Lots to Watch Today

August 28th, 2015 8:10 am

Via Bloomberg:


* (All times New York)
* Economic Data
* 8:30am: Personal Income, July, est. 0.4% (prior 0.4%)
* Personal Spending, July, est. 0.4% (prior 0.2%)
* Real Personal Spending, July, est. 0.3% (prior 0%)
* PCE Deflator m/m, July, est. 0.1% (prior 0.2%)
* PCE Deflator y/y, July, est. 0.3% (prior 0.3%)
* PCE Core m/m, July, est. 0.1% (prior 0.1%)
* PCE Core y/y, July, est. 1.3% (prior 1.3%)
* 10:00am: U. of Mich. Sentiment, Aug. F, est. 93 (prior
* U. of Mich. Current Conditions, Aug F (prior 107.1)
* U. of Mich. Expectations, Aug. F (prior 83.8)
* U. of Mich. 1 Yr Inflation, Aug. F (prior 2.8%)
* U. of Mich. 5-10 Yr Inflation, Aug. F (prior 2.7%)
* Central Banks
* Kansas City Fed Symposium continues in Jackson Hole,
* 7:30am: Fed’s Bullard on Bloomberg TV
* 9:15am: Fed’s Kocherlakota, Mester on Bloomberg TV
* 12:25pm: Swiss National Bank’s Jordan speaks in Jackson
* 2:15pm: Fed’s Lockhart on Bloomberg TV
* 4:15pm: Reserve Bank of India’s Rajan on Bloomberg TV
* 10:25pm: Bank of England’s Carney speaks in Jackson Hole

Dealer Positions

August 28th, 2015 7:38 am

Via Bloomberg:

IG CREDIT: Dealer Positions in Corporates Fall, Led by 1Y-3Y
2015-08-28 10:54:31.565 GMT

By Robert Elson
(Bloomberg) — Dealer positions in corporate bonds fell
$1.6b to $21.7b as of Aug. 19. $21.1b, seen Feb. 11, is the low
for the series Fed began in April 2013. $45.9b, seen March 5,
2014, is the high.

* Investment grade positions:
* Very short issues fell $198m to $1.7b; $4.7b, seen Nov
19, was the high for 2014 and for the series that began
in April 2013; $1.2b low Aug 2013
* Positions between 13 months and 5Y fell $554m to $3.3b
* Positions 5-10Y fell $25m to $2.9b; the low for this
series is -$2.4b seen March 4
* Positions longer than 10Y fell $307m to $1.7b; -$2.9b,
seen May 6, was the lowest level since Fed changed its
report groupings as of Jan. 7
* Commercial paper positions fell $516m to $8.4b; $19.9b, the
series high, seen Mar 5, 2014; series low $4.7b, Dec. 31,
* High yield positions fell $11m to $3.9b; $1.1b, a series low
was seen Oct 22, 2014; high of $8.4b was seen June 2013
* Total dealer positions in all Treasuries fell $5.3b to
$57.1b; in a look-back to Jan 2007 the high was $146b in Oct
2013, -$194b was seen July 2007

China Increases Margin Requirements

August 28th, 2015 7:32 am

Via Bloomberg:

China Increases Margin Requirements on Stock-Index Futures
2015-08-28 10:47:36.531 GMT

By Bloomberg News
(Bloomberg) — China increased the margin requirements on
stock-index futures contracts to 30 percent and narrowed the
number of contracts that traders can open before they are
considered “abnormal trading.”
Opening more than 100 contracts on a single index-futures
product on the CSI 300, SSE 50 and CSI 500 indexes will be
defined as “abnormal trading” from Aug. 31, Zhang Xiaojun, a
spokesman for the China Securities Regulatory Commission, said
at a briefing on Friday. Previously, opening more than 600 new
contracts met that designation, Zhang said. The CSRC has
transferred 22 cases to the public security ministry, he said.
The nation’s margin requirements on stock-index futures
currently stand at 20 percent, after being increased twice this
week, according to the website of China’s Financial Futures
The increase is the latest effort by the government to
crack down on suspected market manipulation after a recent
equities rout wiped out $5 trillion. Last week, the securities
regulator said it will penalize major shareholders at publicly
traded companies for violating rules that limit stake sales.
“In the short term, a higher margin ratio can limit
speculation,” said Ken Chen, analyst at KGI Securities Co. in
Shanghai. “That can hardly reverse a long-term downtrend caused
by the bursting of a valuation bubble. Some investors with
hedging needs may find the 30 percent ratio a high cost and may
have to quit the market.”


