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17 Feb 2014
Flash: EM currencies momentum has swung more positive - RBS
FXStreet (Bali) - An impressive bounce back in EM and commodity currencies suggests momentum is in their favour, notes Greg Gibbs, FX Strategist at RBS.
Key Quotes
"There has been a fairly significant swing back to a more positive outlook in EM currencies in the last two weeks. This suggests the sharp falls from mid-Jan to early-Feb may have been an over-reaction to a few isolated events and lingering nervousness over Fed tapering and EM upheaval last year."
"Liquidity in EM markets is also thought to be lower with banks forced to consolidate balance sheets and adopt tighter controls of business operations in a tougher regulatory environment. However, there was not broad-based evidence of global economic down-turn."
"In fact many parts of the developing world have shown improving economic trends, and recovery also appeared more robust in major economies, except in the US and Canada, which have been undermined by severe weather disruptions."
"Overall we may be experiencing churning markets through the first quarter rather than clear trends. China is still the key and PMI data this week will be important-"
The elephant in the room is still very much China. It is by far the biggest contributor to global growth. The outlook for a soft landing in China is crucial to global growth confidence and the performance of EM and commodity currencies. While the US still dominates the consciousness of the market and its monetary policy has perhaps the most significant global consequences, at least as much attention needs to be paid to Chinese policy, especially now that its government appears to be adopting more market-orientated policy and tackling excessive credit growth."
Key Quotes
"There has been a fairly significant swing back to a more positive outlook in EM currencies in the last two weeks. This suggests the sharp falls from mid-Jan to early-Feb may have been an over-reaction to a few isolated events and lingering nervousness over Fed tapering and EM upheaval last year."
"Liquidity in EM markets is also thought to be lower with banks forced to consolidate balance sheets and adopt tighter controls of business operations in a tougher regulatory environment. However, there was not broad-based evidence of global economic down-turn."
"In fact many parts of the developing world have shown improving economic trends, and recovery also appeared more robust in major economies, except in the US and Canada, which have been undermined by severe weather disruptions."
"Overall we may be experiencing churning markets through the first quarter rather than clear trends. China is still the key and PMI data this week will be important-"
The elephant in the room is still very much China. It is by far the biggest contributor to global growth. The outlook for a soft landing in China is crucial to global growth confidence and the performance of EM and commodity currencies. While the US still dominates the consciousness of the market and its monetary policy has perhaps the most significant global consequences, at least as much attention needs to be paid to Chinese policy, especially now that its government appears to be adopting more market-orientated policy and tackling excessive credit growth."