IIF Authors

Status: Will be live at 07/24/2015 00:00

July/August 2015 Capital Markets Monitor Chartbook

Friday, July 24, 2015

Cross-asset:Lower market volatility has facilitated some recovery in risk assets. However, correlations across EM currencies and bonds remain elevated, reflecting continued caution on EM assets more broadly. Fund and ETF flows in recent weeks have favored EM bonds over equities, though net flows to Chinese onshore equity funds have surged as policymakers work to stabilize equity markets.

Fixed-income and credit:As the Fed signals readiness to begin raising rates in H2 2015, there has been little upward pressure on U.S. bond yields-in part due to falling commodity prices. However, U.S. corporate bond spreads remain elevated vis-à-vis European peers.

Commodity and currency markets:Concern about the impact of the stock market slump on the Chinese economy has weighed on broad commodity prices, while the nuclear deal with Iran and USD strength have added to downward pressure on oil prices. Against the backdrop of a stronger dollar and weak commodity prices, commodity-linked currencies have recorded large losses.

Equity markets:Euro Area stocks have outperformed their peers in recent weeks, with implied volatility dropping to levels indicating lower stress. The correction in China's stock market erased more than $3 trillion from the value of listed equities.

Emerging markets:Spillovers from Chinese stock market turmoil to other EM Asian markets have been minimal. Progress on Ukraine's debt restructuring has prompted some narrowing of bond spreads; contagion from Greece has been limited in EM Europe. Amid renewed downward pressure on commodity prices, Latin American corporate bond spreads have widened and currencies have weakened. Notable developments in the MENA region in recent months include the opening of Saudi Arabia's capital markets.

Banking sector:The U.S. banking sector continued its strong performance in Q2 2015, with further expansion in bank lending. With Euro Area banks rapidly easing credit standards, total lending to the private sector has continued to accelerate.

Issuance:Emerging market bond issuance has slowed, though equity issuance has been robust in both mature and EM markets.

Socially responsible investing and new financial technologies:Green bond issuance this year has been running 30% above H1 2014 levels. Global investment in fintech ventures continues to expand; the price of bitcoin stabilized in 2015 after a steep decline last year.'