Energy subsidies in developing countries amount, on average, to 4.3 percent of GDP, with wide cross-country variation. Though intended to achieve socio-economic goals, in reality, subsidies often encourage excess consumption and benefit the poor less than the rich. Transparency and credible plans to compensate the poorest can help implement subsidy reforms.
U.S. equities opened higher on Friday after posting their largest fall since July that wiped out $320 billion in market valuations, helped by robust corporate earnings results and stronger-than-expected GDP growth. The S&P 500 and the Down Jones Industrial Average gained 0.2% and 0.4% in morning trade. European shares advanced as well, bouncing back from a four-week low, while Asian and developing-country benchmark indexes extended their losses.
U.S. Treasuries gained for a fourth day on Tuesday, the longest winning streak in two months, as demand for safe-haven government debt increased following the U.S. air strike in Syria, which triggered concerns about the extent of U.S. military involvement and effects oil prices. The benchmark 10-year Treasury yield fell 2 basis points (bps) to 2.54%, the lowest level since September 11. German bunds advanced as well with benchmark 10-year yields sliding to 1% for the first time in two weeks.
The rise of ISIS in the Middle East is a geopolitical risk in a region already facing a multitude of conflicts. Thus far, the economic impacts of the ISIS incursion in Iraq and Syria remain subdued and largely limited to those countries. Over time, however, the potential for global spillovers is likely to rise.
U.S. stocks and dollar surged as the Federal Reserve’s latest rate outlook added to signs that monetary policy spilt between the U.S. and other G3 countries is widening. The S&P 500 index gained 0.4% in morning trade, and the Dow average advanced 0.5% to a record high level. The greenback climbed to highest levels in more than six years versus the yen and four years against other major currencies.
U.S. Treasury price volatility rose to a 5-month high as the market is concerned about the Fed meeting today and Scotland votes on independence the following day. Bank of America-Merrill Lynch’s Move index, which monitors price movements in U.S. government bonds based on option trading, climbed to 66.09 yesterday, the highest level since April 2.