EM FX Model for Q4 2019

  • EM FX has rallied sharply in recent weeks, helped by growing optimism that we’ve seen the worst of the US-China trade war
  • Given our more constructive outlook on EM, we believe MSCI EM FX should eventually test the 1657.50 high from July
  • We see continued divergences within the asset class
  • Our 1-rated (strongest fundamentals) grouping for Q4 2019 consists of TWD, THB, PHP, CNY, and KRW
  • Our 5-rated (weakest fundamentals) grouping for Q4 2019 consists of ZAR, TRY, LKR, RON, and COP
  • Our next EM FX model update for Q1 2020 will come out in January Continue reading “EM FX Model for Q4 2019”

Dollar Mixed as New Week Begins

  • The dollar remains under modest pressure; the US economy has slowed more sharply than expected in Q4
  • The Bundesbank warned that the German economy is likely to stagnate in Q4
  • Latest UK polls show the Conservative party consolidating its lead
  • China unexpectedly cut the 7-day reverse repo rate by 5 bp to 2.5%, the first since 2015; Thailand Q3 GDP grew 2.4% y/y vs. 2.7% expected Continue reading “Dollar Mixed as New Week Begins”

Drivers for the Week Ahead

  • The dollar has come under some pressure as recent US data has disappointed
  • US-China trade talks are continuing; geopolitical risks are concentrated in Asia right now
  • The US economy has slowed more sharply than expected in Q4; FOMC minutes will be released Wednesday
  • Eurozone and UK flash PMIs for November will be reported Friday; Japan reports October trade Wednesday Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

EM FX was mostly weaker last week due to doubts about a Phase One trade deal between the US and China. Those talks continue this week and while we expect a deal to be struck, there is likely to be a lot of last minute posturing that will likely keep markets volatile over the short-run. In the meantime, investors need to beware of idiosyncratic country risk within EM.   Continue reading “EM Preview for the Week Ahead”

Dollar Mixed Ahead of US Retail Sales Data

  • Markets continue to dance to the tune of trade headlines
  • During the North American session, the highlight is US October retail sales
  • Banco de Mexico cut rates yesterday by 25 bp to 7.50%, as expected
  • Israel October CPI is expected to rise 0.5% y/y
  • Hong Kong tensions are likely to worsen; Malaysia reported Q3 GDP Continue reading “Dollar Mixed Ahead of US Retail Sales Data”

Emerging Market Risk Map

With year-end upon us, we review some of the key risks to EM assets and how we think they progress from here. In short, the two most significant downside risks would be a decisive improvement in Elizabeth Warren’s polling figures and an upset in the US-China trade negotiations. Continue reading “Emerging Market Risk Map”

EM Equity Allocation Model For Q4 2019

  • EM has rallied sharply in recent weeks, helped by growing optimism that we’ve seen the worst of the US-China trade war
  • MSCI EM rallied over 12% from the August 26 low to the November 7 peak
  • MSCI EM is up 9.4% YTD and compares to 21.6% for MSCI DM
  • Our 1-rated grouping (outperformers) for Q4 2019 consists of Hungary, China, Korea, Poland, and UAE
  • Our 5-rated grouping (underperformers) for Q4 2019 consists of Mexico, Brazil, South Africa, Pakistan, and Argentina
  • Since our last model update on August 9, our proprietary EM equity portfolio is up 6.1%, which is basically the same as MSCI EM (up 5.9%) Continue reading “EM Equity Allocation Model For Q4 2019”

Dollar Treads Water Ahead of Key US Data

  • US-China talks have reportedly hit a snag
  • In yesterday’s appearance before the Joint Economic Committee, Powell covered no new ground
  • Chile central bank will offer $4 bln of 30- and 90-day currency swaps to help support the peso; Mexico is expected to cut rates 25 bp to 7.5%
  • Eurozone reported solid preliminary Q3 GDP data; UK retail sales came in weaker than expected in October
  • Japan reported weak Q3 GDP data; Australia reported weak October jobs data; China reported weak October IP and retail sales Continue reading “Dollar Treads Water Ahead of Key US Data”

Persistent Social Unrest to Weigh on Chilean Assets

Social unrest in Chile has gotten worse despite President Pinera’s administration making many concessions to the protestors. The agreement to rewrite the constitution has unnerved investors and fanned fears that the government will swing too far to the populist left to quell the protests. Prolonged political and economic uncertainty should continue to weigh on Chilean assets. However, we downplay risks of capital controls for now. Continue reading “Persistent Social Unrest to Weigh on Chilean Assets”