Monday , December 9 2019
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Win Thin

Win Thin

Win Thin is a senior currency strategist with over fifteen years of investment experience. He has a broad international background with a special interest in developing markets. Prior to joining BBH in June 2007, he founded Mandalay Advisors, an independent research firm that provided sovereign emerging market analysis to institutional investors. He received an MA from Georgetown University in 1985 and a B.A. from Brandeis University 1983. Feel free to contact the Zurich office of BBH

Articles by Win Thin

Dollar Soft on Weak Data and the Return of Tariff Man

6 days ago

The dollar has taken a hit from the weaker than expected data Monday
Tariff man is back
The US economy remains solid in Q4 but there are some worrying signs for the November jobs data Friday
The political pressure on Turkey from the US could increase soon; South Africa’s Q3 GDP came in well below expectations at -0.6% q/q and 0.1% y/y
Japan JGB auction went poorly on supply concerns ahead of planned fiscal stimulus; RBA kept rates steady at 0.75% but the outlook was upbeat
The dollar is mostly weaker against the majors in the wake of weak US data yesterday.  Aussie and sterling are outperforming, while euro and Nokkie are underperforming.  EM currencies are mostly weaker as trade 7tensions rise.  PHP and MXN are outperforming, while ZAR and KRW are

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EM Preview for the Week Ahead

8 days ago

Over the weekend, China reported stronger than expected November PMI readings while Korea reported weaker than expected November trade data.  While the China data is welcome, we put more weight on Korea trade numbers, which typically serve as a good bellwether for the entire region.  Press reports suggest the Phase One trade deal has stalled due to Hong Kong legislation passed by the US Congress.  Until a deal is wrapped up, we remain cautious on EM. 
AMERICAS
Chile reports October GDP proxy Monday, which is expected to contract -0.5% y/y vs. +3.0% in September.  Retail sales will be reported Tuesday, which are expected to contract -4.4% y/y vs. -0.9% in September.  The central bank meets Wednesday and is expected to cut rates 25 bp to 1.5%.  However, the weak

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Dollar Builds on Recent Gains

13 days ago

The dollar remains resilient; optimism towards a Phase One deal continues to support risk appetite
There was also optimism from Fed Chairman Powell yesterday; the US economy is not out of the woods yet
Turkish President Erdogan started deploying Russia’s S-400 missile system, raising the specter of sanctions
Hong Kong reported weak October trade data; Philippine central bank Governor Diokno said a December cut was possible
The dollar is mostly firmer against the majors. The Scandies are outperforming, while sterling and Loonie are underperforming. EM currencies are mostly weaker. CLP and INR are outperforming, while PHP and ZAR are underperforming. MSCI Asia Pacific was up 0.1% on the day, with the Nikkei rising 0.4%. MSCI EM is down 0.3% so far today, with the

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Drivers for the Week Ahead

15 days ago

The dollar was surprisingly resilient last week; we look for further dollar gains ahead
It is a holiday shortened week in the US, but there are still some major data releases
There is a fair amount of eurozone data this week; UK Prime Minister Johnson unveiled his Tory manifesto
Hong Kong held local elections this weekend; tensions between Japan and Korea appear to have eased, but questions remain
The dollar was surprisingly resilient last week.  Despite the lack of any top-tier US data, DXY still rose in four of the five trading days.  Much had to do with the rest of the world, as the eurozone, UK, and Japan all reported weaker than expected November PMI readings.  Divergences in the growth outlook and interest rate differentials should remain in the dollar’s

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Dollar and Equities Sink as Trade Pessimism Rises

18 days ago

Pessimism regarding a Phase One trade deal has intensified; further muddying the waters are recent US Congressional actions
FOMC minutes contained no surprises; regional Fed manufacturing surveys for November continue
South Africa is expected to cut rates by 25 bp to 6.25%
Korea reported trade data for the first twenty days of November; Indonesia kept rates steady at 5.0%, as expected
The dollar is mostly weaker against the majors in very narrow ranges as markets await fresh drivers. Kiwi and Nokkie are outperforming, while the yen and Loonie are underperforming. EM currencies are mixed.  ZAR and MXN are outperforming, while KRW and MYR are underperforming. MSCI Asia Pacific was down 0.7% on the day, with the Nikkei falling 0.5%. MSCI EM is down 0.8% so far today,

