EM RISK TIMELINE: Strong Dollar, Fragile Five, Local Politics
(Bloomberg) -- A resurgent U.S. dollar heading into December FOMC meeting and speculation of portfolio flow re-balancing to the States are main themes for EM investors as year-end approaches. Risk of persistent outflows from EM may reignite talk of the fragile five currencies.
- MAIN RISKS
- CEEMA
- According to HSBC, Turkey is the most exposed to strong dollar and shifts in risk sentiment
- Turkish lira is poised to close the year as worst performer in the CEEMEA basket, losing as much as 15% against USD
- Turkey’s central bank meets on Dec. 20 after the surprising rate hike in November failed to alleviate market concerns over the currency’s weakness
- South Africa rating review and political developments in focus
- LATAM
- Trump’s potential remarks on his future govt and Banxico will continue to serve as main drivers for MXN; investors split between a 25bps or 50bps hike for Dec. 15 in attempt to anticipate FX depreciation impact on inflation
- BRL traders will continue monitoring potential Odebrecht’s plea bargain deal tied to carwash probe, which haunts politicians and may impact approval of necessary measures such as social security reform
- Stabilization of commodities prices likely to be key for traders to start taking risky positions as copper and oil are strong proxies of CLP and COP
- Banrep’s non-unanimous decision last week increased odds of a rate cut as soon as next month which may impact Colombian peso
- ASIA
- India’s central bank decision will take into account the surging banking system liquidity, a result of the ban on 500 and 1,000 rupee notes. A slightly hawkish lean by RBI may help put a floor under rupee in the near term after the currency dropped to a record low in November; chart here
- China’s forex reserves could be in focus as SAFE is lowering the threshold on reportable foreign currency transactions to $5m from $50m. FX outflows moderated to $40b in October from $78b in September, according to Goldman Sachs calculations based on SAFE data on onshore FX settlement and cross-border movement of yuan
- CALENDAR (based on local dates)
- Dec. 2: U.S. non-farm payrolls; Singapore PMI; South Africa sovereign debt to be rated by S&P
- Dec. 5: Turkey’s CPI; Chile IMACEC, Colombia CPI
- Dec. 6: South Africa GDP; Brazil minutes
- Dec. 7: China foreign reserves; Malaysia trade balance and foreign reserves: India central bank meeting; Taiwan exports; Chile CPI
- Dec. 8: China trade balance; South Africa manufacturing production; Mexico CPI
- Dec. 9: China CPI, PPI; Brazil CPI; Colombia minutes
- Dec. 12: Turkey’s GDP; Russia GDP
- Dec. 13: China IP and Retail Sales; Brazil spending cap bill vote; Chile rate decision
- Dec. 14: FOMC rate decision; Indonesia central bank meeting; South Africa CPI
- Dec. 15: Bank of Korea meeting; Indonesia trade balance; Mexico rate decision
- Dec. 15-31: Taiwan central bank meeting
- Dec. 16: Singapore exports; Russia central bank meeting; Russia industrial production; Colombia rate decision
- Dec. 20: Turkey’s central bank meeting
- Dec. 21: Malaysia CPI; Bank of Thailand meeting
- Dec. 22: Malaysia foreign reserves; Philippines central bank meeting; Mexico IGAE
- Dec. 23: Singapore CPI
- Dec. 29: Korea IP; Mexico minutes
- NOTE: Davison Santana and Mark Cranfield are FX strategists who write for First Word. The observations they make are their own and not intended as investment advice.
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