Macro Outlook & Flows : Fear Overtakes Greed

Do Not Feel Alone. It is ugly out there.

Imagine Citi FX Headlines going Tough Times – Position Cutting in G10, EM Undiversified.

It is true.

“The costs of holding risk is increasing, limiting the reward and leading to position squaring. Even with the correct directional & macro view, positions are carried out by week or session end. Macro accounts are frustrated with the ranges currencies are in – and the intraday volatility. ” Source : Citibank

The new trend started to emerge in May when the PMIs in EM started to head south.

“The Great Deceleration means that booming emerging economies will no longer make up for weakness in rich countries. Without a stronger recovery in America or Japan, or a revival in the euro area, the world economy is unlikely to grow much faster than today’s lacklustre pace of 3%. Things will feel rather sluggish.” The Economist

Yet “THIS year will be the first in which emerging markets account for more than half of world GDP on the basis of purchasing power, according to the International Monetary Fund (IMF).” The Economist

Blame the Taper and US Treasuries… and Lawrence Summers !

Traders are accusing this 10Y US yield rout to 2.83% as the reason behind the EM currency bloodbath.

“Nomura’s George Goncalves says the bond weakness has to do with angst surrounding the next Fed chair, and the possibility that Larry Summers will be appointed, and take the Fed in a more hawkish direction, meaning fewer asset purchases, and a faster move away from zero interest rates. Source :

Brazilian Real – lowest since Mar 09
Indian Rupee – New record low of 62.005 last week
Indonesian Rupiah – lowest since May 09
Malaysian Ringgit – lowest since Jun 2010

“NEW DELHI—Indian Prime Minister Manmohan Singh on Saturday sought to allay concerns that the country was headed for a balance-of-payments crisis similar to the one experienced in 1991” Source : WSJ

The numbers speak for themselves !!

EM Bond funds reached their 12th consecutive week of outflows this week, since the trend began in May-end…..On the equities front,  EM equities started to see some small outflows, after a few weeks of stabilisation…..we saw a RECORD week of inflows in European equities this week (highest in 2013 so far) .. also saw the first week of outflows in US Equities since the end of the sell-off in June” Source : Citibank

So Much For This Great Normalisation

Reports hail this as positive and the market no longer a “QE basket” case of easy picking as correlations.

This Week’s G10 Events

FOMC minutes 22 Aug 2 am
Fed Jackson Hole conference 22-25 Aug
European PMIs 22 Aug
UK GDP 23 Aug
RBA minutes 20 Aug

Which is the most important ?

FOMC Minutes, of course.


Currency Crisis : India, Indonesia and …