***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. Also, the summaries below are designed to be just that, so to the extent you'd like additional color on a given economy(ies), please reach out with any requests.***
In China, economic growth decidedly stabilized in NOV per the preponderance of high-frequency data. Obviously there are holdouts (e.g. manufacturing PMI, FX Reserves), but it’s important to call a spade a spade here: Chinese economic growth is clearly no longer “rolling down the cliff”, but rather “descending down the stairs” in an orderly fashion – for now at least. The big risk in China remains the CNY and it continues to be revalued lower on a daily basis by the PBoC, as it seeks to transition its reference rate to a “basket of currencies” from just the USD. PBoC officials are guiding towards exchange rate stability, but we can’t help but think the stealth devaluation we are seeing on our screens now is likely to remain ongoing for years to come; the CNY likely needs to decline by 10-20% vs. the USD to fully quell capital outflow pressure. As such, we reiterate our underweight bias on China in the context of previously identified structural headwinds to growth and inflation – i.e. perpetual #Quad4.
In Japan, the 4Q Tankan Survey results came in light – particularly on the growth and inflation outlook components, which, on the margin should perpetuate a pull-forward in QQE expansion expectations. Curtailing this is data that shows the BoJ is projected to hold over 30% of JGB s by year-end, higher than the almost 20% of Treasuries held by the Fed, as well as news of BoJ officials gaining increased confidence in the economy. All told, we reiterate our overweight bias on Japan amid a lack of viable alternatives and an expectation that our #Quad3 outlook perpetuates expectations of increased policy support, at the margins.
In India, NOV trade and export data are confirmatory of our stagflationary #Quad3 outlook, on the margin. As such, we reiterate our underweight bias on India.
In Australia, 3Q house price data and NOV auto sales data are incrementally confirmatory of the remarkable resilience of the Australian economy. The latest policy developments are supportive as well: the minutes of the RBA’s DEC meeting reiterated scope to ease further – an outcome that is not being priced into various AUD rates markets – while the government’s mid-year fiscal and economic outlook saw a substantial revision higher in projected budget deficits in conjunction with negative revisions to GDP growth forecasts. All told, we reiterate our neutral bias on Australia amid opposing domestic trends (i.e. #Quad2) and international forces (i.e. Global #Deflation).
In Brazil, the country’s stagflationary recession and political crisis continues deepened, on the margin, with the advent of the NOV consumer confidence data, as well as news of nationwide protests against the government of Dilma Rousseff. While the latest protests were not as well attended as the August and March versions, they do speak volumes to the level of popular discontent with the current administration – something that could make the ongoing impeachment proceedings worse off for the national’s capital and currency markets. Recall that Rousseff has had a change of heart regarding fiscal and monetary policy; opting to preserve the country’s credit ratings over incremental stimulus. A Rousseff impeachment could be a credit negative event if 2014 runner-up Aecio Neves doesn’t immediately become the front-runner. Regarding the outlook for Brazilian fiscal policy, it’s still too early to tell whether or not things will get worse before they get better – insomuch as it’s still too early to allocate capital to the country. As such, we reiterate our underweight bias on Brazil.
In Russia, the NOV industrial production data is confirmatory of our #Quad4 outlook, on the margin. As such, we reiterate our underweight bias on Russia.
In South Africa, the ZAR overtaken the BRL as the major currency that options traders are most bearish about, with 3M 25-delta risk reversals up +1.26ppts. WoW to 3.76. This comes as investors are now repricing the outlook for South African fiscal policy in conjunction with Zuma firing two finance ministers in five days. South African capital and currency markets are celebrating the restatement of former finance minter Pravin Gordhan (2009-14), but we expect that enthusiasm to be short-lived amid the country’s stagflationary #Quad3 setup. As such, we reiterate our underweight bias on South Africa.
- Our #EmergingOutflows Theme Accelerates Into “Liftoff” (12/11/15)
- Are You Paying Enough Attention to the Global Economy? (12/5/15)
- Can Beijing Maintain Exchange Rate Stability Or Is the Chinese Yuan the Next Thai Baht? (11/19/15)
Best of luck out there,