Emerging markets head toward the end of October with a spring in their step after currencies and stocks reached the strongest levels in three months. Optimism about a US-China trade deal, coupled with the prospect of a third interest-rate cut this year by the Federal Reserve — which would increase the scope for even lower rates in developing economies themselves — look set to sustain the rally.
Yet traders will be on the lookout for any further evidence of slowing global growth as well as the myriad of political risks in the developing world.
“Overall, emerging markets are benefiting from the global macro backdrop, but we advocate taking a more selective approach and monitor each country flare-up independently,” said Anders Faergemann, a London-based senior money manager at Pinebridge Investments, which oversees about $97 billion.
“The focus will be on Argentina’s election and other country-specific events such as the tense situations in Lebanon, Chile and Ecuador.”
The Argentine peso is near a record low as investors brace for a victory by populist Alberto Fernandez in Sunday’s landmark presidential election.
Dollar bonds sold by Lebanon and Ecuador have been the worst performers in emerging markets this month amid protests.
In Chile, more than a million people poured into the Santiago’s public squares and thoroughfares on Friday, intensifying pressure on a government struggling to contain unrest over economic hardship.
Argentine assets, from dollar-denominated bonds to depositary receipts that trade in Frankfurt, will be closely monitored in the aftermath of Sunday’s election. Strategists and investors say markets have already priced in a Fernandez win.
The peso is all but certain to remain the worst-performing currency of 2019 after Fernandez’s unexpected victory in an August primary.
Uruguay also holds a presidential election Sunday as slowing growth jeopardises the prospect of a fourth mandate for the left-wing Broad Front. The party faces its toughest electoral contest since winning the presidency and a majority in Congress in 2004, which it used to revive a wide-ranging — but costly — welfare state.
South Africa’s big week
The focus will be on Wednesday’s mid-term budget, followed by a scheduled credit-rating review on Friday by Moody’s Investors Service, the only one of the big three still to assess South Africa at investment grade.
Finance minister Tito Mboweni will have to convince investors — and Moody’s — the government has a handle on the fiscal deficit and sovereign debt levels, even as bailouts for state-owned companies including electricity utility Eskom strain finances at a time when tax revenue is falling short of targets.
Investors also expect more details on the government’s turnaround plan for Eskom, which has R450 billion of debt and subjected customers to rolling blackouts this month as its ailing infrastructure failed.
A raft of data will also provide further clues on the outlook for the economy, starting with money supply and private credit as well as third-quarter unemployment today, producer-price inflation tomorrow, the monthly trade balance on Thursday and the manufacturing PMI and vehicle sales on Friday.
In Brazil, markets have priced in an interest rate cut by the central bank on Wednesday as growth stalls.
The real is the second-worst performing emerging-market currency since the end of July, when the bank reduced rates by a half point.
Investors are also awaiting inflation data tomorrow and industrial production on Friday. Colombia’s central bank is expected to leave its key interest rate unchanged at Thursday’s meeting
Botswana and Mozambique will also decide monetary policy on Thursday.
Economic data and events
China will give the first indication of how its economy is faring in the fourth quarter with the release of its official and Caixin manufacturing PMIs on Thursday and Friday, respectively. Similar gauges will be reported by South Korea, Malaysia, Thailand, Indonesia and India on Friday
Chinese leaders were set to hold from yesterday to Thursday their most important meeting of the year. The plenum — a full meeting of the Communist Party’s Central Committee — comes at a time when the world’s second-biggest economy faces a slowdown at home, a trade war with the US and pro-democracy protests in Hong Kong
South Korea’s export figures — a bellwether for global trade — will be watched on Friday after the first 20-day data indicated that shipments are poised for an 11th monthly decline in October.
Thailand is scheduled to release trade data on Thursday
Inflation figures from South Korea, Thailand and Indonesia are due on Friday. Central banks in South Korea and Indonesia are among those which cut policy rates this month
Turkey’s central bank is set to lower its inflation forecast for 2019 when it unveils the quarterly inflation report on Thursday, according to Bloomberg Economics
While the lira weakened after the central bank cut its key rate by another 250 basis points on Thursday, it’s still near the strongest level in two weeks on Friday
Poland’s statistics office is set to publish on Thursday the flash CPI estimate for October, followed by the Finance Ministry’s report on the debt-supply plan for November
Mexico’s gross domestic product data, to be released tomorrow, will probably show the nation avoided a recession in the third quarter. The Mexican peso has outperformed its Latin American currency peers so far this year
Saudi Arabia hosts its three-day Future Investment Initiative conference in Riyadh starting tomorrow. US Treasury Secretary Steven Mnuchin and Jared Kushner, President Donald Trump’s son-in-law, will attend. — Bloomberg.