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EM Sovereign Rating Model For Q4 2019

18 days ago

We have produced the following Emerging Markets (EM) ratings model to assess relative sovereign risk. An EM country’s score directly reflects its creditworthiness and underlying ability to service its external debt obligations. Each score is determined by a weighted compilation of fifteen economic and political indicators, which include external debt/GDP, short-term debt/reserves, import cover, current account/GDP, GDP growth, and budget balance.
These scores translate into a BBH implied rating that is meant to reflect the accepted rating methodology used by the major agencies. We find that our model is very useful in predicting rating changes by the major agencies.
The total number of Emerging Market countries covered by our model now stands at 30, reflecting our

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DM Equity Allocation Model For Q4 2019

19 days ago

Global equity markets continue to power higher US-China trade tensions have eased
MSCI World made a new all-time high today near 2290 and is up 23% YTD
Our 1-rated grouping (outperformers) for Q4 2019 consists of Ireland, Sweden, Israel, Denmark, and Australia
Our 5-rated grouping (underperformers) for Q4 2019 consists of the UK, Hong Kong, Greece, Germany, and Portugal
Since our last update on August 21, our proprietary DM equity portfolio has risen 6.7%, slightly underperforming MSCI World (up 7.1%)
DM EQUITY OUTLOOK
Global equity markets continue to power higher US-China trade tensions have eased. Despite some recent signs of concern, we expect a Phase One deal to be signed before year-end. We think tariff rollbacks will be part of the deal, though the speed

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EM FX Model for Q4 2019

20 days ago

EM FX has rallied sharply in recent weeks, helped by growing optimism that we’ve seen the worst of the US-China trade war
Given our more constructive outlook on EM, we believe MSCI EM FX should eventually test the 1657.50 high from July
We see continued divergences within the asset class
Our 1-rated (strongest fundamentals) grouping for Q4 2019 consists of TWD, THB, PHP, CNY, and KRW
Our 5-rated (weakest fundamentals) grouping for Q4 2019 consists of ZAR, TRY, LKR, RON, and COP
Our next EM FX model update for Q1 2020 will come out in January
EM FX OUTLOOK
EM FX has rallied sharply in recent weeks, helped by growing optimism that we’ve seen the worst of the US-China trade war. MSCI EM FX basically retraced the entire sell-off resulting from President Trump’s

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Dollar Stabilizes as Markets Await Fresh Drivers

20 days ago

Press reports suggest that the mood in Beijing is pessimistic after President Trump pushed back against tariff rollbacks
Fed Chair Powell met with President Trump and Treasury Secretary Mnuchin yesterday
Hungary is expected to keep rates steady; the deadline to form a government in Israel is fast approaching
RBA released dovish minutes from its November policy meeting
The dollar is mostly firmer against the majors as markets await fresh drivers. Kiwi and Stockie are outperforming, while sterling and Swissie are underperforming. EM currencies are mixed. ZAR and TRY are outperforming, while PHP and KRW are underperforming. MSCI Asia Pacific was up 0.2% on the day, with the Nikkei falling 0.5%. MSCI EM is up 0.5% so far today, with the Shanghai Composite rising

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EM Preview for the Week Ahead

22 days ago

EM FX was mostly weaker last week due to doubts about a Phase One trade deal between the US and China. Those talks continue this week and while we expect a deal to be struck, there is likely to be a lot of last minute posturing that will likely keep markets volatile over the short-run. In the meantime, investors need to beware of idiosyncratic country risk within EM.  
AMERICAS
Chile reports Q3 GDP Tuesday, with growth expected at 3.3% y/y vs. 1.9% in Q2. Still, this is old news as the protests will clearly have a negative impact on Q4 growth. Next policy meeting is December 6 and a 25 bp cut to 1.5% is expected. Chilean assets saw a relief rally last week on news that lawmakers reached an accord to draw up a new constitution. However, investors should remain

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Emerging Market Risk Map

25 days ago

With year-end upon us, we review some of the key risks to EM assets and how we think they progress from here. In short, the two most significant downside risks would be a decisive improvement in Elizabeth Warren’s polling figures and an upset in the US-China trade negotiations.
We expect a stronger dollar and higher yields in the near-term but with the upside for both capped, leaving us with a modestly favourable risk-taking environment. In terms of risk distributions, EM Asia is most exposed to exogenous factors (proxy trade wars, trade rebalancing, Warren-led tech sell-off), while Latin America and South Africa are most exposed to idiosyncratic event risks.
US Elections: Binary
The nomination of Elizabeth Warren would be a negative outcome for markets in

