Saxo Bank has published its Q4 2018 Quarterly Outlook for global markets. Against an uncertain backdrop, the Outlook offered some interesting insight into the emerging markets.
Since the tail end of 2017, Saxo believes that emerging market central banks were skewed towards hawkish surprises – whether they liked it or not. The two key standouts against this tide were Russia and Brazil, which were cutting rates to combat domestic problems. They have since stopped, and in Q3 the Russian central bank surprised everyone with a rate hike.
Kay Van-Petersen, Global Macro Strategist, said: ”The only thing Brazilian investors have to smile about is that at least they have fared better than investors in Turkey and Argentina whose currencies were down 29% and 44% respectively by the end of Q3, when the BRL was down 15%.
”With inflation ticking up over the summer, we could see a more hawkish Central Bank of Brazil being forced to move despite the country’s lacklustre growth and unknown fiscal policies of the future government.
”It will be crucial to see whether or not China steps up the stimulus, which so far has not been significant enough to stop the pressures on EM (for example, August’s new loan figures were worse than expected and PMIs, while still in expansion mode, are trailing down towards 50). The official line from the People’s Bank of China will be that it is not interested in a weaker renminbi. Unofficially it is dampening the tariffs from Team Trump, and the degree of combativeness from the US will be symmetrical to the eventual weakness in CNH.
”The most interesting and profitable aspect of the trade tariffs between the US and China is their unintended consequences in the long term. Washington wanted to curb China’s 2025 plans, but the result is likely to be that Beijing moves those plans forward to 2022 or, in some cases, 2020.”
You can access Saxo Bank’s full Q4 2018 outlook, with more in-depth pieces from their analysts and strategists here. You can find out more about Saxo Bank’s UK business, Saxo Capital Markets, here.