August 28th, 2015 6:45 am

Via Marc Chandler at Brown Brothers:

Markets Debates Drivers of US Treasuries

– There is growing speculation that China is selling US Treasuries during its FX operations, which is driving up yields in the US; but the reality may be more prosaic
– UK preliminary GDP came in right on expectations at 2.6% y/y for Q2
– The data out today will be secondary to the speech by Fed Vice Chair Fischer tomorrow at Jackson Hole
– Aside from talk of official support for the equity markets, at least two other headlines helped underpin the rebound in Chinese equities

Price action: The dollar is mostly weaker on the day, but trading in narrow ranges. The euro touched $1.1120 but has since bounced back closer to $1.1300. Sterling is trading on both sides of $1.54. The dollar is down against the Swedish krona and the Japanese yen, at SEK8.4250 and ¥120.80 respectively, but not making any new ground. Performance has been mixed on the EM side. THB, MXN and ZAR are giving up some of yesterday’s gains, but KRW and MYR are up against the dollar. Of note, the dollar is back below CNY 6.4 level against the yuan after a 0.2% appreciation. Asian equity markets continued to rebound with the Shanghai Comp up nearly 5.0%, Taiwan up 2.5% and the Nikkei gained 3.0%. EuroStoxx is down 0.4%, a small move considering it was up 3.5% yesterday. US futures are down 0.6%. US Treasury yields are down 4 bp overnight across the curve with 10-year yields at 2.15%, holding up above the 200-day MA around 2.13%.

