Market movers today
The US-China trade war is back on the agenda, as the public hearing on possible tariffs on an additional USD200bn worth of imports from China ends today. An announcement may come within a week. We think President Trump will impose the tariffs, which would force China to retaliate.
The UK Services PMI is out today; we expect it to be unchanged, indicating weak growth, which would mean UK growth remains on the weak side.
Look out for Polish and the Canadian policy rate decisions today.
Norwegian house prices are out today; we expect prices to have risen moderately.
Selected market news
The emerging markets crisis broadened as South Africa’s economy tumbled into a recession and Indonesia’s rup iah joined the ranks of EM currencies hurtling towards fresh lows. The sell-off encapsulates almost all EM assets, including currencies, bonds and equities. Emerging market equities have fallen throughout the year and currencies have been battered since April. Dismal performance has been in stark contrast to a stellar 2017. We highlighted the escalating emerging markets crisis in our recent strategy piece New ‘fragile five’ in emerging markets.’
This EM crisis shares common characteristics with past EM crises in that these economies are dependent on external financing due to weak macroeconomic fundamentals amplified by large current account deficits. In times of rising US rates and USD, these economies become vulnerable to outflows.
This particular EM crisis bears an additional imprint, which seems the hallmark of recent investing times, namely geopolitics. Among the new ‘fragile five’, Russia and Turkey have seen their crises aggravated by geopolitical confrontation with the US. Rising US rates, weak EM macro fundamentals and jittery geopolitics make for a poisonous concoction for EM assets.
The nexus of geopolitical shocks, US President Donald Trump ramped up pressure on Canada to join the revamped NAFTA deal agreed to by the US and Mexico. Meanwhile, the public hearing on tariffs on USD200bn worth of Chinese imports is set to end today. We expect Trump to announce the imposition of said tariffs and China to retaliate. We do not expect any deal between the US and China before the US Midterm Elections on 6 November. With regards to the midterms, we expect the Democrats to take the House, but the Republicans to retain the Senate. For more, see our report US Midterm Elections.
In the UK, Bank of England Governor Carney confirmed he was in discussions to extend his term to 2020 to smoothen any potential Brexit-related disruption.
Confounding expectations, the ISM Manufacturing Index rose significantly, by 3.2 points to 61.3, which is its highest level since May 2004.
