EM FX closed the week on a firm note, as softer than expected US CPI data weighed on the dollar. We continue to believe that investors are underestimating the Fed’s tightening potential. Meanwhile, idiosyncratic political risk remains high for MXN, TRY, and ZAR. Continue reading
Tensions between the US and Turkey are rising. Taken together with poor economic fundamentals, we believe Turkish assets are likely to continue underperforming. Indeed, these developments simply underscore our recommendations made recently in “Weak Fundamentals and Political Tensions To Weigh on Turkish Lira.” Continue reading
EM FX ended the week under pressure, as US data points to a rate hike in December and perhaps more in 2018. FOMC minutes this Wednesday will be closely studied for clues. US retail sales and CPI data Friday will also be important. We believe the most vulnerable currencies in this environment are ZAR and TRY, but one could also add MXN and perhaps RUB to that mix too. Continue reading
In the EM equity space as measured by MSCI, China (+4.1%), South Africa (+3.2%), and Hungary (+2.4%) have outperformed this week, while Egypt (-2.8%), Qatar (-2.7%), and Mexico (-1.7%) have underperformed. To put this in better context, MSCI EM rose 1.9% this week while MSCI DM rose 0.6%.
In the EM local currency bond space, Argentina (10-year yield -13 bp), Nigeria (-5 bp), and Thailand (-4 bp) have outperformed this week, while Mexico (10-year yield +20 bp), Brazil (+17 bp), and Poland (+14 bp) have underperformed. To put this in better context, the 10-year UST yield rose 4 bp to 2.38%.
In the EM FX space, CLP (+0.8% vs. USD), CZK (+0.4% vs. EUR), and ILS (+0.3% vs. USD) have outperformed this week, while MXN (-1.6% vs. USD), TRY (-1.6% vs. USD), and ZAR (-1.3% vs. USD) have underperformed. Continue reading