NAFTA Worries Take Toll, Yellen’s Best Guess Supports Greenback

 

 

new money

In a relatively quiet week for economic data, except for the UK, we suggested that politics may trump economics.  Today, the Canadian dollar is the weakest of the major currencies, losing about 0.5%, while the Mexican peso is the poorest performer among emerging market currencies, losing closer to 1%.  The move began last week.  Over the past five sessions, the Mexican peso is the weakest currency in the world, losing 2.2% against the US dollar.  The Canadian dollar is up 0.1% over the past five sessions that make it the worst of the major currencies.  

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What Has Changed in EM

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  • Thailand announced general elections will be held in November 2018
  • Czech police filed criminal charges against ANO leader Andrej Babis
  • South Africa President Zuma may face corruption charges that were previously dropped
  • The US suspended visa services for travelers from Turkey
  • Kenyan opposition candidate Odinga withdrew from a redo of the annulled presidential election
  • Saudi Arabia will take a more gradual approach to removing fuel subsidies
  • Former Mexican First Lady Zavala said she’s leaving PAN to run as an independent Continue reading

Discipline Argues Against Consensus Narrative

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  • The market has come to accept a December rate hike, just as it had to be led by the hand to recognize the March hike
  • The enthusiasm for Spanish assets is somewhat diminished today
  • In addition to the euro’s streak, there is another notable streak underway:  Japanese stocks
  • Singapore August retail sales rose 3.5% y/y; MAS expected to remain on hold tomorrow
  • India reports September CPI and August IP; Peru central bank is expected to keep rates steady at 3.5% Continue reading

China Ends Swap Lines with South Korea: A Dog that Doesn’t Bark

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China has declined to renew the $56 currency swap line with South Korea.  The swap line has been in place for eight years. Initially, it was launched at $26 bln in 2009 and expanded in 2011.  It has been extended twice since then.  

 

The swap line from China was South Korea’s largest swap line, accounting for almost half of all of its official currency swaps.  Just two days ago, news wires were reporting that officials were optimistic that the swap line would be renewed.  

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Six Things to Know about How Markets Started the Week

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Several financial centers were closed today, October 9, for different national holidays.  Markets were closed in Japan, Taiwan, Korea, and Canada, and there was a partial holiday in the US. 

1.  Chinese markets reopened after the national holiday last week.  The equities rallied in a bit of catch-up, following the cut in reserve requirements for lending to small businesses announced at the start of the holiday period.  The yuan fell 0.4% against the dollar, which had appreciated against most major and emerging market currencies while Chinese markets were closed.  

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EM Preview for the Week Ahead

blog-icons-empreview emerging markets previewEM 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

What Has Changed in EM

IconIn 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