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EM Preview for the Week Ahead

29 days ago

EM was mostly lower last week, as doubts crept in about the recent trade optimism. Some events also served as reminders of idiosyncratic EM risk that can’t be overlooked, such as downgrade risks (South Africa), failed oil auctions (Brazil), and violent protests (CLP). EM may remain on its back foot until we get further clarity on the US-China talks, but we remain confident in our call that a deal will be struck soon that lower existing tariffs. 
AMERICAS
Mexico reports September IP Monday, which is expected to contract 1.7% y/y vs. -1.3% in August. The economy remains sluggish and so further stimulus will be seen. Banco de Mexico meets Thursday and is expected to cut rates 25 bp to 7.5%. Odds of significant fiscal stimulus are rising, especially as we get closer

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Dollar Rally Stalls as Fresh Drivers Awaited

November 6, 2019

US-China relations continue to improve with news of cooperation in a major fentanyl case
Eurozone final services and composite PMIs surprised on the upside; UK Parliament will be dissolved today
Poland is expected to keep rates steady at 1.5%; Russia October CPI is expected to rise 3.8% y/y
China sold €4 bn in its first euro-denominated bond since 2004; Thailand cut rates 25 bp to 1.25%, as expected
The dollar is mostly softer against the majors as its recent rally stalls out. The Scandies are outperforming, while Swissie and Loonie are underperforming. EM currencies are mostly weaker. CZK and CNY are outperforming, while INR and PHP are underperforming. MSCI Asia Pacific was down 0.1% on the day, with the Nikkei rising 0.2%.  MSCI EM is down 0.1% so far today,

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EM Preview for the Week Ahead

November 4, 2019

EM should continue to benefit from the generalized improvement in the global backdrop. Trade tensions have eased whilst the risks of a hard Brexit have fallen, at least for now. Yet recent developments in some major EM countries underscores how important it is for investors to differentiate between the strong credits and the weak ones. For instance, South Africa, Hong Kong, Argentina, and Chile all come with idiosyncratic risks. 
AMERICAS
Chile reports September GDP proxy Monday, which is expected to rise 3.5% y/y vs. 3.7% in August. Retail sales will be reported Tuesday and are expected to rise 2.0% y/y vs. 2.3% in August. October trade will be reported Thursday. CPI will be reported Friday and is expected to rise 2.2% y/y vs. 2.1% in September. Meanwhile,

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Mexico vs. Brazil Near-Term Outlook

November 2, 2019

Both Brazil and Mexico are in a good position to benefit from the current improvement in market sentiment. However, when comparing the factors driving the currencies of both countries, we think there are relatively more near-term positives for the Mexican peso than for the Brazilian real. These include: (1) the peso will maintain its carry advantage for some time; (2) hedging-related flows should be mixed for the real, but could net as a drag; (3) Mexico’s near-term negative risk event (US not ratifying the USMCA) seems less impactful than the negative tail risk for Brazil (former president Lula being released and allowed to run for president again).
Approaching Peak Interest Rate Differentials
The external environment will dictate how important carry will be as a

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FOMC Preview

October 31, 2019

The FOMC begins a two-day meeting today with the decision due out tomorrow afternoon.  The Fed is widely expected to cut rates 25 bp for the third meeting in a row.  What’s next?
RECENT DEVELOPMENTS
US data have undeniably softened in September.  Weakness in the manufacturing sector appears to have spread to the wider economy.  ISM PMI, jobs, CPI, PPI, and retail sales all came in weaker than expected.  So too have inflation expectations.  October data is just starting to trickle out this week and so far, has been mixed.  ADP jobs will be reported tomorrow, and October Chicago PMI will be reported Thursday.  Friday sees October ISM manufacturing PMI, jobs data, and auto sales.  As such, we should then have a much better idea of whether the slowdown is

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Dollar Firm as Two-Day FOMC Meeting Begins

