On Fed Day and May Day, Emerging Markets Worry About Earnings

(Bloomberg) -- A glance at today's moves in the emerging world told its own story: Mongolian stocks were on the retreat and the Bulgarian lev was the biggest winner in the currency stakes. Welcome to Labor Day. But it's also Fed day, which means that it has the potential to become much more exciting later, at least for those markets that are open. Still, with so many shut for the day, the real action may not come until tomorrow, assuming Mr. Powell and friends say something that moves the goalposts, which isn't a given.

The landscape is further complicated by the fact that China and Japan will stay closed until next week. For what it's worth, Middle East share markets were in the red today, perhaps as the faltering bid to oust Venezuelan leader Nicholas Maduro took the edge off oil prices. Abu Dhabi and Dubai's main indexes were 0.5 percent lower.

Worrying Headwind

Company earnings in emerging markets are suddenly turning into a worrying headwind for stocks just as the MSCI index celebrates four straight months of gains. As our London-based editor, Srini Sivabalan, points out in today's "Speaking of EM" podcast, the gulf between analyst estimates and actual corporate performance is starting to widen. In fact, the last two occasions they diverged so much was during the 2008 financial crisis and just before a four-year bout of underperformance started in 2011. By this measure, the last thing the stock market needs is a bout of dollar weakness.

Maduro Hangs On

The headlines from Venezuela may have sent ripples of excitement through the emerging world, but the bottom line is that markets remained agnostic. Bonds barely moved Tuesday, a clear signal that investors weren't ready to draw any comfort from Juan Guaido's new tilt at ousting Nicolas Maduro. The sense that the protests may be fizzling out as the military largely hangs in with Maduro leaves Venezuela's journey back to bond-market normalcy as long and complicated as it's ever been.