Some Thoughts on the US Economy and Fed Policy

The US yield curve has inverted again even as US data has softened. This piece moves beyond our previous discussions about the predictive power of an inverted yield curve and instead focuses on which economic indicators that markets should watch for warning signs of recession. Continue reading “Some Thoughts on the US Economy and Fed Policy”

What Has Changed in EM

  • PBOC Governor Yi Gang hinted that the 7 level for the yuan is by no means sacrosanct
  • Reserve Bank of India cut rates 25 bp, as expected
  • Russia central bank Governor Nabiullina said a rate cut next week is possible
  • ANC said it will follow through on its plans to expand the mandate of the SARB
  • Colombia central bank suspended its dollar purchase program
  • The ratings agencies are punishing Mexico Continue reading “What Has Changed in EM”

Israel Assets to Outperform Despite Election Do-Over

Israeli voters will go the polls again in September. Regardless of the election outcome, we believe strong economic fundamentals will allow Israeli assets to outperform this year. Continue reading “Israel Assets to Outperform Despite Election Do-Over”

Drivers for the Week Ahead

  • The next US recession is a possible game-changer for the dollar; US rates markets are getting even more pessimistic about the US outlook
  • The main event this week in terms of data will be US jobs report Friday; the Fed releases its Beige Book report Wednesday
  • China confirmed it will establish a list of “unreliable” foreign entities that damage its domestic firms
  • Final eurozone manufacturing PMIs will be reported Monday; ECB then meets Thursday
  • RBA meets Tuesday and is expected to cut rates 25 bp to 1.25%; Canada has a heavy data week
  • In EM, the central banks of India, Poland, and Chile meet Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

We think the global backdrop remains very negative for EM. Rising tariffs pose significant risks to global growth and trade. We expect both China and Mexico to retaliate further in the coming days. At this point, a potentially more dovish Fed and ECB (amongst many others) is simply not enough to help EM get any traction. Continue reading “EM Preview for the Week Ahead”

What Has Changed in EM

  • Reports suggest China is “seriously” considering limiting exports of its rare earths to the US
  • S&P upgraded Indonesia a notch to BBB with stable outlook
  • Israel will head to the polls again
  • South Africa President Ramaphosa announced a market-friendly cabinet after a delay
  • There appears to be a thaw in Turkey-US relations
  • Brazil President Bolsonaro appears to be softening his approach to get pension reforms passed
  • President Trump abruptly announced 5% tariffs on all Mexican imports
  • Venezuela central bank published economic data for the first time since 2015 Continue reading “What Has Changed in EM”

Semiannual US Treasury FX Report Suggests Trade Hawks Hold Sway

The US Treasury finally presented its semiannual report to Congress on “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.” The delay was due to a change in the criteria for being named a currency manipulator as well as for being included in the report, suggesting the trade hawks continue to drive US policy. Yet while more countries came under scrutiny amidst heightened trade frictions, China was not named as a manipulator. Continue reading “Semiannual US Treasury FX Report Suggests Trade Hawks Hold Sway”

EM FX Technical Picture

The EM washout continues. The global backdrop remains negative for EM, as heightened trade tensions and slowing growth in China are expected to persist into H2 2019. We look for further EM losses ahead. Continue reading “EM FX Technical Picture”

Results of the European Parliamentary Elections are EUR- and GBP-negative

At first blush, results of the European Parliamentary elections look good. The far-right populists did worse than expected, while the Greens picked up the slack. However, a more granular examination of the results suggest trouble ahead in Germany, France, Italy, and the UK, the four largest members of the EU. We view the election results as broadly negative for EUR and GBP. Continue reading “Results of the European Parliamentary Elections are EUR- and GBP-negative”