Group Economics
Daily Insight
Macro & Financial Markets Research Georgette Boele & Maritza Cabezas
EM FX down, down, down…
+31 20 343 5616
18 August 2015
Emerging market currencies have continued to plummet on politics, China and commo… …the Fed will be another headwind, leading to further weakness in EM FX in coming months Japan GDP growth shrinks adding to case for more monetary easing from the BoJ
EM FX - from bad to worse
EM FX performance
This year the performance of emerging market (EM) currencies
% with USD as base
has gone from bad to worse. What explains the fall and what
BRL TRY MYR CLP MXN ZAR IDR PEN KRW RUB THB HUF SGD CZK PLN CNH INR PHP CNY TWD
happens next? One factor explaining the weakness is the substantial drop in commodity prices, which has hurt major commodity exporters (CRB has dropped by around 14% yearto-date). Renewed weakness in oil prices driven by oversupply has weighed on the currencies of oil exporters such as the Russian ruble and the Mexican peso. In addition, the domestic demand outlook has deteriorated in most EM economies. Risks to China’s economic growth have been most in focus. This has sent ripples to the overall EM outlook, weighing on currencies.
-35
-30
-25
-20
-15
year-to-date
Moreover, political uncertainty has also been a major driver of
-10
-5
0
5
5-days
Source: Bloomberg
weakness in the Brazilian real and the Turkish lira. The worsening fiscal and political woes in Brazil make it harder to break out of the vicious economic spiral and the risk of
Japan’s GDP growth shrinks…
downgrade by S&P to speculative grade has not disappeared.
Japan’s GDP growth slowed to -1.6% qoq saar in Q2, down
Therefore, the real leads EM FX table in being the worst
from +4.5% in Q1 and +1.4% in Q4. The series is volatile, but
performing currency so far this year. In Turkey, coalition talks
the underlying trend looks weak. We expect the economy to
broke down and early elections are quite possible. This has
pick up gradually in the second half of the year. Profits are
sent the lira to a new low this year.
being buoyed by lower oil prices, while global demand should firm. However, we think the pace of recovery will not be
Furthermore, the change in FX policy in China has also
enough to push up inflation towards the BoJ’s 2% target.
unnerved EM currencies, especially currencies that export to or compete with China in terms of exports (also see our FX
…adding to likelihood of more monetary easing
Asia Watch published today). The Mexican peso also falls in
The weakness in demand suggests that the BoJ will likely opt
this category. Finally, Fed rate hike expectations have also
for additional monetary easing early next year. By early 2016,
weighed more generally.
the pressure for the BoJ to maintain the credibility of its inflation goal will build. This should lead to more easing, with
Overall, we expect further weakness in EM FX in coming
the central bank likely to step up and/or extend QE. We expect
months, especially Asia FX, the Brazilian real and Turkish lira.
the yen to decline relative to the US dollar to 128 by the end of
The start of the Fed’s tightening cycle will be the main negative
this year and 135 in 2016, as a result of widening monetary
going forward. On the other hand, an eventual recovery in oil
policy differentials between the Fed and the BoJ.
prices should provide some respite for the Russian ruble and the Mexican peso (as well as stronger domestic growth).
