Due to the light economic diary in the US and the lack of protectionist rhetoric by the President of the United States, risk assets attempted to recover at the beginning of the week. Indeed, idiosyncratic issues within the EM universe have finally started to fade; crisis management in Argentina continuing, the Turkish central bank maintaining higher interest rates, political risks h gradually dissipating in Brazil, and South Africa expressing its commitment to stabilising the country’s public finances.
Even though China was not labelled as ‘currency manipulator’ by the US Treasury, sentiment in Asian markets remained gloomy, as the never-ending themes of tightening USD liquidity and trade wars hindered the recuperation of risk assets. Continued risk-aversion on the global scene impacted some of the Latin American and African markets as well. Unless international political tensions fade, global market sentiment is unlikely to significantly improve, which could keep financial markets choppy, in our view.
Developed markets will focus on Eurozone PMI indicators at the beginning of this week and will shift their attention to the European Central Bank’s press conference on Thursday during which the monetary authority will almost surely announce that policy rates remain unchanged. Finally, the flash estimate of Q3 GDP growth in the US bears the potential to spur markets to reprice risk assets, again.
In Asia, the Indonesian central bank will hold a monetary policy meeting. Lately, the MPC has sent signals that they might put the tightening cycle on hold. At the end of the week, China releases industrial profits that might shed further light on how companies fare in the world of trade wars. Latin America will continue to focus on Brazilian elections (28th October) and crisis management in Argentina. Everything else, including the monetary policy meeting of the Colombian central bank will be of secondary importance. African markets eagerly await the release of the budget proposal by the South African government (24th October), which should be solid enough to convince Moody’s not to worsen the country’s credit rating or its outlook.