Emerging currencies good – for nowBy Peter Rosenstreich
The recent equity sell-off was NOT a warning to emerging market (EM) investors. In the short term, harvesting EM yield remains the key strategy. Development is underway in South Africa, with a new government. Negotiation over North American trade will benefit Mexico, as Trump’s threats are pure bluster. Russia presidential elections will confirm political stability, and firm oil prices will keep RUB well bid. The USA’s Mueller investigation is unlikely to move the rouble.
EM is a good place to be, while global growth is strong and central bank policy loose. We anticipated that accelerating US growth would press inflation and tighten interest rates, taking the shine out of EM in the short term. But markets have shrugged off higher US yields, failing to trigger a taper tantrum. In the next 6 months we see EM improving. A global upturn will benefit EM while gradual inflation will keep central banks easy. In September we expected central banks outside the US to tighten, which will send yields higher and contract growth: this will cause EM to correct.
Wait until September!By Peter Rosenstreich
The US Federal Reserve will likely hike 4 times in 2018, but this is already priced in and unlikely to shift FX. The Swiss National Bank will remain on the sidelines. The Bank of Japan and the European Central Bank will dominate FX. By September, BoJ and ECB will begin tightening. Investors who have been lulled into comfort by ultra-loose policy should get ready for a shock and erratic reactions.
India’s growth surpriseBy Vincent-Frédéric Mivelaz
Q4 Gross Domestic Product will print on 28 February: estimates are growth of 6.90% (previous: 6.30%), its fastest pace since December 2016 and Gross Value Added at 6.60% (previous: 6.10%), its highest rate in 2017. This will support to a rate hike in April 2018, following the Royal Bank of India’s hawkish minutes of 21 February. Since those minutes were published, the Sensex climbed 542 to 34’395 (+1.60%) while 10-year treasury decreased by 0.29% to 7.69%. USD/INR appreciated to 64.74 (+0.80%).