Emerging market currencies strengthening

Another sign of economic normalization

Chart of the Day

There are lots of trades benefitting from hopes that vaccines will help the world economy get back to something more “normal”. One of those trades is appreciating emerging market currencies, which have generally been on upward trends since the first vaccine news from Pfizer at the start of November. The Brazilian real, Russian ruble and Turkish lira all rose by between 0.8% and 1.3% against the USD yesterday, although most of the key EM currencies save the Chinese yuan remain down in YTD terms.


It was a better-than-expected set of US claims data. Last week, initial claims dropped back down to 712k. Still high, but better than the 775k expected. In the week before that, continuing claims dropped by over 500k to 5.52mn.

Challenger lay-offs are dropping back toward more normal levels, although remained about double last year’s level in November.

The US services ISM fell in November, and a weighted average of the two ISM surveys is now lower than it was in January, before the pandemic was really felt. We already know GDP growth will drop very sharply in Q4, and the weakening surveys growth will slow much further in Q1.

The ISM surveys do not paint a good picture of labor market conditions either. A weighted average of the two employment indices dropped to just 50.9, which implies employment barely grew at all in November - we’ll find out in the non-farm payroll report Friday morning.

Brazil’s economy has recovered relatively strongly despite the bad Covid situation there. GDP was down by 3.9% YoY in Q3, a better performance than many advanced economies including the UK and Canada.


Pfizer yesterday cut the number of vaccines its hopes to produce this year due to logistical constraints. The media report said that was behind the small fall in the S&P 500, but it’s probably more important to note that the equal-weighted index, which tends to be most sensitive to economic growth concerns, actually rose by 0.5%.

OPEC announced that they will be raising their production in January, by 500,000 barrels per day. Oil markets shrugged off that news, though, with prices rising by near 1%.

Platinum prices have been rising strongly in recent days. Another 2.6% yesterday took the gain in the past month to 19%, whereas palladium has been basically unchanged and silver and gold have dropped back.

US inflation expectations have jumped this week, but took a breather yesterday, with the 5-yr/5-yr at 2.30%. Eurozone inflation expectations might soon move to a new pandemic era high, but remain much lower.

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