EM FX has come under renewed pressure as the dollar staged a broad-based recovery after the FOMC meeting. Data this week is likely to show continued robustness in the US economy, cementing a December hike by the Fed. Elsewhere, concerns about China, Italy, and Brexit are likely to weigh on market sentiment. We remain negative on EM.
The mid-term elections in the US are widely regarded as a referendum on President Trump’s first two years in office. While markets have largely priced in a benign outcome, we outline below the tail risks and what they mean for the US economy and global financial markets.
Continue reading “Thoughts on the US Elections and Economic Outlook”
EM FX got some traction last week as the dollar rally stalled. Still, event risk remains high in many EM countries, notably Brazil, Mexico, South Africa, and Turkey. The FOMC meeting this week is widely expected to see no actions, but the Fed should signal that a December hike is on track. As it is, US yields are marching higher again. We believe the global backdrop for EM remains negative.
EM FX ended last week on a firm note but the week was still a bad one. We think risk-off impulses will continue and likely intensify in the coming weeks. As such, we remain negative on EM as an asset class. China will provide its first glimpse of October with PMI readings, while US jobs report Friday will be the data highlight of the week.
Markets are left wondering if an equity market correction will stay the Fed’s hand in December. The short answer is no. The long answer is that short of a plunge along the lines of 1987 or 2008, Fed policy should not be impacted. This piece attempts to put some historical context behind our call.
Continue reading “Stock Market Gyrations Won’t Impact Fed in December”
New Finance Minister Tito Mboweni will present his mid-term budget review this Wednesday. We think he will do just enough for the agencies to give him the benefit of the doubt until his next budget statement in early 2019. Longer-term, we see more downgrades and loss of investment grade from Moody’s.
Through mid-October 2018, foreign currency Uridashi issuance totaled $7.6 bln. If this pace is sustained, the full year total of $9.6 bln would represent an increase from $8.4 bln in 2017 but would fall short of the $12 bln issued in 2016.