Drivers for the Week Ahead

  • President-elect Biden will be inaugurated Wednesday; security in Washington DC and many state capitols has been beefed up due to concerns of violence; the Senate reconvenes Tuesday and will immediately begin work on confirming Biden’s cabinet choices; reports suggest that if asked, Yellen will disavow a weak dollar policy whilst affirming commitment to a market-determined exchange rate
  • Weekly jobless claims data Thursday will be the highlight of an otherwise quiet week; Fed manufacturing surveys for January will continue to roll out; BOC meets Wednesday and is expected to keep policy unchanged
  • ECB meets Thursday and is expected to keep policy unchanged; Italian political intrigue will continue this week; Norges Bank meets Thursday and is expected to keep policy unchanged; UK has another busy data week
  • BOJ meets Thursday and is expected to keep policy unchanged; Japan and Australia have busy weeks Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

The EM FX rally took a bit of a breather last week as the dollar got some broad-based traction. Risk- off impulses picked up from rising virus numbers and the worsening US economic outlook. Those impulses may continue this week due to heightened fears of violence ahead of the inauguration Wednesday. However, we believe the underlying Blue Wave trades will resume as the income Biden administration focuses on providing more stimulus. Continue reading “EM Preview for the Week Ahead”

Dollar Regains Some Traction as Markets Search for Direction

  • House Democrats will move ahead with impeachment proceedings today; December CPI data will be the US highlight; heavy UST supply this week wraps up with a $24 bln sale of 30-year bonds; December monthly budget statement will be of interest the Fed releases its Beige Book report; several Fed officials pushed back against notions of tapering anytime soon
  • Italian political noise continues; UK and Germany warned of more restrictive measures; Russia will restart its reserve accumulation policy; Poland is expected to keep rates steady at 0.10%
  • Japan’s government extended a state of emergency to seven more prefectures; BOJ may downgrade its economic assessment at next week’s meeting; PBOC may be getting uncomfortable with yuan strength Continue reading “Dollar Regains Some Traction as Markets Search for Direction”

Drivers for the Week Ahead

  • The December jobs data was an eye-opener and sets the tone for a weak ending for 2020; President-elect Biden is already calling for another significant round of fiscal stimulus; December retail sales Friday will be the highlight of a big US data week
  • the US reports December inflation data; the US curve continues to steepen; Fed officials are not concerned yet; supply will also come into focus this week due to a heavy UST auction schedule; the Fed releases its Beige Book report Wednesday; Fed manufacturing surveys for January will start to roll out
  • Eurozone has a light data weak; UK has its monthly data dump Friday; we expect another slug of fiscal stimulus while downplaying notions of negative rates by the BOE; Japan has a fairly busy data week; rising virus numbers and the sluggish economy are taking a toll on the government’s popularity Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

EM currency strength took a pause last week as the dollar gained some traction. We believe the dollar bounce is transitory and look for weakness to resume. MSCI EM has risen two straight weeks and nine of the past ten, with MSCI EM FX posting the same record. The backdrop for risk assets and EM remains strong, though investors will be casting a wary eye towards rising US yields. So far, the rise has been slow and steady and easily digestible for the markets, but the pace has picked up since last week. Stay tuned. Continue reading “EM Preview for the Week Ahead”

Drivers for the Week Ahead

  • The new US Congress was sworn in over the weekend; two Georgia Senate runoff votes will be held Tuesday; FOMC minutes will be released Wednesday
  • December Jobs reports Friday will be this week’s data highlight; Canada also reports December jobs data Friday
  • The ECB remains concerned about the strong euro; eurozone final PMI readings will come out; Germany has a heavy data week; Japan has a light week Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

EM currencies were mixed in 2020 and the divergences are likely to continue in 2021. Best performers last year against the dollar were RON (+8%), CNY (+7%), KRW (+6.5%), CZK (+6.5%), and TWD (+6%), while the worst were ARS (-29%), BRL (-22%), TRY (-19.5%), RUB (-17%), and PEN (-8.5%). That said, we believe global growth and liquidity conditions remain conducive for risk assets and EM. Our weak dollar call remains intact for Q1 but the rest of the year will hinge crucially on whether the incoming Biden administration can get the virus numbers under control whilst rolling out the vaccines more effectively. Stay tuned. Continue reading “EM Preview for the Week Ahead”

Drivers for the Week Ahead

  • As of this writing, the fate of the spending bill remains unclear; President Trump has put his fellow Republicans in an uncomfortable position; t’s not known yet whether President Trump will veto the legislation that was passed by both houses of Congress last week
  • Weekly jobless claims Thursday will be closely watched; the PUA and PEUC programs expired over the weekend because President Trump did not sign the spending bill; US data releases are limited this week
  • We can finally move on from the Brexit drama; the fact that sterling has yet to take out this month’s high near $1.3625 suggests a deal had been largely priced in; eurozone and Japan data releases are limited; SNB will release Q3 data on its currency interventions Thursday Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

EM FX came under some pressure last week as the dollar found some traction. Rising virus numbers globally may keep markets on edge this week. However, event risk from Brexit has faded and so the safe haven bid for the greenback should fade. Indeed, we believe the underlying fundamentals continue to support our weak dollar call. The uncertainty over the US spending bills and the expiration of emergency unemployment benefits are likely to be a headwind on the US as we move into 2021. Continue reading “EM Preview for the Week Ahead”