A key week for emerging markets

It’s going to be a key week for emerging market (EM) funds after dedicated EM funds recorded a record fifteenth straight week of outflows, last week.

Breaking that down and EM Asia funds saw the second-biggest net outflows for various regions, taking the total over the last ten-weeks to just under $20 billion.

Fridays US non-farm payrolls had something in there for both the bulls, bears, hawks and doves, although price action highlights that the bulls are firmly in control right now which is putting a bid back into Asian equities. The headline print of 113,000 jobs in the US was poor and judging by the level of job creation in manufacturing, it’s tough to really pin-point this down to a pure weather-related thematic.

What was impressive was the level of job creation in the household survey, with 638,000 jobs created. The strong level of job creation in this alternate household survey saw the unemployment rate tick slightly lower to 6.6%, despite a move higher in the participation rate.

Judging the way a number of emerging market currencies behaved on Friday, it looks as though we may be getting to an inflection point and better-days could be seen notably in the equities space. The fact the US ten-year treasury fell a couple of basis points on Friday, to 2.68%, is suggestive of a market that is starting to feel the Federal Reserve could hold-off from cutting its asset purchase program going forward, despite rhetoric of late that suggests the hurdles for this are high.

Naturally Janet Yellen’s address tomorrow to the House on monetary policy is the major highlight of the week, which could have a fair reaching impact as well. Although she is likely to tow the company line and not deviate too much from recent narrative.

Asian equities

So a strong move should be seen in Asian equities today, including the Nikkei, where the Tokyo elections went exactly as the market had expected. In terms of drivers this week, there is plenty to keep traders occupied on a macro level, with a raft of Fed speakers due this week.

Earnings ramp up in Japan, Australia and Singapore, with companies like Singapore Telecom, CapitaMalls Asia, OCBC, United Overseas Bank and DBS Group holdings due to report.

China

China is back on-line and all eyes will be on the level of new yuan loans and aggregate financing (due any day this week) and both credit metrics are expected to spike significantly in January. Naturally this should be well received by the market, given the fears of a credit induced slowdown in China’s economy.

China also released its trade data this week, with India and Taiwan following suit. In terms of FX moves, I am watching price action in USD/SGD, which has found descent sellers of late and is finding buyers around the October uptrend. Momentum is still lower on the daily chart, however, looking at the hourly chart there is strong supply seen around the 1.27 level. I’ll be looking for a break of 1.27 this week, where traders could look at adding to longs on a daily close here.

Daily chart

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