  • US 10-year Treasury yields has risen 25 bp since Monday’s low water mark, sparking speculation that China is selling.  There are a number of reports that try to link the backing up in US yields to be sales of Treasuries by China. The Chinese sales, in turn, are linked to its efforts to stem the decline in the yuan. China may indeed have sold Treasuries. Reporters and high profile investors have been keen to follow the lead.  Some media accounts intimate that China had notified US officials of their intentions, even before this week.   China’s reserves have fallen.  China owns a lot of Treasuries.  Therefore, it follows that China likely sold Treasuries.  
  • However, the situation is more complicated.  For example, the dollar value of China’s reserves fell by $113 bln in Q1 and another $37 bln in Q2.  According to the US TIC data, China’s Treasury holdings rose by $17 bln in Q1 and another $10 bln in Q2. Reporters, following the lead of a couple of analysts, argue that China is operating in other centers that the TIC data does not fairly attribute to China.  But to make their numbers work, for example, they assume that the entire decline in Belgium’s holdings (Euroclear) is a result of China.  This assumption is unwarranted.  There are other pools of capital that use financial centers like Belgium and Switzerland for financial transactions.  Some Middle East oil producers, for example, have also reported declines in reserves.  
  • There are two forces that can help explain at least part of the decline in China’s reserves.  The first, most important, and often left out, is valuation.  It is not fair to discuss the change in China’s reserves without adjusting for valuation.  The second adjustment in China’s reserves that few accounts attempt to incorporate is the official indication that some reserves have been transferred to other parts of the government, including the development bank and the export-import bank.  Admittedly, exactly how China is accounting for this is opaque, but to ignore it entirely does not seem right either.
  • Of course, there is still room in the data for China to have sold Treasuries, but one has to more than tease the data, and as we know, sufficiently tortured data will admit to anything.   The latest claims of China Treasury selling are too recent to be picked up in the TIC data (only through June) and China’s reserve figures (through July).   Yet there seems to be more convincing explanation than China to explain the rise in the 10-year US Treasury yield in recent days.  
  • First, as we argued last weekend and at the start of this week, the global capital markets had an exaggerated response to macro-economic developments. This is the case with the minor depreciation of the yuan, leaving it slightly less strong, but hardly weak.  The 10-year yield spiked to 1.90% as part of that exaggeration.  Recall the Dow Jones Industrials posted 1000 point loss on Monday.  Although some reports confused a short covering rally in the euro with safe haven demand (there is a difference between reducing shorts and expanding longs), US Treasuries were the time-tested safe haven.  As the panic subsided, so did the demand for Treasuries.  
  • Second, speculators in the futures market likely sold into the rally.  On August 11, the same day that China devalued the yuan, speculators had held 500k gross long 10-year Treasury futures (each contract has a notional value of $100k).   This was the most since 2008.  In the following week (ending August 18), 46k contracts were liquidated.  This was the largest sales in three months.  Speculators had been net short US 10-year Treasury futures since last September.  They switched to a new long position in mid-July after the 2.50% threshold remained intact.    However, they seemed eager to sell into the bond market rally.  New data for the week through August 25 will be made available tomorrow.  
  • Third, the economic data shows that there has been little immediate impact on the US economy from the first the drop in Chinese stocks and then from the depreciation of the yuan.  Of course, it is only prudent to recognize the possibility of economic and financial lags.  Nevertheless, all else being equal, the strength of some recent data, leading to expectations that Q2 GDP would be revised up (it was and by more than expected), coupled with signs of a pickup in US consumption and business investment would have likely produced some selling pressure on the US Treasuries regardless of what was happening in Beijing. After from today’s PCE data today, the next key report is August jobs data.  ADP may steal some of the thunder of the national report.    
  • Aside from talk of official support for the equity markets, at least two other headlines helped underpin the rebound in Chinese equities. First, a statement by the Ministry of Commerce said the government would lower the threshold for foreign capital to participate in the domestic property markets. Second, the Ministry of Finance decided to further expand the local government swap program to RMB3.2 tln from RMB2.0 tln. There was some talk the funds used to support equity prices will be replenished. The Shanghai Comp is up 4.8%.
  • In the currency market, the PBOC fixed the dollar at CNY6.3986.  This was 0.15% lower than previous day.  The dollar had finished the Shanghai session on Thursday near CNY6.4015. As we suggested previously, the key under the new currency regime is not between the two fixings as had been previously the case, but between the spot close and the next day’s fix.   It appears that in order to ensure convergence it is not sufficient to intervene in the spot market.  There needs to be a convergence between the forward rate implied and the actual money market rates. There are reports suggesting that a couple policy banks have been used to intervene in the swaps market to help bring the rates more into line.   Chinese officials appear to be still trying to implement the August 11 decision about the new currency mechanism.
  • Looking at the data overnight, UK preliminary GDP came in right on expectations at 2.6% y/y for Q2. Net trade were a highlight, adding 1.2 percentage points to the headline rate. Business investment also accelerated. Euro-area economic confidence came in at 104.2 for August, stronger than the 103.8 expected, while the final reading for August consumer confidence ticked lower to -6.9 from 6.8. In Spain, CPI came in lower than expected. The preliminary harmonized CPI for august came in at -0.5% y/y, down from 0.0% previously, but lower energy prices are playing a large role, hence maybe masking the more positive underling trend. Greece grew 0.9% q/q in Q2, with final consumption up 1.1%, exports up 0.1%, and imports down 2.3%. Seasonally adjusted, GDP grew 1.6% y/y. Lastly, Switzerland released its Q2 GDP at 1.2% y/y, better than the 0.9% expected. With a q/q growth of 0.2% (vs. -0.1% expected), this means that the countries was technically not in recession as had thought after investment and private consumption helped boost growth in the quarter.
  • In Japan, the national CPI print for July came in as expected at 0.2% y/y. The core reading, excluding fresh food and energy remained stable at 0.6%. Also note that household spending surprised on the downside at -0.2% y/y compared with expectations for a bounce back into positive territory of 0.5%. However, retail sales surprised on the upside rising to 1.6% y/y in July from a revised 1.0% in the previous month. All in all, the data doesn’t bode well for the BoJ’s target and will continue fuelling calls for further action, despite recent comments by Governor Kuroda to the contrary. We think the market may be overestimating the chance of imminent action.
  • The main forthcoming event for US and probably global markets will be the speech by Fed Vice Chair Fischer when he speaks tomorrow at Jackson Hole. He will be speaking on inflation. As we noted previously, we will be looking for him to elaborate on how the Fed targets core inflation, and why the appreciation of the dollar, and drop in commodity prices, have a transitory impact on the general price level. After Dudley’s comments, markets will be carefully looking for any discussion on the recent market volatility and signs that the committee may be shifting its preference to a later hike.
  • Out of the US today we get personal income and spending, PCE, and University of Michigan survey. Markets expect a personal income gain of 0.4% in July, the same as last month, and a tick up in spending to 0.4% from 0.2%. Core PCE is expected to remain steady at 1.3% y/y for July, close to the lows of the year. Meanwhile, the University of Michigan survey is seen as ticking higher in its final reading to 93.0.

