RBA Rate Cut Risk Rises

The Australian dollar recorded a key downside reversal last Friday (July 15) and had seen follow through selling this week.  It is off 1.25% over the past three sessions, which makes it the worst performing major currency behind the Japanese yen. 

As this Great Graphic, composed on Bloomberg shows, the recent losses have pushed to Australian dollar close to the uptrend line drawn off the late-May low near $0.7150 and the spike low from Brexit (~$0.7300).  The trendline is found near $0.7450 today.

Italian PM Renzi's Banking Challenge

The European Court of Justice upheld the principle of making creditors bear the burden for investment in banks that sour before government funds could be used.  Italian banks are particularly sensitive to the ruling, which cannot be appealed because the European Banking Authority and European Central Bank stress tests on July 29 are expected to show that some Italian banks are under-capitalized.

China's Ageing Population could Hinder Per Capita Income Growth

In East Asia, rapid income growth in the second half of last century has produced unprecedented and rapid population ageing. Rising living standards and incomes tend to induce longer lifespans and fewer births per woman, leading to dramatic increases in the proportion of old people within the total population. Where it took France 115 years to double the share of its population that is 65 years and over from 7 to 14 percent, the same shift in China will take just 25 years.

Japan's Military 'Gender Perspective'

On 4 November 2014, Lieutenant-Colonel Chizu Kurita of the Japan Ground Self-Defense Force became the first Japanese military officer to be attached to North Atlantic Treaty Organisation (NATO) headquarters in Brussels. As advisor to the NATO Special Representative for Women, Peace and Security in the office of the Secretary General, she has been primarily advising the body on the how to better integrate a ‘gender perspective’ into its policies and activities.

South Korea's Social Demands Outpace Social Spending

South Korea’s economic rise since the 1960s could be attributed to many factors: its geographic position, a homogenous and hard-working population, sound economic governance exercised by authoritarian governments, and a conducive geopolitical environment. It has economically matured, having raised its per capita income fivefold since the 1950s, when it was estimated to be lower than India’s.

How Turkey Looks Post-Coup

After last Friday’s failed coup attempt in Turkey, a measure of calm has returned to global markets.  We did not think Turkish developments have wide-reaching implications for EM assets, but we do remain very negative on Turkish assets in the wake of the coup and ongoing political uncertainty.

Political Outlook

Emerging Markets Hit by Turkey, Recover, but Defensive Posture Warranted

EM ended last week on a soft note, due in large part to the attempted coup in Turkey.  Weakness in the lira spilled over into wider EM weakness in thin Friday afternoon market conditions.  The situation in Turkey has calmed, and so EM may gain some limited traction this week.  However, that calm will likely be very fragile and so we retain a defensive posture concerning EM.

Does Taiwan's President Provoke China or Her Party?

Taiwan’s new president Tsai Ing-wen faces a dilemma. If she continues her Kuomintang (KMT) predecessor Ma Ying-jeou’s rapprochement with Beijing, she risks enraging independence-minded members of her Democratic Progressive Party (DPP). The alternative is grimmer — provoking China after years of cordiality.