Monday, September 17, 2018

Capital Markets: "Dollar Slips, though Emerging Markets Trade Heavily"

From Marc to Market:
The US dollar is beginning the new week on a soft note, as China threatens not to accept the invitation for trade talks in Washington if the US imposes new tariffs on $200 bln of its goods, which the Wall Street Journal reports could come as early as today. Meanwhile, the MSCI Emerging Markets Index is giving back half of the 2.5% rally seen in the second half of last week.

The Turkish lira is leading the emerging market currencies lower with a 1.6% decline after a 1.4% decline at the end of last week. At today's best level (~TRY6.3850), the dollar had retraced a move more than 61.8% of the decline seen in response to the unexpectedly large rate hike last week. Turkey is said to be considering new measures to support domestic banks in the face of rising bad loans.

The dollar jumped higher against the Indian rupee, which is the second weakest of the emerging market currencies today. The government's plan to support the currency did not seem convincing to investors. The Indian government will maintain its budget deficit target (3.3%) and is considering a curb on imports. The South African rand had strengthened for six consecutive sessions before weakening 1% ahead of the weekend. It is extended those loses today, with the dollar resurfacing above ZAR15.00.

Japanese markets were closed for a holiday today and the week's highlights include the BOJ meeting and the LDP conference in which Abe will most likely be elected for a third term as party head. The MSCI Asia Pacific Index excluding Japan fell 1% today as nearly all the region's markets were lower but Australian (+0.3%). Chinese mainland and H-shares fell over 1%, as did India's markets. Foreign investors bought $126 mln of South Korean shares, but this did not prevent the Kospi from falling 0.66%. The US is seeking an emergency UN Security Council meeting to discuss the violations of the embargo on North Korea.
European stocks are mixed but trying to turn higher near midday. Technology, utilities, and financials are moving higher, while information technology, materials, and healthcare are drags. Italian stocks are leading the way, up about 0.7%, helped by a 1.4% gain in bank shares. The news stream from Italy continues to support the recovery of the bond market. The 10-year yield is off nine basis points today to return toward last week's low yield of 2.85%. The premium over Germany is now near 243 bp, the lowest in six weeks....MORE