Corporate Bonds

August 28th, 2015 6:15 am

Via Bloomberg:

IG CREDIT: Highest Volume Since June; Spreads Inch Tighter
2015-08-28 09:56:25.213 GMT

By Robert Elson
(Bloomberg) — Secondary IG trading ended with a Trace
count of $17.6b vs $16.9b Wednesday, $12.6b the previous
Thursday. Yesterday was the highest volume since $18.5b June 2.

* 10-DMA $12.4b; 10-Thursday moving avg $13.7b
* 144a trading added $3b of IG volume vs $2.3b on Wednesday,
$2b last Thursday
* Most active issues longer than 3 years:
* CVS 3.875% 2025, client flows accounted for 62% of
* KMI 3.05% 2019, client flows took 75% with selling 2x
* T 3.40% 2025, client flows at 62% with selling over 3x
* ABN 1.375% 2016 was most active 144a IG issue with client
buying accounting for 100% of volume
* Bloomberg US IG Corporate Bond Index OAS at 175.8 vs 176.4;
178.2, the new wide for 2015, was seen Aug. 24; 129.6 was
2015 low; 2014 high/low 144.7/102.3
* BofAML IG Master Index at +170 vs +172, the wide for 2015;
+129, the tight for 2015 was seen Mar. 6; 2014 range was
+151/+106, the tightest spread since July 2007
* Standard & Poor’s Global Fixed Income Research IG Index at
+212 vs +213, the new wide for 2015
* Markit CDX.IG.24 5Y Index at 78.9 vs 82.3; 87.9, the wide
for 2015 was seen Aug. 24; 2014 high/low was 76.1/55.0, the
low for 2014 and the lowest level since Oct 2007
* No IG issuance Monday, Tuesday, Wednesday or Thursday; month
remains at $62.9b
* YTD IG issuance $1.094T
* Pipeline – Long List of Deals Await Issuance Re-Open

Banks in a Bind in China

August 28th, 2015 6:12 am

Via the WSJ:
By Chuin-Wei Yap
Updated Aug. 28, 2015 5:19 a.m. ET

BEIJING—China’s biggest lenders are scrambling to clear rising bad loans from their books, as a faltering economy weighs on loan repayments and sets banks on pace for their worst year since they began listing shares 13 years ago.

The pace of profit growth at major lenders from January to June dropped sharply from the first quarter. The sagging performance adds to larger concerns about China’s weakening economy that wreaked turmoil across global markets this week, wiping at least $1 trillion off China’s stock market and sending the Dow Jones Industrial Average to an 18-month low.

Industrial & Commercial Bank of China Ltd. , the nation’s largest lender by assets, said Thursday that its net profit in the first half rose 0.6% to 149.02 billion yuan ($23.27 billion), far below the 7% growth in the same period last year and half the rate of 1.4% in the first quarter.

Agricultural Bank of China Ltd. , the country’s third-biggest bank, posted net profit growth of 0.3% to 104.32 billion yuan, compared with 13% a year ago and 1.3% in the first quarter. Profit at Bank of Communications Co. rose 1.5% to 37.32 billion yuan, compared with a 6% gain a year ago.

Bank of China Ltd. said Friday its first-half net profit rose 1.1% to 90.75 billion yuan, slowing from 11% growth a year earlier.

The sluggish results signal that Chinese borrowers are having trouble repaying loans. Chinese bank profits regularly rose by double-digit percentages—exceeding 60% at their peak in 2007 for ICBC—during China’s post-2008 lending boom. The downswing now is amplified as some of that debt sours.

