In a week where the Federal Reserve is expected to take a hawkish shift in tone, the last thing emerging markets need is some unsettling economic data. China’s latest HSBC manufacturing PMI print dropped into contractionary territory for the first time since May, coming in at a worse than expected 49.5. While some would have hoped to see disappointing China data result in growing calls for stimulus, this has not been the case today and we’ve actually seen investor concerns heighten. China activity generally ramps up heading into the back end of the year but it doesn’t seem like this will be the case this time. The People's Bank of China’s chief economist Ma Jun’s downgrade of 2015 growth to 7.1% is fast being justified. The fact the Fed’s actions were cited as a key reason implies any signs of earlier than expected tightening could have further implications on these growth figures.
Russia hikes by 62%
Staying in the emerging market space, the Bank of Russia hiked rates from 10.5% to 17% as it looks to arrest the slide in the ruble and get inflation risks under control. This is becoming a theme for several emerging economies, as we saw surprise hikes for the likes of Turkey and Brazil this year. It’s clear recent moves in oil are starting to hit Russia hard and it’ll be interesting to see what this hike will do to domestic growth/demand. The Bank of Russia has also been aggressively selling USDs in a bid to keep the exchange rate under control. Analysts feel this move should see the ruble appreciate by around 3%-4% against the greenback but given the sanctions the country is also facing, any recovery in the ruble and domestic assets could be short lived.
NAB unwinds some UK assets
The ASX 200 continues to hang around this week’s lows in the 5150 region with energy and materials sectors keeping it under pressure. The drop in crude oil is causing further headaches for the energy plays with Santos and Oil Search dropping around 3% each. Banks are mildly weaker with National Australia Bank (NAB) outperforming the big four. NAB trading a touch higher after unwinding some of its UK commercial real estate loans. The market has been waiting for this move for a while and it seems CEO Andrew Thorburn is keen to get on with it. Low returning assets are clearly on the chopping block and the market will be pleased by Thorburn’s willingness to make the tough calls and get on with business. After a couple of days of weakness, Qantas’ has resumed its outperformance and is one of the few bright spots in the market today, trading 5% higher.
Firmer open for Europe
Ahead of European trade, we are calling the major bourses modestly firmer. This will see some of yesterday’s hefty losses reversed. A raft of flash manufacturing and services PMIs will set the tone for European markets today. ZEW economic sentiment readings for Germany and the region will also be released along with trade balance for the region. Investors will be hoping disappointing data drives the QE argument further. It’ll be even busier in the UK where we receive bank stress test results, the BoE financial stability report, CPI and a speech by Bank of England Governor Mark Carney. Inflation will be one to watch given the concerns around lower oil prices.