Tag Archives: Olivier Desbarres

State of Play – When less is more

Central banks’ tinkering with monetary policy and frequent u-turns are seemingly doing more harm than good. The Fed and the Bank of England have provided little clear forward guidance and the Bank of Japan’s move into negative rates only had a passing positive impact. While safe-haven flows may continue to appreciate the yen, a less competitive currency is likely to ultimately weigh on the economy and in turn the yen. In contrast the Korean won looks reasonably attractive at these levels. Read more

What to expect in 2016 – same, same, but worse

Trading on Fear

It is clear that markets so far this year are trading on sentiment, more specifically fear, with hard-data playing second fiddle. Or more accurately, price action suggests that markets are focusing on disappointing December numbers (e.g. US ISM) or even reasonably uneventful data (Chinese manufacturing PMI) and ignoring strong data such as U.S non-farm payrolls, Chinese services PMI and exports (see Figure 1).  The hit-and-miss approach of Chinese policy-makers to stabilise equity markets (and ultimately growth) have done little to restore confidence. I nevertheless flag in Figure 37 some of the key data and events to focus on this year. Read more

Asian currencies sticking to script

Despite the volatility in financial markets, Non-Japan Asia (NJA) currencies continue to behave broadly in line with historical patterns. Specifically, a basket of NJA currencies (excluding the renminbi) which was appreciating at about 3% month-on-month versus the USD dollar is now weakening in month-on-month terms, as largely predicted (see Figure 1). The pattern is similar when NJA currencies are measured against trading partner currencies. Read more

Global Growth Likely slower in Q3, modest rebound in Q4 possible

Global growth likely slowed in Q3, dragged lower by OECD, in line with soft global PMI

Countries which have so far released Q3 GDP data account for about half of world GDP, using IMF purchasing power parity (PPP) weights. Based on these data, global real GDP growth in Q3 edged slightly higher to 3.2% year-on-year (yoy) from 3.1% yoy in Q2 (see Figure 1), according to my estimates[1]. Read more

History points to Asian FX rally fizzling out

Non-Japan Asian (NJA) currencies have appreciated versus the US dollar and currencies of their main trading partners in October. But the historical pattern of monthly appreciation/depreciation suggests that this Asian currency rally may start losing steam in coming weeks, with currencies eventually weakening modestly versus the US dollar.

This historical pattern is partly due to the seasonality of current account flows, the ebb and flows of capital attracted/repelled by valuations and central banks’ management of their currencies. I see few reasons why it will be materially different this time round.

Inflows into Asia are unlikely to accelerate given lingering foreign investors’ concerns about regional and global economic growth, the start of the US Fed hiking cycle and country-specific vulnerabilities including sensitivity to commodity prices and elevated foreign debt.

Furthermore, while Asian central banks may not purposefully weaken their currencies, they may have the room and incentive to lean against further appreciation: overall, Asia inflation is low and falling, exports are weak and FX reserves have fallen in the past six months.
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