EM Preview for the Week Ahead

We are beginning to become more constructive on EM.  The main trigger for some optimism is the shifting US-China dynamic.  In our view, the partial trade deal reveals weakness on the part of the US.  Reports suggest China will begin pushing for all existing tariffs to be dropped as part of Phase 2, which would be very positive for EM.  That is still likely months away but this shifting dynamic bears watching.  We will be putting out a longer MarketView piece on this topic this week. Continue reading “EM Preview for the Week Ahead”

What is the US Yield Curve Telling Us?

The US yield curve has turned positive again. Did we dodge a bullet? Markets are likely to remain on US recession watch, but we look at past curve inversions to conclude that we may avoid recession in 2020. Other clues support this view, at least for now. Continue reading “What is the US Yield Curve Telling Us?”

Drivers for the Week Ahead

  • With risk-on sentiment still in full force, we acknowledge that the dollar may remain under pressure near-term
  • Recent developments take some pressure off the Fed to cut rates again this month, which is ultimately dollar-positive
  • US data highlight this week will be September retail sales Wednesday
  • UK Parliament reconvenes Monday; EU summit October 17-18 is seen as the last opportunity to submit workable Brexit deal
  • China September data deluge comes this week; MAS and BOK meet and both are expected to ease Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

EM benefited greatly from the improvement in US-China trade relations and quite possibly Brexit.  The dollar is likely to remain under some pressure near-term as a result.  Yet we must caution investors against getting too optimistic.  The details of the partial trade deal still need to be worked out, while existing tariffs will still remain in place if the deal is signed next month as most expect.  Brexit negotiations have accelerated but we note that any deal must still be passed by UK Parliament, which has already scuttled several attempts.  Lastly, geopolitical risks abound in the Middle East.    Continue reading “EM Preview for the Week Ahead”

Some Thoughts on a Possible US-China Currency Pact

There has been increased talk about a possible “currency pact” from China as a key component for a partial trade deal. The notion was first discussed in February, when Treasury Secretary Mnuchin touted that the US and China had agreed on a currency pact that was “the strongest ever.” No details were ever divulged, as US-China talks broke down in May over the deeper structural reforms that China was unwilling to commit to. So what can we expect of a trade pact this time around? Continue reading “Some Thoughts on a Possible US-China Currency Pact”

Uncertain US-Turkey Relations Add to Geopolitical Risk

US-Turkey relations are in flux.  After seemingly capitulating to President Erdogan and withdrawing US forces from Syria, President Trump later threatened to destroy the Turkish economy if anything “off-limits” is done.  The heightened uncertainty comes at a time when geopolitical risk is already elevated, and so EM and risk assets should remain under pressure, led lower by Turkish assets. Continue reading “Uncertain US-Turkey Relations Add to Geopolitical Risk”

Canada Election Preview: Trudeau Weathers Brownface Scandal

Canada Prime Minister Trudeau and his Liberals appear to have escaped negative fallout from recent scandals. Polls suggest the national vote will be very close, but closer analysis suggests the Liberals will likely win the most seats. While possibly falling short of winning an absolute majority, the Liberals appear to have the best chance of forming the next government. Continue reading “Canada Election Preview: Trudeau Weathers Brownface Scandal”

Drivers for the Week Ahead

  • The dollar rally has been derailed by weak US data and rising recession fears
  • The September jobs data was not a game-changer and so we are left waiting for more clues
  • Believe it or not, the US economy remains solid; however, the US repo market has not fully normalized yet
  • The Chinese trade delegation arrives in Washington Thursday for two days of trade talks
  • Brexit optimism has worn off; there are several key EM events Continue reading “Drivers for the Week Ahead”

EM Preview for the Week Ahead

EM got some traction last week as the dollar came under renewed pressure.  However, the global backdrop remains negative for EM.  US-China trade talks this week are unlikely to yield any progress, which means the next round of tariffs will go into effect mid-October.  While odds of a Fed rate cut this month have risen, we do not think the positive liquidity story will outweigh the negative global growth story for EM.  Continue reading “EM Preview for the Week Ahead”