EM FX ended Friday on a weak note, and extended the slide. For the week as a whole, the best EM performers were PHP, TWD, and SGD while the worst were ARS, ZAR, and TRY. With US rates continuing to move higher, we believe selling pressures on EM FX will remain in play this week. Our recently updated EM Vulnerability Table supports our view that divergences within EM will remain. Continue reading
The US dollar impressive recover over the last few months is continuing and pullbacks are brief and shallow. Rising US rates and policy divergence have made it increasingly expensive to be short dollars. Yet positioning adjustments seem to trail behind the price action.
- Bank Indonesia started a tightening cycle with a 25 bp hike to 4.5%
- Jailed Malaysia opposition leader Anwar Ibrahim was released by new Prime Minister Mahathir
- Malaysia scrapped the controversial 6% goods and services tax (GST)
- Violent protests shook Israel as the relocated US embassy opened in Jerusalem
- Argentina committed to fiscal tightening as part of a comprehensive IMF program
- Brazil central bank delivered a hawkish surprise and kept rates steady at 6.5%.
- Mexico has started its annual oil hedging program Continue reading
- With the help of a softer CPI report, the yen’s declining streak is being extended
- The other Asian talking point is the conflicting press reports about US-China trade talks
- The Five Star Movement and the (Northern) League have reportedly finalized their agreement
- The highlight of the North American session today comes from the retail sales and CPI reports from Canada
- Despite the deepening EM sell-off, divergences within EM remain; we will publish an updated EM Vulnerability Table later today
Another deadline for NAFTA renegotiations is passing. There still is some flexibility that might last a few more weeks. The run-up to the 1 July Mexican election is a more important constraint. Canada and Mexico are coordinating their negotiations, and they continue to resist US demands. Trump may threaten to leave the agreement, but a successful conclusion could have positive spillover on other trade issues.
- Press reports claim the UK cabinet had agreed to seeking to stay in the customs union with the EU beyond the two-year transition period
- After convincingly breaking above 3.0%, the US 10-year Treasury yield is continuing to probe higher
- The pressure on the Hong Kong dollar peg continues
- Last night, Brazil COPOM unexpectedly kept rates steady at 6.5%; Banco de Mexico is expected to keep rates steady at 7.5%
Tension in the US money markets has calmed, though it spreads are not back to where they were previously. We discuss the driving favors, including market expectations that the Fed will deliver 1.5 more hikes this year than anticipated at the end of last year.
- A good part of the backing up of US short-term rates is a function of rising confidence of the Fed’s course
- Compare that with the simply awful Japanese GDP figures
- The US reports April housing starts and industrial production figures
- Argentina was able to roll over the entire $29 bln in maturing Lebac notes yesterday at rates ranging from 38-40%
- BOT kept rates steady at 1.5%, as expected; NBP is expected to keep rates steady at 1.5%
- Brazil COPOM is expected to cut rates 25 bp to 6.25%
3D Systems Corp, a full-scale 3D printing and services operation, is up 33% in price since last week, continuing its volatile year and keeping the pressure on lending fees high. One of Singapore’s largest real estate investment trust firms raised S$303 million ($226 million) from a private placement of shares last week. In Europe, output woes and cost performance send Impala Platinum Holdings to new lows.