Emerging Markets FX Monocle – a lot of news, little action
Risk is mispriced, again. And hence caution is still essential. But unless some of the key risks actually materialise, we are most likely to see Emerging currencies drift stronger over the coming months.
Emerging currencies have been rather stable on average during March vs a fifty-fifty EUR and USD basket. Additional liquidity from the ECB’s LTRO did not spark a new round of increased risk perception and capital flows to Emerging Markets. However, liquidity remains abundant and is offsetting the numerous risks that are still out there.
A lot of news, little action.
Read more on the PLN, the RUB, the CNY, or other emerging currencies in the full report below.
Read full report
KeywordsBaltics Poland Russia, BRICs, Central and Eastern Europe, China, CNY, Emerging markets, Foreign exchange, Hungary, Poland, Russia, Turkey
The Swedish National Debt Office will sell 1 bn SGBi 3108 (1 Jun 2022) on the 24th April
Higher PMIs in April, both in manufacturing and the service sector. Germany strong, France weaker.
A re-cap of market views...
• Kerry warns Russia to tone down its rhetoric • Chinese PMI looks set to rise
China’s flash PMI rose unsurprisingly to 48.3 in April. On the backdrop of favourable policies to small companies, the improvement is likely to continue in the coming months, but PMI is likely to stay below 50 because of excess capacity and debt overload.
Bond markets with a rather calm day after Easter. Bonds with more potential in the near term. Intra-Euro-zone spread narrowing not run its course. Chinese PMI still depressed. Downside risks to today’s PMIs. Portuguese and US auctions ahead.
The latest Euro Rates Update is now available
RUB has been under pressure recently as tsunami of capital outflow, caused by the threat of sanctions against Russia, washed away optimists and buyers of RUB-denominated assets. The pace of capital outflow increased in Q1 2014, reaching unimaginable $51 bn. (compared with $62.7 bn. in 2013). The volatility stays high on the Russian markets and the rouble remains focused on geopolitics.
Unemployment remained unchanged at 8.1% in March (seasonally adjusted). This was above forecasts at 8.0%. However, employment rose more than forecast and was up 0.3% m/m after an uptick of the same magnitude in February. Thus, the higher than expected unemployment reading in March is (once again) explained by unexpected strong growth in the labour supply, +0.3% m/m.
• Deal clinched during Geneva meeting • Ingves says deflation not likely
US Treasuries with a beating ahead of the Easter. Some gains ahead for bonds today. US existing home sales out today – Euro-zone flash PMIs later. A flood of auctions on the agenda already today. Portugal to resume its bond auctions. Fresh cash injection to boost French bonds this week.
The latest Euro Rates Update is now available
• Separatists in Donetsk plan for a local referendum • A summit in Geneva to discuss the crisis in Ukraine
Yields edged higher yesterday – long positions with potential today. Equities rebound, but more weakness likely ahead. Euro-zone core inflation back to record-lows. Italy taps retail investors for huge amounts again. Big US banks boosting their lending to companies – Euro-zone doing much worse. Philly Fed, jobless claims and LTRO repayment announcement. New French 2-year benchmark and US auctions ahead.
• It has been a bumpy ride for US rates in 2014. A two month rally started the year and recently the Fed has added substantial volatility with their somewhat wobbly way of commenting on future policy. • Further, the last NFP on April 4th was quite a disappointment. • In this note we look into the market perception (through futures and options) of all this, and in particular find indications towards a loss of faith (on rising rates) on behalf of the option market.
• Putin urges UN to condemn Ukraine’s intervention • Chinese growth at weakest level for six quarters
German 10-year yield finally broke important support – mood remains bullish. A correction higher in yields still looks likely today. US equities recover after early losses. Q1 effect hits Chinese GDP numbers again. Ukraine’s military starting to use force US core inflation bottomed out? Euro-zone inflation and US housing market data ahead – Germany to sell 10-year bonds.
China’s Q1 GDP growth of 7.4% was marginally higher than market consensus. It was caused by a combination of cyclical slowdown and structural shift away from the traditional growth drivers. Beijing is likely to continue the fine-tuning policies and stays away from large-scaled stimulus.
Suvi Kosonen @SuviKosonen Apr 23
Euroalueen odotuksia vahvemmat PMI-luvut vähentävät välittömiä toiveita uudesta elvytyksestä EKP:lta