(from my colleagues Dr. Win Thin and Ilan Solot)
EM starts the week off on a mixed footing. On the one hand, hints of ECB stimulus and actual PBOC stimulus last week suggest a more supportive global liquidity backdrop for EM and risk. On the other hand, those moves are being taken due to downside growth risks. For now, a tug of war between the two is likely to keep EM trading volatile. Perhaps the final straw will be the US rate outlook, but nothing is expected from the Fed this week.
Meanwhile, idiosyncratic EM risk continues. Poland’s opposition Law and Justice won an outright majority in parliament, and threatens to pull policy towards a more populist trajectory. In Argentina, opposition presidential candidate Macri did better than expected, forcing a second round run-off November 22. Turkey holds elections this coming weekend, with polls suggesting another stalemate. In Brazil, the impeachment drums continue to sound. These developments add yet another wrinkle to an already difficult investment climate. Despite what appears to be a more beneficial global liquidity backdrop, we remain negative on EM as an asset class.
Top Chinese officials meet in Beijing October 26-29 for the so-called fifth plenary session. This key 4-day day policy meeting probably won’t be market-moving, but it typically drafts the country’s new Five-Year Plan, this one for the 2016-2020 period. The first draft will reportedly be discussed at the December annual Central Economic Work Conference, with the final draft to be approved at the annual National People’s Congress in March 2016. This Five-Year Plan is the first under President Xi Jinping’s leadership.
Korea reports October consumer confidence Tuesday, which stood at 103 in September. It then reports September IP Friday, and is expected to rise 0.4% y/y vs. 0.3% in August. Over the weekend, Korea reports October trade data. Exports are seen at -14.5% y/y, and imports at -13.5% y/y. We think downside risks will move the BOK to a more dovish stance in 2016, and the next rate cut becomes even more likely if the JPY/KRW cross continues to move lower. After poking above 10 in August and September, that key cross is moving back towards 9. It just brokebelow its 200-day MA near 9.32 Friday via a combination of a strong won and weak yen.
![Learning From The Past, Part 6 [Hopefully Final, But It Won’t Be…]](https://www.riceoweek.com/wp-content/uploads/2015/10/980116351_ba64e9e944_z-150x150.jpg)
Leave A Comment