During that lending binge, banks were encouraged to lend aggressively to state industries and local governments to fend off the global financial crisis. Now, trophy investments in largely empty municipalities known as ghost cities and oversupplied infrastructure aren’t delivering promised returns. Meanwhile, debtors face overcapacity in several industries and slower demand, while land sales are hit by a weakened property market.

“A rebound in nonperforming loans seems to be the key reason for the earnings slowdown, which in turn is affecting banks’ internal capital replenishment capacity,” said Sophie Jiang, Nomura banking analyst.

New data suggest to many economists that China could have trouble hitting its growth target for the year of about 7% from a year ago, already the slowest pace in 25 years.

Chinese banks maintain a squeaky-clean level of toxic debt on their books. ICBC said its bad-loan ratio, which measures nonperforming loans as a percentage of total loans, reached 1.4%, compared with 1.29% at the end of March. Bank of Communications posted 1.35%, a rise from 1.3% three months earlier. Agricultural Bank reported 1.83%, up from 1.65% in the first quarter.

These levels are low by global standards, but few analysts believe the rate accurately reflects asset quality among lenders. Valuations of Chinese banks provide a better clue to worsening bad-loan levels, analysts said.

“The banks’ share prices acknowledge there is way more uncollectable debt on their books than they now acknowledge,” said Anne Stevenson-Yang, director of J Capital Research in Beijing.

ICBC’s Hong Kong-listed stock is trading at 0.8 times its book value, a measure of net worth, from 2.9 times book value in 2009. Bank of China Ltd.’s price-to-book ratio has fallen to 0.68 from around 1.8 in 2009. Investors use the indicator to gauge potential problems in the company.

The first-half reports show banks have been scrambling to throw out bad debt. ICBC wrote off 31.3 billion yuan of bad loans, more than double 12.7 billion yuan of a year earlier. AgBank’s write-offs reached 15.4 billion yuan in the period, from 11.8 billion a year ago.

Though banks’ data suggest nonperforming loans are inching up only slowly, another measure suggests troubled loans are mounting. Special-mention loans, a category that banks deem overdue but not yet impaired, are rising. Analysts say these loans are often just soured loans that lenders haven’t acknowledged yet.

At the end of June, ICBC reported 420.4 billion yuan of special-mention loans, nearly three times more than its nonperforming loans and accounting for 3.6% of total loans. A year ago, the bank reported just 231 billion yuan of special mentions, or 2.1% of loans.

“The market believes that there is a lot more bad loans under the hood,” said Oliver Barron, head of research at investment bank North Square Blue Oak.

As worries loom, lenders have been increasing provisions, but these buffers can’t keep pace with the proliferation of bad loans. ICBC set aside provisions that were 1.63 times as large as their bad-debt levels in the first six months, down from 2.4 times in the same period last year—a sign that it is struggling to insulate itself, analysts say. Provisions at Agricultural Bank reached 2.39 times the level of bad debt in the January-June period, slipping from 3.46 times a year earlier.

Major banks last year wrote off more than twice the bad loans they did in 2013.

China Construction Bank Corp. is expected to report its first-half results Sunday.

Early FX

August 28th, 2015 6:06 am

Via Kit Juckes at SocGen:


Chinese equity prices are up. Oil prices bounced hard yesterday. Calm is back in EMFX. The only sounds are those of shorts being covered and the very geatest of the good are chewing the cud as the ponder the disappearance of the Phillips Curve in their Wyoming hangout. There’s little data to disturb anyone.

So – how were your holidays? Thoughts on yet another tumultuous August in this week’s weekly (link above).

The Chinese FX regime shift has been the top macro topic of the month, but the objective remains a puzzle, given that the shift was quickly followed by a tightly managed float. The CNY’s depreciation has been underwhelming relative to peers. Gradual depreciation is nonetheless expected, and Chinese reserves will be drawn-down further. Weak Chinese growth should also continue to depress commodity prices and commodity-linked currencies. The US dollar will ultimately do well in a macro environment of declining global reserves, higher volatility and falling commodities.


