Turkish Assets to Continue Underperforming

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.

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From the Securities Lending Trading Desk

In the Americas, Tencent Music, which owns the four largest music apps in China, has seen lending volumes and fees jump after the Chinese manufacturing sector reported its first contraction in 2 years. In Asia, we have seen strong long term lending demand for Pilbara Minerals Ltd following a 38% decline in its share price in 2018. In Europe, China slowdown weighing on European luxury sector.

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Dollar Bounces on Turnaround Tuesday

  • The dollar is staging a modest recovery today 
  • Yesterday, the Fed’s Bostic continued a string of supportive comments
  • Fed Governor candidate Nellie Liang has withdrawn herself from consideration
  • During the North American session, both the US and Canada report November trade data
  • Germany reported very weak November IP
  • Brexit news has been limited ahead of the UK parliamentary debate that starts tomorrow
  • EM continues to be pulled in two different directions

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Uridashi Issuance in 2018

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”

Drivers for the Week Ahead

  • The US economy is in better shape than the market feared but it will take more than one strong reading to get the dollar rally back on track
  • FOMC minutes will be released Wednesday
  • Powell did some serious damage control that was a 180 from the December FOMC meeting
  • The UK Parliament returned from recess today
  • Bank of Canada meets Wednesday and is expected to keep rates steady at 1.75%
  • China reports December money and loan data this week; US trade delegation has arrived in Beijing

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EM Preview for the Week Ahead

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.

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A Look Back at Late 2018 and a Look Ahead to Early 2019

We wanted to alert our readers to recent market events that might have been overlooked due to the holidays. Furthermore, we offer some brief thoughts on 2019, many of which will be fleshed out further in our upcoming FX Quarterly for Q1 2019.

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Drivers for the Week Ahead

  • The markets continue to reel from last week’s gut-punch from the Fed
  • Reports emerged ahead of the weekend that President Trump discussed whether he could fire Fed Chairman Powell
  • Mnuchin attempted some damage control
  • NY Fed’s Williams and Cleveland Fed’s Mester somehow drew damage control duty Friday
  • The US economy remains relatively strong in Q4; US reports some minor data this week
  • Germany reports December national CPI Friday
  • Japan reports November retail sales, IP, unemployment, and December Tokyo CPI Friday
  • With the UK Parliament on recess until January 7, we expect a dearth of Brexit news

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What Has Changed in EM

  • PBOC announced it would supply low-cost liquidity to banks willing to lend to smaller companies
  • China also pledged “significant” tax cuts and signaled easier monetary policy in 2019
  • The US Treasury will lift sanctions on Russian aluminum company Rusal
  • South Africa released a draft Expropriation Bill
  • Banco de Mexico hiked rates 25 bp to 8.25%

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