DCSIMG

EM FX Monocle – Into the summer lull

 ”Life after the storm” was a good title for our May EM FX Monocle – indeed, EM FX volatilities have declined and the currencies started to recover in June. The European problems haven’t been resolved yet, and there are no quick fixes, but with the sentiment worse as it is, and the policymakers’ readiness to intervene, we believe the worst is behind us in this cycle phase for EM FX.

• EM FX declined sharply in May but managed to stabilise in June, now hovering just above water YTD. In particular the high betas such as the HUF, the PLN and the MXN performed. There is room for more, we expect, as long as no more really bad news hits the market.

• Even with further declines in commodities in June the commodity currencies have picked up from recent lows. Acknowledging the risks we see further performance: in the EM world the RUB is the attractive pick.

• EM FX implied volatilities have declined in June, but still remain at high levels relative to April 2012 and relative to G7 volatilities. The summer range-bound markets may bring them down further.

• If we are wrong, and risk-off intensifies again, do not expect to see such sharp EM FX losses as in May: now nearly all EM central banks, even Brazil’s, have turned to protecting their currencies against declines. In this respect we still prefer the TRY the most, as the CBT prefers to keep rates high.

Read the full report here.

 

Latest research

Swedish Morning Briefing - Monday July 28

Europe’s debts at record level Higher rating for Portugal

While you were busy ...

If you are just back from holiday, here are a few bullets on what happened while you were busy …

Euro Rates Update

The latest Euro Rates Update is now available

FI Eye-Opener: Prepare for a big week

Bonds rally again ahead of the weekend, but core yields to creep higher today. Equities under pressure on Friday. German Ifo disappoints – UK growth still strong. The surge in LTRO repayments not repeated. Portugal receives good news from Moody’s. What is with Germany and a tighter EU? A huge week ahead: the Fed, US GDP, Euro-zone inflation and payrolls. Italian & US auctions and plenty of coupons and redemptions.

RUB: Central Bank decided to raise the key rate, inflation is in focus

Today Bank of Russia Board of Directors decided to raise the key rate by 50 b.p. to 8%. RUB may find support, but geopolitics will remain the focal point for the Russian currency market.

Week Ahead: 26 Jul - 01 Aug 2014

Big week in the US with GDP, Fed, ISM and payrolls. Flash estimates on July inflation will be out for the Euro Area and ECB will publish the Bank Lending Survey on Wednesday. In Norway the labour market will be in focus. Sweden will be out with both PMI and GDP Q2 (early estimate)

Preliminary Prepayments

Preliminary Prepayments

UK: leaving previous peaks behind

Strong GDP growth continued in the UK economy in Q2, with growth coming in at 0.8% q/q, in line with expectations, which was enough to lift the y/y rate to 3.1%, the highest since the last quarter of 2007. On a q/q basis, growth has been running at 0.7-0.8% for five consecutive quarters already, a remarkably stable performance.

Germany: Ifo decline once again highlights external vulnerability

The manufacturing motor sputters but growth is not over.

Sweden: retail sales and lending; households getting more confident

Strong retail sales. Continued increase in household lending.

Swedish Morning Briefing - Friday July 25

Japanese CPI up 3.6% in June Swedish retail sales due at 9.30

FI Eye-Opener: Bulls to strike back today

Yields headed higher on both sides of the Atlantic yesterday. Buying of core bonds to resume today, as concerns over Ukraine/Russia continue. S&P 500 squeezes another high. Market impact from positive PMIs likely short-lived. US economic data mixed. Busy Friday ahead: UK GDP, Ifo, Euro-zone credit data, Russian ratings. Another sizable LTRO repayment to put some upward pressure on the short end.

IDR: Jokowi win paves way for strengthening

The official election result is out and Indonesia has got a new president, the popular Jokowi. This is already priced in the market so IDR will be range-bound for now. It would be IDR positive in a longer perspective, if he succeeds in promoting growth and improving standards of living.

Euro area: PMIs offer hope amidst gloomy headlines

The flash PMIs for July point to a continued recovery in the Euro-area economy. Positive development in sentiment indicators is certainly welcome at a time, when the effect of e.g. the Ukrainian/Russian crisis is weighing on the economy. It is worth remembering that the numbers are unlikely to capture the recent escalation in geopolitical tensions, but the latest weakening of the euro and the ECB’s June easing package, on the other hand, are supportive of the Euro-area economy.

Sweden: Same old story in unemployment

Unemployment bounced back somewhat in June after the stronger than expected reading in May. Seen over the last two years, it is very hard to spot any clear trend downward in unemployment, despite the clear trend upward in employment. Today’s number did not change this overall picture and the expected, future decrease in unemployment seems to continue to be very gradual.

Swedish Morning Briefing - Thursday July 24

South Korea presents stimulus package Reserve Bank of New Zealand lifts policy rate

China: Good PMI no guarantee for growth outperformance

The Chinese economy is currently in a cyclical upturn. But the long-term perspective has not changed. The economy will continue to readjust to the new normal, meaning that a significant pick-up of growth is unlikely.

FI Eye-Opener: Reaching for the stars

German bonds take back earlier losses – yields to creep higher today. S&P 500 just manages to rise to new highs. China’s economy picks up steam. Bank of England not unanimous for too much longer? Russian sanctions on the agenda again. Euro-zone PMIs set to rebound.

BoE minutes: First hike getting closer, but not around the corner yet

BoE minutes showed a unanimous monetary policy decision at the July meeting, but the differing views about the outlook are starting to emerge. The modest wage pressures mean that the Bank is not in any hurry to start to raise rates, and the first rate hike is not around the corner. The August monetary policy meeting and the inflation report will be interesting.

Swedish Morning Briefing - Wednesday 23 July

EU to limit Russian access to capital markets Minutes of BoE meeting due at 10.30