[*] EUR/USD can bounce further

Market expectations, positioning and near-term macroeconomic risks could support a continuation of the euro rebound in the coming weeks. This will offer better levels to re-set dollar longs later in Q4. We recommend buying tactically EUR/USD topside via an exotic option offering a large discount compared to a vanilla strategy.


[*] EM sell-off has room to run

Since early 2015, we have been nervous about how EM assets would react to the prospects of a Fed rate hike. Weak Chinese growth, the Chinese FX policy shift and persistent declines in commodity prices have only added to our wariness. We previously warned that August could be a volatile and gloomy month for EM assets; however even we were surprised by the extent of the declines in the currency and equity markets in particular.


[*] Technicals

The corrective recovery in EUR/USD has accelerated, but a weekly close above 1.1385/1.1440 is needed to signal a further rebound. Corrections are likely to be supported at 1.12. Meanwhile, USD/JPY failed at the trend resistance at 126 where it formed a double top formation, and a retest of 118.20 looks likely.

[*] Quant

The quant strategy portfolio continues to maintain a long USD position, and has increased the long position in the EUR and the short allocation to high-beta G10 currencies.

Overnight Flow

August 28th, 2015 6:01 am

Dealers not reporting much thus far about the overnight session. I have heard of real money (Asian based) buyers of Long Bonds. Other Asian based clients sold 2 year and 3 year paper in favor of off the run 10s. Bank portfolios sold spread product in the 10 year sector.

From the Oh Canada Department

August 27th, 2015 6:54 pm

Via the FT:

Canada’s biggest banks have warned of more troubles to come from the fall in the oil price, as they reported surges in bad loans and chilling effects on consumer demand in the world’s 11th-largest economy.

So far the big lenders such as Royal Bank of Canada and Toronto-Dominion Bank have kept a lid on writedowns by assuming a recovery in the price of crude, while borrowers have continued to service loans by cutting spending and tapping bond and equity markets where they can.

But signs of strain are emerging. On Thursday morning TD Bank said oil and gas impairments in the third quarter to the end of July rose by about two-thirds from the second quarter to C$35m, while CIBC said they rose by a third to C$34m. Earlier in the week RBC had said that impairments in its energy portfolio roughly quadrupled to C$183m in the third quarter, while Bank of Montreal revealed a similar rise, to C$106m.

The banks also warned of a loss of consumer confidence in parts of the country dependent on oil, such as the “prairie provinces” of Alberta, Saskatchewan and Manitoba. In a call with analysts, RBC chief David McKay said that some of the group’s overall growth had been offset by “low activity” in oil-exposed regions. While some of that slowdown was from a state of “hypergrowth”, he said, “we do recognise these markets remain vulnerable to lower oil prices”.

Canadian banks have October year-ends, meaning the figures for the May-July period provide some of the first glimpses into the effects of the latest fall in the price of crude, which has tumbled about 60 per cent in the past 12 months.

The results could foreshadow problems for the big US lenders, which report results for the July-September quarter in mid-October. During the first six months of the year, rising non-performing loan ratios were mostly confined to lenders with outsized oil and gas exposures, such as Comerica and Capital One, noted Barclays.

But twice-yearly reviews are coming up in September, when banks reassess the quality of their loans by projecting likely cash flows from borrowers’ oil reserves. Analysts say banks are unlikely to be as relaxed as they were in April, when many assumed a bounceback in the price of oil. RBC, for example, expected the average annual price to be $53 in 2015 in April, rising to the mid-$60s over time. The average so far this year is $55, but this month it has fallen to $43.

“Should oil prices remain below $45, we would expect to see further challenges,” said Mark Hughes, RBC’s chief risk officer.

Energy loans account for about 9 per cent of the big five Canadian banks’ aggregate corporate loan book. The last of the big five, Scotiabank, reports on Friday.

Reported losses so far are “the tip of the iceberg”, said Meny Grauman, a banks analyst at Cormark Securities in Toronto. Remedial measures such as cost-cutting and mergers between struggling operators can only go so far, he said. “I think there is a lot of scepticism in the market about how much more those kind of actions are available, and whether the banks can delay more significant losses,” he added.

