The divergence between the US and the rest of the world keeps intensifying. Friday saw an escalation of US/China trade war fears due to Trump comments and a rise in the USD due to a strong NFP report. This is a toxic combination for emerging market countries which typically have large current account deficits and high levels of USD-denominated debt.
The USD flipped back into a positive posture on the back of NFP as you can see here. Despite this fact, we did have some relaxation in the USDTRY as you can see here. However, the markets are also focused on Brasil, Argentina and Russia but also India and Indonesia. Contagion is the main concern so keep your ears on the wires.
Themes for the Week:
The major themes from last week will continue to be influential this week:
- the US/China showdown on trade;
- moves in Emerging markets (is contagion spreading?)
- political drama in Washington with a plethora of attempts to overthrow Trump (although the markets haven’t reacted to this yet, but will indeed react if there’s any hint of impeachment or serious accusations)
- ECB and BOE meet. No rate changes are expected but the ECB is expected to signal they are ready to commence tapering their bond purchase. There will also be interest in what BOE’s Carney says regarding the state of Brexit.
Data in the Week ahead:
- US CPI & Retail Sales
- UK GDP, Employment and BOE meeting;
- ECB meeting
- AU Employment data
On the Radar:
I continue to see AUD and NZD weakness amidst EM stress, US/China tension and technical USD strength. There has been much strength recently in the CHF as a safe haven but the USD is becoming equally favoured. Gbp and Eur might pop onto the list depending on their respective central bank meetings near the end of the week. In equity space, FTSE and DAX remain weak, as is Silver.
About the Author
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