***The roundup below is an example of our data-driven internal research process. Specifically, it helps our team contextualize the key economic releases and policy developments occurring across Developed Asia and Emerging Market economies on a daily basis. To the extent you'd like to be BCC'ed on such emails please shoot us a quick note and we'll add you to the list.***
In China, growth continues to slow on a trending basis across most key metrics except household consumption – which is becoming an increasingly large share of the Chinese economy. That means Chinese demand is unlikely to be as additive to global growth going forward. Elsewhere in China, sanguine talk regarding the near-term growth outlook is leading to reduced expectations of monetary stimulus – which is precisely what is being priced into the market (via the 3M deposit rate and 1Y OIS). Fiscal stimulus (spending up +27% YoY in SEP) is likely to do the overwhelming majority of the heavy lifting going forward – at through at least year-end.
In Japan, the equity market continues to react poorly to reduced expectations of near-term QQE expansion – which is supported by Kuroda and Aso’s latest guidance as well as hawkish core CPI trends. Japanese growth has decidedly inflected to the downside across a variety of key metrics, so it’s a matter of “when”, not “if” for the BoJ. That said, however, acting in 1Q16 vs. 4Q15 could mean a fair amount more consolidation and squeezage for [consensus] USD longs and reflation shorts, respectively…
In Brazil, political consternation is heating up with last-year’s presidential runner-up Aecio Neves effectively passing on replacing President Rousseff to the extent she is fully impeached, which increases the probability of a subsequent election. Turkey is a great example of why that could be a really negative catalyst amid the growing rift between Brazil’s populous (favoring socialism) and Brazil’s cabinet (favoring austerity). Elsewhere in Brazil, the BRL is looking increasingly attractive on the short side with the currency up nearly a full percent vs. the USD MoM – especially given that it has diverged from the swaps market, which is aggressively pricing in the BCB’s marginally dovish policy shift by pledging to keep rates on hold after +325bps of tightening over the TTM. Brazil remains the disaster we called it out as last December and the data continues to support shorting it on rallies.
In Russia, both the RTSI and the RUB are ripping shorts, each up +7% MoM and +1-2% WoW, respectively. With the YoY crashes in both markets still intact and domestic policy rate expectations continuing to collapse per 3M deposit rates and 1Y OIS, we have to ask ourselves if this move is driven by fundamentals or global reflation short-covering post the disaster that was the SEP NFP print in the U.S. It may sound surprising, but Russian growth has either positively inflected or is outright accelerating on a tending basis across a variety of key metrics, save for household consumption. Moreover, Russian inflation is trending lower across a variety of key metrics as well. With consensus expectations for Russian growth and inflation on the other sides of these developing trends, the recent rip higher in Russian capital and currency markets makes a lot of sense (given the sentiment). If Draghi and Kuroda don’t deliver the QE/QQE bacon on 10/22 and 10/30, respectively, Russia might be the best way to play a continued USD downdraft amid the [growing] ECB and BoJ policy vacuum. Irrespective of what happens with the USD, the data supports a long Russia/short Brazil investment strategy.
Enjoy the rest of your respective evenings,