2
EM FX down, down, down… – 18 August 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1074
-0.0361
0.2898
124.47
0.0643
-0.5275
3.9155
AUD/USD
0.7367
-0.0678
0.8625
-9.8838
USD/CHF
0.9789
0.0102
-0.9311
-1.5488
NZD/USD
0.6575
0.0304
0.5967
-15.6727
GBP/USD
1.5578
-0.0513
0.0385
0.0064
USD/SGD
1.4085
0.0568
0.5138
6.2618
USD/CAD
Bond markets
1.3102
Close
0.1759
Change 1 day
-0.0915
Change 5 days
-8.4642
12.7442
Change YTD
2-year German Govt Bond yield
-0.2570
0.0130
0.0100
-0.1590
10-year German Govt Bond yield
0.6270
-0.0330
-0.0710
0.0860
Yield curve Germany
0.8840
-0.0460
-0.0810
0.2450
2-year US Treasury Bond yield
0.7058
0.0000
0.0328
0.0413
10-year US Treasury Bond yield
2.1660
-0.0018
0.0251
-0.0052
Yield curve US
1.4602
-0.0018
-0.0077
-0.0465
US 2-year sw ap rates
0.9460
0.0004
0.0292
0.0517
US 10-year sw ap rates
2.2400
0.0119
0.0314
-0.0461
US sw ap curve
1.2940
0.0115
0.0022
-0.0978
EU 2-year sw ap rates
0.0865
-0.0005
-0.0025
-0.0885
EU 10-year sw ap rates
0.9886
0.0006
0.0101
0.1766
EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.9021
0.0011
0.0126
0.2651
-0.0270
-0.0020
-0.0030
-0.1050
0.3245
0.0040
0.0129
0.0689
JPMorgan EMBI Plus Sovereign S
421.7000
3.7400
8.9100
34.2600
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,620
0.49
-0.48
Hang Seng Index
23,815
-0.74
-2.88
0.89
Hang Seng China Enterprises Index
10,962
-0.88
-2.92
-8.53
Australian Stock Exchange S&P/ASX 200 Index
5,363
-0.09
-2.01
-0.89
Singapore Straits Times Index
3,067
-1.51
-4.05
-8.85
Euro Stoxx 50 Index
3,498
0.20
-4.82
11.17
S&P 500 Index
2,102
0.52
-0.08
2.11
MSCI World Daily Total Return Gross USD
788
0.18
-1.16
2.66
AEX Index
474
0.09
-5.15
11.74
13
1.48
6.46
-32.19
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source Bloomberg
Close
18.16
Change 1 day % Change 5 days %Change YTD%
197
-0.73
-2.92
1,117
-0.03
0.76
-14.52 -5.70
42
-0.14
-2.95
-21.51
49
-0.91
-3.31
-14.98
5,115
-0.97
-3.65
-18.81
501
-1.18
-4.76
-15.13
3
EM FX down, down, down… – 18 August 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Monday Monday Monday Monday
17/08/2015 17/08/2015 17/08/2015 17/08/2015
01:50:00 14:30:00 16:00:00 15:45:00
JP US US EC
GDP - % qoq Empire State PMI - Manuf. general business conditions - index NAHB home builders' confidence index ECB announces weekly QE details
2Q P Aug Aug
-0.4 -14.9 61.0
-0.6 4.7 61.0
62.0
Tuesday Tuesday Tuesday
18/08/2015 18/08/2015 18/08/2015
10:30:00 13:00:00 14:30:00
GB TR US
CPI - % yoy Repo rate - % Housing starts - % mom
Jul Aug 18 Jul
0.0 7.5 9.8
0.0 7.7 0.4
Wednesday Wednesday Wednesday Wednesday Wednesday
19/08/2015 19/08/2015 19/08/2015 19/08/2015 19/08/2015
01:50:00 14:30:00 14:30:00 14:30:00 14:30:00
JP US US US US
Merchandise trade exports - % yoy Inflation excl food and energy - % mom Inflation excl food and energy - % yoy Inflation (CPI) - % mom Inflation (CPI) - % yoy
Jul Jul Jul Jul Jul
9.5 0.2 1.8 0.3 0.1
5.7 0.2 1.8 0.1 0.2
Thursday Thursday Thursday Thursday Thursday
20/08/2015 20/08/2015 20/08/2015 20/08/2015 20/08/2015
09:30:00 09:30:00 10:30:00 16:00:00 16:00:00
NL NL GB US US
Consumer confidence - index Unemployment rate Retail sales - % mom Existing home sales - % mom Philadelphia Fed - business confidence - index
Aug Jul Jul Jul Aug
4 6.9 -0.2 3.2 5.7
0.6 -1.4 6.5
Friday Friday Friday Friday
21/08/2015 21/08/2016 21/08/2017 21/08/2017
15:45:00 10:00:00 10:00:00 10:00:00
US EC EC EC
Markit Manufacturing PMI Manufacturing PMI Services PMI Composite PMI
Aug P Aug P Aug P Aug P
53.8 52.4 54.0 53.9
0.0
0.2 1.8 0.1 0.2 5 6.9
55.0 53.0 54.5 54.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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