A Preview of Emerging Market News and Events
Given the absence of any major US data, China and Europe will attract the markets attention. EM sentiment starts the week caught in a crosscurrent.
Category: Emerging Markets
An Emerging Markets Status Update
Over the last week, China (+6.3%), Argentina (+4.8%), and Hong Kong (+1.39%) have outperformed in the EM equity space, while India (-1.5%) and Czech Republic (-0.9%) underperformed.
In the EM local currency bond space, longer date yields in Turkey (+34 bp), Indonesia (+27 bp) and Peru (+12 bp) rose the most, and fell the most in Colombia (-8 bp), Check Republic (-6 bp) and Brazil -6 bp). To put this in better context, the 10-year UST yield fell 7 bp over the past week.
A Preview of Emerging Market News and Events
EM assets are starting the week on a now familiar pattern: weaker currencies but stronger stock markets. The broad dollar rally is back in force, with the greenback pushing back against earlier cycle highs against many of the major currencies. This is taking a toll on EM currencies as well. Overall, we think this strong equity/weak currency trend is likely to continue for the near-term, albeit with some differentiation within EM.
An Emerging Markets Status Update
Over the last week, China (+8.7%), Russia (+8.1%), and Hong Kong (+6.0%) have outperformed in the EM equity space as measured by MSCI, while Czech Republic (-0.9%), Egypt (-0.9%), and Taiwan (-0.2) have underperformed. To put this in better context, MSCI EM rose 3.4% over the past week while MSCI DM rose 1.0%.
Russia and the Philippines Lead Emerging Market News
EM currencies are starting the week off firm, helped by the weak US jobs data on Friday. While we continue to see the US economy’s weakness in Q1 as transitory, risk sentiment should remain fairly strong near-term as Fed rate hike expectations have been pushed out further. There are no major US data points until next week, when March retail sales report. This could give EM some further upside potential this week.
A Look at the Week in the Emerging Markets
EM currencies are starting the week under pressure again from a broad based dollar recovery. While expectations for a Fed lift-off remain in flux, the recent rebound in the dollar suggests that on a relative basis, the US economic and interest rate outlooks remain attractive.
A Preview of Emerging Market News and Events
EM FX ended last week on a firm note. We believe that the broad-based dollar rally remains intact, but we could see a period of consolidation until the interest rate backdrop becomes more positive for the dollar. The week after next holds the greatest potential, when the first prints for March start emerging and of course capped off with the Good Friday release of nonfarm payrolls. Weekly claims data for the March survey week came in firm, suggesting another strong jobs report for the month.
News Headlines from the Emerging Markets for the Upcoming Week
EM is starting the week on its back foot, continuing the trend seen for most of this past month. The dollar is making multi-year highs against many EM currencies, including BRL, COP, MXN, TRY, ZAR, IDR, and SGD. MSCI EM continues to sell off, while EM local currency bond yields are moving higher. The EM backdrop is likely to remain negative.
An Emerging Markets Status Update
Over the last week, Egypt (+2.4%), Korea (+0.8%), and India (+0.7%) have outperformed in the EM equity space as measured by MSCI, while Brazil (-9.4%), Colombia (-8.0%), and Turkey (-7.7%) have underperformed. To put this in better context, MSCI EM fell -2.2% over the past week while MSCI DM fell -1.0%.
A Preview of this Week’s Events Among the Emerging Markets
EM assets are starting the week mixed, as markets await fresh signals for trading. Between the various central bank meetings in developed markets (BOE, ECB, RBA, and BOC) and the US non-farm payrolls, there are plenty of sources of volatility. We think the jobs data will underscore our call for a Fed takeoff around midyear. On the EM side, markets will be closely watching for a chance of dovish surprise out of Brazil or Poland, though we think the chances of this happening in Brazil are very slim.