Hilsenrath at Jackson Hole

August 27th, 2015 6:51 pm

Via Jon Hilsenrath of the WSJ:

JACKSON HOLE, Wyo.—After months of forewarning by Federal Reserve officials that they are preparing to raise short-term interest rates, some international officials attending the Fed’s annual retreat here this week have a message: Get on with it already.

Fed policy makers are wavering on whether to move rates up in September. Volatile stock prices, falling commodities, a strong dollar and signs of a deepening economic slowdown in China have created doubts at the U.S. central bank about the outlook for global growth.

But international officials have been saying for several months they will be prepared when the Fed moves rates higher, a message that is being echoed as central bankers, academics, journalists and others converge now in Jackson Hole for the Federal Reserve Bank of Kansas City’s annual symposium.

“If you delay something that you were planning to do, then you leave the impression that your compass is different than what you led markets to believe,” Jacob Frenkel, chairman of J.P. Morgan Chase International and former head of the Bank of Israel, said in an interview Thursday. Market drama is increased by delay, he added.

Fed officials have said they plan to raise their benchmark short-term interest rate from near zero this year, but haven’t agreed on when to start. The Fed’s Sept. 16-17 policy meeting was shaping up as a close call for a decision to move, and then market turmoil caused some officials to waver. New York Fed President William Dudley said Wednesday that a rate increase in September had become “less compelling.”

Some observers say they will be relieved when the Fed finally acts.

“It’s better for the U.S. to make a decision,” Bambang Brodjonegoro, Indonesia’s finance minister, said Wednesday in an interview in Jakarta. “What makes the financial markets volatile is the uncertainty.”

Raising rates would signal that the Fed is confident about the U.S. economy, Bank of Japan Governor Haruhiko Kuroda said late Wednesday in New York, ahead of the Fed gathering. “That is not only good for the U.S. economy, but also for the world economy, including the Japanese economy,” he said.

The Fed lowered short-term rates to near zero in December 2008 and has held them there since to bolster the economy through the financial crisis, recession and uneven recovery. Recent economic reports suggest the U.S. economy is now on a firm footing, even though the outlook has become more uncertain because of developments in financial markets and overseas.

A rate increase by the central bank of the world’s largest economy would reverberate around the world and could accelerate some trends already worrying the Fed, such as the rise of the dollar. A stronger dollar puts downward pressure on U.S. exports and holds down imported inflation at a time when the Fed is trying to push inflation up from below 2%.

A Fed move also would shift the outlook for emerging markets, raising a risk of currency depreciation and capital outflows that could destabilize their economies.

It could create problems for countries and companies overseas that have turned to international debt markets to fund growth in recent years. The Institute for International Finance, in a June report, identified China, Turkey, Brazil, Russia and Indonesia as countries with high levels of corporate debt and other countries, including Mexico, with sizable U.S. dollar exposures. A stronger dollar could make those debts harder to repay.

Some central bankers would welcome a U.S. rate increase because it could confer benefits on their economies.

When interest rates rise in one country but not another, the currency tends to rise in the country where rates rise because the country with higher rates offers higher returns on bank deposits and fixed-income investments.

U.S. counterparts will experience both advantages and disadvantages if their currencies behave according to textbooks and their currencies weaken against the dollar if the Fed raises rates. The advantage is their weaker currency supports their exports. The disadvantage is it becomes more expensive to borrow in dollars and causes some upward pressure on inflation.

A number of countries, hurting because of slowing global growth, are rooting for the export advantage and to relieve downward pressure on domestic inflation. New Zealand is one example.

New Zealand central bank Governor Graeme Wheeler, who has expressed a desire to see his country’s currency depreciate, said in a speech in late July that “we are likely to see the Federal Reserve and the Bank of England begin the process of normalizing their interest rates, and this may assist the [New Zealand] currency lower.”

Some observers say the Fed’s repeated forewarnings have sunk in with investors and financial institutions by now, diminishing the risk of a shock when the U.S. central bank does act.

“I can’t imagine there would be that many people who would wake up that morning and say, ‘Wow I didn’t see this coming,” said Timothy Adams, president of the Institute for International Finance, a Washington-based group representing banks with global footprints, central banks and other financial institutions.

Write to Jon Hilsenrath at jon.hilsenrath@wsj.com