El-Erian’s ‘Trifecta’ Tweet Warns Away Emerging-Markets BullsBy
Mohamed El-Erian tweeted out his own warning on emerging-market risks, joining Harvard economist Carmen Reinhart in saying the developing world is in worse shape than many investors think.
"Higher oil prices + rising interest rates + appreciating dollar, the trifecta that continues in #markets today (albeit not in an extreme fashion), tends to test the ‘self insurance’ of several #EMergingMarkets, together with their economic policy responsiveness," wrote El-Erian, chief economic adviser to Allianz SE and a Bloomberg Opinion contributor.
That trend continued during trading on Thursday: Crude oil climbed to its highest in more than three years while the yield on 10-year U.S. Treasuries rose to its highest since July 2011 and the Bloomberg Dollar Spot Index hit a yearly high. Currencies in developing nations slid for a fourth straight day, led by losses in Turkey and South Africa.
It’s a rare sight to see the three indicators move in tandem. While the correlation between the U.S. dollar and Treasury yields has largely been positive since the taper tantrum, the dollar has historically had an inverse relationship with crude oil.