Three Themes: Low FX vol, EM contagion and global growth
We touch on three key themes this week, which we will further explore in forthcoming FIRMS reports.
Theme 1: Low FX volatility
Despite significant event risk, including ongoing China-US trade negotiations and Brexit, and central banks’ dovish shift in recent weeks, volatility in major currency pairs – with the exception of the Turkish Lira, Brazilian Real and Argentine Peso – remains subdued.
Low-yielding Asian currencies (including the Renminbi), the Euro, Central European currencies, Canadian Dollar and even Sterling are still trading in very narrow ranges.
Theme 2: Limited emerging market currency contagion
The Turkish Lira and Argentine Peso nominal effective exchange rates have weakened about 3% and 8%, respectively, in the past month.
But the high-yielding Indian Rupee (+2.7%), South African Rand (+1.2%), Mexican Peso (+1%) Colombian Peso (-0.7%) and Brazilian Real (-1%) are at or near the strong end of one-month ranges, while the Indonesian Rupiah (-1%) is off the low point of a narrow range.
Theme 3: Global growth slowing, not collapsing
Global GDP growth likely slowed to a two-and-a-half year low of about 2.9% yoy in Q1 from 3.1% yoy in Q4.
But recent macro data suggest that the growth slowdown in major economies, including the US and China, was modest. Moreover, global retail sales growth picked up in January-February, according to our newly created data series.
This is a summary – Read the full research piece here
Olivier is an economist and rates & FX strategist with over 22 years experience in financial markets. He is Director and Founder of 4X Global Research, an independent, London-based consultancy which provides institutional and corporate clients with substantive research, high-quality analysis and insight on emerging and G20 economies and financial markets.