Diverging fortunes for emerging markets

Russia's currency and equities doing well while Brazil suffers

Charts of the Day

In the FX markets, the Turkish lira continues to fare poorly as the central bank there cuts interest rates despite high inflation, due to political pressures from President Erdogan. Brazil’s real is also doing poorly, despite the CB hiking lately, as the economy suffers from various issues including a bad Covid situation, a drought and various political concerns. The situation looks much better in Russia, where the ruble has been gaining ground alongside rising oil prices.

While Brazil’s Bovespa has sank lately, Turkey’s BIST is holding its own against the S&P 500 - though bear in mind higher inflation in Turkey plays a role here. Russia’s index has been doing ok lately, but is lagging the Nifty 50 in India in terms of the post-2020 situation.

Macro

Russia’s central bank hiked rates again on Friday, as inflation in the countries remains high.

FDI into Brazil is starting to stabilize.

The US Composite PMI rose by 2.3 points in October, helped by a big rise in the services index and implying the worst is behind us for GDP growth.

The UK PMI is also doing well, unlike that in the eurozone. Some of this is down to the larger role of manufacturing exports in the eurozone, which are still weighing on output in Germany especially.

Markets

Brazil’s real is also suffering from the relative weakness of iron - though it is copper that dropped back further late last week.

Oil continues to make steady gains, and many economists are now concerned about the growth implications - we generally think of rising oil prices as a bad thing for the global economy as they shift income those most likely to spend it - households - to those least likely to - firms and governments in oil-producing countries.

The Baltic Dry Index has fallen by 9.1% in the past week. Some data shows freight rates dropping, but the Shanghai Shipping Index remains high.

Non-commercial traders decreased their net long position in the USD last week, as the USD lost ground. That could be due to signs the worst of the global slowdown is behind us as the PMIs picked up in the US and UK.

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