EM Preview for the Week Ahead

Most EM currencies were up last week, once again taking advantage of broad dollar weakness. In addition, EM equities also performed well, with MSCI EM up for the third week in a row and for seven of the past eight. We expect EM assets to continue benefiting from the global liquidity story as well as the weak dollar trend. Continue reading “EM Preview for the Week Ahead”

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Roadblocks and Opportunities for International Trade in 2021

We see significant upside risk for global trade coming from “top down” forces (such as politics), but at the same time we expect the undercurrent reconfiguring many of the existing relationships to intensify. The “Peak Globalization” narrative (at least regarding … Continue reading Roadblocks and Opportunities for International Trade in 2021

EM Preview for the Week Ahead

EM FX is being pulled in two different directions. On one hand, the rising global virus numbers bode ill for global growth and so EM is likely to suffer. On the other hand, the weak dollar trend remains intact. Net net, we expect EM FX to continue strengthening, though divergence are likely to continue within EM. Continue reading “EM Preview for the Week Ahead”

EM Preview for the Week Ahead

EM FX has taken advantage of continued dollar weakness in recent days. While the Blue Wave is still open to question until January, we think the underlying factors behind dollar weakness remain intact: rising virus numbers, a slowing US economy, an ultra-dovish Fed, and no near-term prospects for fiscal stimulus. That said, we expect to see continued divergence within EM FX. Continue reading “EM Preview for the Week Ahead”

What Are Markets Telling Us?

The reflation trade appears to be still alive and well as the US goes to the polls.  Global equities are up, bond prices are down, and the dollar is weaker.  What are markets telling us?  It appears that markets are pricing in solid odds of a Blue Wave today, implying significant fiscal stimulus and debt issuance in 2021.  Because of the perceived risks of another surprise victory by President Trump, we do not think the Blue Wave is fully priced in and so there is room for further movement if Biden does indeed win.  That said, “there’s many a slip twixt the cup and the lip” and so these directional bets can quickly reverse.  Markets should not be lulled into a sense of complacency and should instead be prepared for greater volatility across all markets over the coming days. Continue reading “What Are Markets Telling Us?”

EM Preview for the Week Ahead

This is one of the most eventful weeks for the markets in recent memory. US elections, an FOMC meeting, and October jobs data will likely ensure that markets remain volatile. The election outcome will probably be the biggest driver near-term for risk assets. While we believe the base case is for a Blue Wave that helps risk assets, the 2016 election showed that tail risk can sometimes happen, leaving a lot of scar tissue. Yet looking through the noise, we must reiterate what we perceive to be the true signals. To us, that includes (but is not limited to) limited potential for US fiscal stimulus until 2021, an ultra-dovish Fed, a softening US economic outlook, and rising virus numbers that are leading to lockdowns globally. These main drivers still support our weak dollar call extending well into Q1. Continue reading “EM Preview for the Week Ahead”

EM Preview for the Week Ahead

EM FX took advantage once again of broad dollar weakness. Most EM currencies were up last week against the dollar, with the only exceptions being ARS, TRY, INR, THB, PEN, and MYR. We expect the dollar to remain under pressure this week and so EM should remain bid. However, the growing spread of the virus in Europe and the US supports our view that Asia is likely to continue outperforming. Continue reading “EM Preview for the Week Ahead”

EM Preview for the Week Ahead

Risk assets are coming off a tough week. The dollar was bid across the board except for the yen, which outperformed slightly. The only EM currencies to gain against the dollar were KRW and CLP. The major US equity indices somehow managed to eke out very modest gains but stock markets across Europe sank as the viral spread threatens to slam economic activity again. Yet we have seen time and time again that the safe haven bid for the dollar eventually gives way to broad-based dollar weakness and we expect that to happen this week. Strong China growth in Q3 is expected to underpin risk sentiment and this should help EM gain some traction.  Continue reading “EM Preview for the Week Ahead”