October 29, 2019

The dollar continues to gain traction as the two-day FOMC begins; US political uncertainty has entered a new phase
Yesterday marked the third time that UK Prime Minister Johnson lost a vote for elections; he will try again today
Weak South Africa data support our call for imminent easing; the threat of sanctions against Turkey are back on the table
Lower than expected Tokyo October CPI was reported
The dollar is mostly firmer against the majors as the FOMC’s two-day meeting begins. Aussie and yen are outperforming, while sterling and Nokkie are underperforming. EM currencies are mostly weaker. KRW and TWD are outperforming, while ZAR and HUF are underperforming. MSCI Asia Pacific was up 0.5% on the day, with the Nikkei rising 0.5%. MSCI EM is flat so far today,

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EM Preview for the Week Ahead

October 28, 2019

EM has been on a good run but this week will be a big test.  Brexit uncertainty may finally end.  Or it may not.  A delay would be positive for EM, whilst a potential hard Brexit would be negative.  The Fed meets Wednesday and key US data will be reported during the week, culminating with the jobs report Friday.  The dollar has been on its back foot as September data have come in weaker than expected, so any sort of positive data surprises this week could add to the dollar’s recent gains. 
AMERICAS
Mexico reports September trade Monday, where a $213 mln surplus is expected.  Q3 GDP will be reported Wednesday, and growth is expected at 0.1% y/y vs. -0.8% in Q2.  October PMI readings will be reported Friday, with manufacturing expected to fall a few ticks to 47.7

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A New Stage of the US-China Conflict

October 23, 2019

The US-China diplomatic relationship may be entering a new stage. The balance of power between the key players – Trump, China, the US Congress, and the Democrats – is changing and their roles are being reshuffled. This might be enough to break the endless cycle of agreements and re-escalations. In short, we think both Trump and Chinese officials have a greater incentive to reach a deal (or at least not to escalate) this time around.
Meanwhile, the rising antagonist force – the US Congress – will be busy shifting the conversation away from trade policy and towards issues such as civil liberties. If we are right, even partially, this would mean a more benign outlook for global markets and risk appetite, but it could also lead to proxy trade conflicts and collateral

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EM Preview for the Week Ahead

October 20, 2019

We are beginning to become more constructive on EM. The main trigger for some optimism is the shifting US-China dynamic. In our view, the partial trade deal reveals weakness on the part of the US. Reports suggest China will begin pushing for all existing tariffs to be dropped as part of Phase 2, which would be very positive for EM. That is still likely months away but this shifting dynamic bears watching. We will be putting out a longer MarketView piece on this topic this week.
AMERICAS
Brazil reports mid-October IPCA inflation Tuesday, which is expected to ease to 2.67% y/y from 3.22% in mid-September. If so, inflation would move below the 2.75-5.75% target range. Next COPOM meeting is October 30 and another 50 bp cut to 5.0% is expected. CDI market is starting

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Dollar Broadly Weaker as Brexit Deal Takes Shape

October 17, 2019

The dollar remains under pressure due to weak US retail sales and rising optimism on Brexit and the trade war
Brexit negotiations remain tense and we should expect a higher than usual noise-to-signal ratio at this stage
China said its goal is to stop the trade war and remove all tariffs
US has a full data schedule; we remain constructive on the US economic outlook
UK reported September retail sales; Sweden’s unemployment rate hit a 4-year high of 7.4%
Australia reported solid September jobs; Singapore reported weak September trade
The dollar is broadly weaker against the majors on market optimism regarding Brexit and the trade war.  Sterling and Aussie are outperforming, while yen and Swissie are underperforming.  EM currencies are broadly firmer.  ZAR and CZK

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Dollar Resilient as Cracks in Risk-On Appear

October 16, 2019

Some cracks have appeared in the market’s risk-on sentiment
We continue to believe that recent developments take some pressure off the Fed to cut rates again this month
Our base case for a Brexit delay has been strengthened; UK reported weak labor market data
The situation is Turkey continues to develop negatively for asset prices; trade data out of China once again showed the impact of the trade war and the resulting global slowdown
RBA minutes were released; Japan is readying a supplemental budget to help address the damage from typhoon Hagibis
The dollar is mostly firmer against the majors as the US returns from holiday. Sterling and yen are outperforming, while the Antipodeans and Scandies are underperforming. EM currencies are mostly weaker. TRY and THB are

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EM Preview for the Week Ahead

