The Weekly Update

Last week emerging markets continued on edge as the Argentinian peso dropped 7% following President Mauricio Marci’s botched attempt to reassure markets whilst requesting accelerated disbursements from the IMF. Turkey added to the sense of ‘what next’ after a string of unconventional thinking and poor decisions from President Recep Tayyip Erdoğan and his retinue has helped pushed inflation to around 18%, four-times their official target; their central bank is expected to raise rates next week. Both the Argentinian peso and Turkish lira are down more than 40% versus the dollar so far this year with the peso close to losing half its value.

Meanwhile, US Treasury yields across the longer end of the curve rose slightly (5 basis points) back to where they stood a fortnight ago and continue to hold around their average for the year so far: with the 10- and 30-year yields at 2.86% and 3.02% respectively. The dollar remained somewhat restrained with the DXY Index starting and ending the week around 95.14, but the continued EM uncertainty may further spur the dollar’s upward trend of the past 6-months.

Expected disappointments continued with regards to Brexit and US trade disputes. First, sterling rallied to touch 1.30 against the dollar on the back of Michel Barnier, EU’s chief Brexit negotiator, mentioning he is almost ready to offer a deal to the UK. It has since receded below 1.29 following news that Prime Minister May’s position against a second EU referendum and against “giving in” to the EU were as firm and rigid as her Kenyan dance moves. Over in North America Trump seems to be courting Mexico with a new US-Mexico trade deal to replace NAFTA, leaving Canada as little more than an afterthought with Trump tweeting,  “There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out.”

The week ahead opens with US Labour Day on Monday but still holds the possibility of trade news concerning China, Mexico, Canada and the EU along with PMI data throughout the week. Furthermore one can expect developments from Turkey and Argentina, with markets watching for any contagion into other emerging markets.

Also ahead this week, central bankers have a busy schedule with: RBA and BOC policy decision on Tuesday and Wednesday, and with BOJ’s Kuroda, BOE’s Carney, ECB’s Praet and Fed’s Williams giving speeches – one each day Monday through Thursday. Lastly, Eurozone GDP and US Non-Farm Payrolls hit the wire this Friday to close out the week.

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