- Press reports that suggest that the US may lift its tariffs on China
- Turkish President Erdogan was granted emergency powers by parliament
- South African Reserve Bank delivered a dovish hold
- Violence has returned to Colombia Continue reading “What Has Changed in EM”
The South African Reserve Bank meets tomorrow and is widely expected to keep rates steady at 6.75%. The recent release of the ANC’s election manifesto suggests a modification of the central bank’s mandate, which we think would be a mistake. Longer-term, we see more downgrades and loss of investment grade from Moody’s.
Bank Indonesia meets Thursday and is expected to keep rates steady at 6.0%. If the rupiah remains relatively firm, then BI is likely to remain on hold for the time being. Elections in April are unlikely to have much impact as Jokowi is widely expected to win a second term.
EM FX ended the week on a soft note after rallying most of the week on the dovish shift in the Fed’s messaging. Until US rates adjust back to pricing in no US recession, it will be hard for the dollar to maintain much traction and so this EM bounce can continue. Yet other risks to EM remain in place, including slower growth in China and globally.
- US-China relations appear to be thawing
- People’s Bank of China cut reserve requirements by one percentage point
- Bank of Thailand discussed lowering its inflation target
- Turkish tanks have reportedly been deployed on the Syrian border.
- Mexico Finance Ministry confirmed that it spent about $1.23 bln to hedge its 2019 oil revenues
Market euphoria over new Brazilian President Bolsonaro remains strong. Yet the economy remains weak and the new government is still untested. We think market optimism on Brazil is due for a reset, like what was seen with Mexico and AMLO.
US-Turkey relations are fraying. With regional political risks remaining high, we think the lira will continue to underperform. Fundamentals also remain poor, with inflation likely to move higher due to the weak lira and higher oil prices.
In 2018, foreign currency Uridashi issuance totaled $9.0 bln. This represents a slight increase from $8.5 bln in 2017 but falls short of the $12 bln issued in 2016. Continue reading “Uridashi Issuance in 2018”
EM FX ended the week on a firm note as stronger than expected US jobs data fed into risk-on sentiment. Fed Chair Powell also added to the positive sentiment Friday as he addressed basically every area of concern that the markets have had with the Fed. US rates backed up but not by enough to lend the dollar much support. In this current “wait and see” period regarding the US economy and the Fed, we suspect the dollar will have trouble getting much traction and so this EM bounce could continue near-term.