Why are Mountains Moving in Emerging Markets ?

“The tectonic plates of the world economy are shifting, moving the yield on the 10-year Treasury to the highest level in more than a year and shaking financial markets from Tokyo to Mumbai and Johannesburg to São Paulo.

For the past few years, the global economy, struggling to recover from a financial crisis, has relied on a few constants: The U.S. would print plenty of money and keep interest rates very low. China would provide a lot of demand and vacuum up commodities from around the world. And Japan was largely irrelevant.

Suddenly, all three of those are being questioned in markets, triggering paroxysms in stocks, bonds, commodities and—particularly, in the past couple days—the currencies of emerging markets.

The big questions hanging over markets and the global economy now: Is this is the inevitably bumpy beginning of a welcome return to normal—a world in which the U.S. economy doesn’t need big and repeated doses of monetary stimulus, Japan grows again and China’s economy gently slows to a sustainable speed?

Or is it a harbinger of more volatility in financial markets—perhaps the result of a misreading of the Federal Reserve’s policy intentions by the markets or a premature move by the Fed to cut back on easy money—that yields an unwelcome increase in market interest rates before the U.S. economy achieves what Fed Chairman Ben Bernanke once called “escape velocity”?…”

Full article