Alquity investment management global market update: 3 to 9 November

3 to 9 September: Ninety-nine problems, but a rate hike ain’t one

Turmoil in the EM universe will probably continue this week, as none of the countries that triggered the risk-averse global market sentiment and meltdown in the EM universe have dealt with their idiosyncratic issues just yet. In other words, neither the Argentine, nor the Turkish authorities have addressed the issues of their respective economies in an appropriate manner. In addition, unresolved trade discussions between the US and the rest of the world continue to weigh on global market sentiment. As a result, behaviour of market players is likely to remain rather risk-averse, which could mean that EM asset prices will keep sliding before they bounce back. Due to the idiosyncratic nature of the meltdown triggers within the EM universe, markets will remain policy- and event-driven rather than fully focusing on the classic economic diary, since there are plenty of individual stories to follow:

Argentina will continue to muddle through these hectic times, as the country’s government is yet to deliver a comprehensive package that is acceptable by the IMF in lieu of financial assistance.
Meanwhile, there are speculations in the market that the Turkish central bank might deliver a rate hike this week. However, even a massive rate hike would not be enough to restore Turkey’s macroeconomic stability, as the confidence in the Turkish political leadership’s willingness to bring appropriate measures is strongly doubted.
Furthermore, Brazilian market sentiment and asset prices will be continued to be strongly influenced by political news flow and polls, as time passes until the Presidential election in October.
And of course, the US is yet to renew the NAFTA deal with Mexico and Canada, while trade negotiations with China seem to be stuck and a decision on tariffs on EU goods is yet to be announced.
Finally, Brexit talks continue between the UK and EU, which could further add to the worries of investors.

Looking ahead

In the context of the aforementioned sources of unpredictability and uncertainty, the European Central Bank holds its usual rate-setting meeting this week, where no rate changes are expected. President Draghi will probably argue for the need to terminate the asset purchase programme in December, as scheduled. However, the President will not have an easy task to retain the credibility of the ECB in light of weakening economic data in the Euro Area. During the week, the Federal Reserve in the US releases the Beige Book that should offer further clarity on the general state of the US economy.

The economic diary in Asia is relatively light this week, as only China will release a broad set of macroeconomic data from August that might re-affirm that the pro-active policies by the Chinese government were sufficient enough to offset the tariffs-induced weakness. In Latin America, the Argentine central bank is scheduled to hold a rate-setting meeting. However, it is very unlikely we hear any relevant announcements by the Argentine MPC this time, since it is very difficult to argue in favour of a higher policy rate (currently 60%). And finally, in Africa, Kenya and Egypt are scheduled to released Q2 GDP figures, while South Africa may publish high-frequency macro indicators from July. Egypt and Nigeria will reveal inflation from August, as well.