 10 bps to 1.72%. The US dollar index (DXY) advanced 0.64%.

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