Politics has trumped economics, again. However, rather than bullying investors into retreating from risk assets, as is normally the case, political noise has lifted the mood of market players. An upbeat tweet by President Trump claiming that trade discussions between the US and China have been progressing ‘nicely’ was just enough to turn markets around. In reaction to the tweet, the EM universe breathed a sigh of relief and embarked on a remarkable rally, best exemplified by the appreciation of the Chinese renminbi against the USD, which pulled away from the feared threshold of 7 and gained almost 1.6%, finishing the week below the 6.90-level. In a separate event, the US softened its stance on India and South Korea purchasing Iranian oil, which also contributed to an improvement of global market sentiment. If we can believe President Trump’s claim that negotiations with China are indeed going ‘nicely,’ then the EM universe might just face a less challenging November and December and finish this year on a more positive note.
No week has gone by this year without politics influencing global risk appetite. This week will be no exception, as mid-term elections in the US will definitely influence global market sentiment. On Thursday, the FOMC holds its penultimate monetary policy meeting this year. The Committee is not expected to hike the policy rate, but it is highly likely to strengthen guidance that a 25bp hike in December is required. Turning to the other side of the Atlantic, no major data releases are scheduled in the Euro Area, while the UK will release Q3 GDP.
Within the EM universe, Asian markets will be driven be a wide variety of macroeconomic data, such as Q3 GDP in Indonesia and the Philippines, a monetary policy meeting in Malaysia and foreign trade data from a wide range of Asian countries (including China). Latin American markets are going to focus on the unveiling of President-elect Bolsonaro’s Cabinet, as well as on the minutes of the Brazilian central bank’s last rate setting meeting. Additionally, Mexico will release a wide range of high-frequency data on economic activity, while the Peruvian central bank might just keep the policy rate unchanged. In Africa, Kenyan, Nigerian and Egyptian manufacturing PMI data will be announced.
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