Daily BriefsMacro

Macro: Malaysia: Further Export Deceleration Will Hurt but Things Could Improve Thereafter and more

In today’s briefing:

  • Malaysia: Further Export Deceleration Will Hurt but Things Could Improve Thereafter
  • China: Weaker Activity Data Will Compel More Policy Support Soon
  • ECB Accepts Undershoot with Less Pepp
  • Rates 10y Dashboard: Higher Risk Premium in EM Rates Than in EM FX to Persist

Malaysia: Further Export Deceleration Will Hurt but Things Could Improve Thereafter

By Manu Bhaskaran

Malaysia continues to face near-term headwinds but if vaccine roll-outs meet targets, it may soon see better prospects. The deceleration in export growth may turn out to be a minor speed bump, because of seasonal and idiosyncratic one-offs that should wear off in due course.


China: Weaker Activity Data Will Compel More Policy Support Soon

By Manu Bhaskaran

The slowing Chinese economy is nearing a trough. Businesses are confident of future sales while resurgent construction activity hints that local government spending is reviving. Policy easing will be selective and targeted.


ECB Accepts Undershoot with Less Pepp

By Phil Rush

  • The ECB recalibrated the PEPP at a slower pace. Although that should not threaten favourable financing conditions, the reduced stimulus seems inconsistent with attempting to meet the inflation target. The total envelope may not now be filled.
  • By accepting an undershoot of the new symmetrical 2% inflation target, the ECB’s actions suggest less change in its reaction function than we thought. Nonetheless, rate hikes remain a remote prospect and the APP is likely to step up as PEPP steps down.

Rates 10y Dashboard: Higher Risk Premium in EM Rates Than in EM FX to Persist

By Gautam Jain, PhD, CFA

The spread between EM and US 10y rates is close to its widest since 2012 on the back of monetary policy tightening and higher fiscal deficits in EM along with rising political risk in some emerging countries. After initially weakening as the EM-US 10y spread widened, EM currencies are no longer tracking EM rates. An environment where a country pursues restrictive monetary policy combined with expansionary fiscal policy, as most emerging countries are currently doing, is generally positive for its currency. As such, we expect the low correlation between EM rates and FX to persist on aggregate.

Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.


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