Global Manufacturing Steadies as She Goes, or Does She?

The year got off on a much better foot than might have been expected, at least as far as global manufacturing is concerned. So the fall in global manufacturing has flattened out, even though the bounce back has more of a dead cat look about it than anything else. As usual in recent months the report was very much a mixed bag

[Premium] Growth momentum shift to Emerging Markets continues

Two weeks ago I highlighted the fact that Indonesia has re-attained an investment grade rating, continuing the upward path it has been on since the Asian crisis derailed the Asian growth story 15 years ago. Indeed, we should expect emerging markets, and Asian emerging markets in particular to outperform developed economies

Full text: Indonesia regains investment grade from second ratings agency

Just as Europe and the US are suffering massive downgrades, other countries are seeing their risk profiles improve. Indonesia is a perfect example

Some Thoughts On IMF Resources

We think markets are getting too bulled up on the IMF headlines today. As the saying goes, “Show me the money!” Until then, we remain skeptical that the IMF will be able to obtain the extra funding it desires. Even if the IMF does get the extra financing, will it make a material difference? IMF/EU programs for Greece, Ireland, and Portugal have not been able to halt the crisis

The Swiss Franc is the most overvalued currency in the world, and the Indian Rupee most undervalued

That’s what the Economist’s Big Mac Index tell us. According to this index, the Swiss Franc and the Norwegian Krone are both more than 60 percent overvalued compared to the US dollar. Much further down are Sweden with over 40% overvaluation and Brazil which shows more than 30%.

The flip side comes with the Indian Rupee, which had been hitting record lows last year. Here, we’re talking about a 60% undervaluation

Can Brazil’s economic boom last?

I thought I would flag this video by the BBC because I think we are seeing Brazil slow along with China and India as the three largest emerging economies that people care about

Turkey: On restoring central bank credibility and EM vulnerability

The Turkish central bank took a turn back to orthodox policy today despite leaving the benchmark 1-week repo rate unchanged at 5.75%. It dropped the language from several previous meetings about potential easing. The bank did hike the overnight lending rate from 9% to 12.5% and the late liquidity borrowing rate from 12% to 15.5%. These hikes are meant to tighten liquidity by raising the cost of borrowing from the central bank, but we do not think it is enough to change the outlook for the lira yet. What’s needed to restore central bank credibility is a more pronounced tightening in monetary policy, and yet policy-makers are not ready to do this due to slowdown fears

BRICs to the rescue

Turning to foreign sources of capital will only aggravate the problem from which Europe already suffers. Even assuming that developing countries are willing to take on risks that Europeans find prohibitive, their help will not improve prospects for Europe. On the contrary, it will hurt growth prospects and make the ultimate resolution of the debt crisis more difficult than ever. BRICs should be exporting more demand, not more capital.

It is important that the desperate short-term funding needs of certain governments do not lead to an overall worse outcome for Europe. If Europeans do not want to fund credit-impaired European governments, they should not ask foreigners to do so. Slower growth and foreign debt will not help resolve the problem of insolvency

Some Thoughts On EM FX Intervention And Vulnerability

Markets have been punishing countries with the weakest fundamentals, focusing on either high inflation, large current account and budget deficits, external debt loads, or a combination of these. These other vulnerability measures in the table also support the widely held view that Asia has the strongest fundamentals, EMEA the weakest, and Latin America somewhere in between. But we do note that there are pockets of vulnerability in Asia (India, Sri Lanka, Vietnam) and Latin America (Argentina)

Here’s why inverted yield curves are a leading indicator of recession

Just following up on my last post about the expectations theory of interest rates, I wanted to explain why yield curve inversion signals recession – and why it hasn’t this go round in the

More emerging markets downside ahead

Despite pockets of relative outperformance, EM currencies have fared terribly this month and bring to mind parallels with the great EM sell-off of 2008-2009. While a revisiting of the 2008-2009 lows seems too aggressive right now, we are setting our sights on the May/June 2010 levels hit when EM sold off on the first Greek blow-up

That sure looks like a W bottom on the S&P500

Not the classic trajectory and confirmation, not to mention the compressed time frame, but you’ve got to respect the price action. The macro swans are still out, so the question is are they priced? We don’t know and not willing to make a huge bet either way. The next negative headline and tape bomb will be the true test