Economic conditions in the US continue along a path of steady improvement, with the latest GDP growth rate of 4.1% (annualized), signifying the strongest rate of growth in four years.
Robust economic growth teamed with strong employment data and upward pressure on inflation suggest the likelihood of further rate hikes over the course of the year.
US interest rate futures indicate traders are pricing in a 94% probability of a rate hike in September to 2.00%-2.25%, with a further 68% probability of an additional hike in December to 2.25%-2.50%.
Emerging markets currencies are becoming more volatile
Continued upward movements of US interest rates are starting to impact Asian real estate markets in a number of ways. With monetary policy positions in the Asia Pacific region sitting across a wide spectrum, the impact has been quite market specific.
Firstly, some of the emerging markets (EMs) are experiencing more volatility around their capital inflows and outflows, as USD fixed-income assets start to look more attractive. This has put a lot of pressure on EMs currencies, which have depreciated against the USD. As a result, we have seen a number of EMs supporting their currencies and stemming FX induced inflation, with India, Indonesia and the Philippines all shifting rates higher.
Hong Kong currency peg is placing upward pressure on rates
Hong Kong on the other hand is feeling some pressure due to the HKD / USD currency peg. Short term rates in Hong Kong have lifted over the past 6 to 12 months, but should the Hibor / US Libor spread widen, the HKMA will likely undertake a bill issuance to mop up excess liquidity and defend the currency peg.
On the real estate front, tight controls around leverage have left the market as a largely equity driven investment….
