Hedge funds in the UK and US have significantly reduced long USD positions, awaiting clear trends
• Real-money funds are focused on relative value, favouring O/W AXJ vs. Latam currencies and O/W INR
• European corporates perceive long-term value i...
• Overview – In a challenging market environment, macroeconomic and policy divergence – the ‘new normal’ – remains the critical foundation of our updated views and forecasts, with the US economy, USD and US rates leading the way higher. This will ev...
This supersedes the version dated 12 February 2015. Page 1, corrects
• Rising risks of mandatory electricity rationing could have severe implications on the economy
• Even without rationing, we now expect zero economic growth in 2015
• If rationi...
Latam headwinds include lower commodity prices, slowing global demand, and a stronger USD
• For Mexico, some of these risks are priced in; we now expect a 25bps Banxico hike in June
• Lower global yields are a near-term positive development for t...
Direction signal now neutral from negative as foreign flows to EM debt, especially oil importers, improve
• Spread signal turns positive on flows to high-yielding oil importers (INR, ZAR, TRY, IDR) plus Brazil
• October fund allocations reflect ...
The COPOM minutes shows the BCB mainly responded to a weaker BRL
• We expect the COPOM to tighten at least another 100bps in consecutive 25bps hikes
• More disappointing signals on the fiscal front could generate a longer and/or steeper hiking cy...
Direction signal stays negative on weak demand for EM debt; EM FX weakness puts pressure on EM bonds
• Structural investors continue to favour Asia bonds; hard data supports Korea and Indonesia
• Flow rotation continues from Russia, Turkey and So...
Dilma returned to office by the narrowest margin in the post-war era
• Local market sentiment remains weak but FX positioning suggests that investors were prepared
• Dilma’s next finance minister appointment will be critical in stabilising market ...
First-round voting on 5 October may not produce a winner; a second-round vote is likely on 26 October
• President Dilma has retaken the lead in recent polls and the BRL remains the regional underperformer
• Marina’s inability to consolidate early ...
Direction signal stays negative on weak demand for EM debt
• Allocations moved towards Brazil in August on Marina Silva, a catalyst for change; now Dilma fights back
• Brazil’s subsequent underperformance makes it cheap and positioning is not skew...
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