Consumer Sentiment Slips Again As Dollar Firms, Pressuring Emerging-Market Bonds

U.S. consumer sentiment declined again in September, marking a second straight monthly drop, according to survey data released this week. The renewed weakness comes even as broader equity indexes have held up, suggesting a gap between how consumers feel and how markets are pricing risk. The soft sentiment reading landed alongside a strengthening U.S. dollar, a combination that analysts covering emerging-market debt funds flagged as a headwind. A stronger dollar makes it more expensive for emerging-market borrowers to service dollar debt and tends to pressure local-currency bond funds, prompting at least one analyst to reiterate a cautious stance on EMLC, the J.P. Morgan emerging markets local currency bond ETF. What remains unresolved is how much of the sentiment drop is feeding through to actual spending; the data measures attitudes, not transactions, and retail sales figures for September have not yet been released to confirm whether the sentiment decline is translating into weaker consumer activity.