October 14, 2019

EM benefited greatly from the improvement in US-China trade relations and quite possibly Brexit. The dollar is likely to remain under some pressure near-term as a result. Yet we must caution investors against getting too optimistic. The details of the partial trade deal still need to be worked out, while existing tariffs will still remain in place if the deal is signed next month as most expect. Brexit negotiations have accelerated but we note that any deal must still be passed by UK Parliament, which has already scuttled several attempts. Lastly, geopolitical risks abound in the Middle East.   
China
China September data deluge comes this week. Money and new loan data will be reported but no date has been set. Trade data will be reported Monday, with exports

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Dollar Remains Soft as Risk-On Sentiment Continues

October 12, 2019

Markets have seized on the possibility of a partial trade deal as well as some hopes that a hard Brexit will be avoided
The main event for the day will be President Trump’s meeting with Vice Premier Liu He
These market movements (if sustained) will take pressure off of the Fed to cut rates this month
The notion of a “pathway” to a Brexit deal continues to capture investors’ imagination
The EU will discuss sanctions on Turkey at next week’s summit; oil is up on news that an Iranian oil tanker was likely hit by a missile attack
Singapore reported weak August retail sales data; Malaysia raised its budget deficit target for next year to -3.2% of GDP
The dollar is broadly weaker against the majors as risk-on sentiment continues to dominate.  Sterling and Aussie are

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Dollar Soft Despite Heightened Geopolitical Risks

October 9, 2019

The dollar staged a stunning comeback yesterday as risk-off took hold on rising geopolitical risk; those risks remain high
US-China tensions have risen ahead of trade talks that begin Thursday
The US abruptly announced that it would withdraw its troops from northeast Syria
US reports September PPI; German IP came in better than expected
UK Prime Minister Johnson told Chancellor Merkel that a deal is “essentially impossible”
Chinese markets re-opened for trading today
The dollar is mostly softer against the majors despite heightened geopolitical risks. Swissie and Kiwi are outperforming, while sterling and Loonie are underperforming. EM currencies are mixed. TWD and KRW are outperforming, while RUB and ZAR are underperforming. MSCI Asia Pacific was up 0.6% on the

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Drivers for the Week Ahead

October 7, 2019

The dollar rally has been derailed by weak US data and rising recession fears
The September jobs data was not a game-changer and so we are left waiting for more clues
Believe it or not, the US economy remains solid; however, the US repo market has not fully normalized yet
The Chinese trade delegation arrives in Washington Thursday for two days of trade talks
Brexit optimism has worn off; there are several key EM events
.
The dollar rally has been derailed by weak US data and rising recession fears. While we believe those fears are overblown, we acknowledge that this dollar correction probably has some room to run. That said, we ask dollar bears where do they go? The eurozone, UK, and Japan all have their own problems and risks. So too does EM. When all is said and

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Musings on the Repo Market, Fed Policy, and the US Economy

October 2, 2019

The US repo market appears to finally be normalizing. The low pace of normalization is concerning and so a more permanent solution may be needed to head off similar problems at year-end. We do not think this issue has any implications for the economic outlook, which we continue to view as solid.
RECENT DEVELOPMENTS
The repo market provides an efficient, reliable, and predictable channel to raise short-term funding. It is but one part of a larger short-term funding market. As such, there were serious concerns that dislocations in the repo market would lead to contagion that froze other parts of the financial markets. That has proven to be overblown, with repo rates reacting favorably to the Fed’s frequent temporary liquidity adds over the past couple of weeks.
Due

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Drivers for the Week Ahead

September 30, 2019

We continue to think that the US economy is in better shape than most appreciate, and that underpins our strong dollar call
Tensions are likely to remain high after reports emerged last week that the US will look into limiting capital flows into China
US September jobs data Friday will be the data highlight of the week; there is a heavy slate of Fed speakers this week
UK, eurozone, and Japan are expected to report weak data this week
RBA meets Tuesday and is expected to cut rates 25 bp to 0.75%; Reserve Bank of India is expected to cut rates 25 bp Friday
We continue to think that the US economy is in better shape than most appreciate, and that underpins our strong dollar call.  US yields have crept higher but we need to see higher inflation numbers to get yields

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Dollar Firm as US Economy Continues to Outperform

September 29, 2019

Uncle Sam hat and money. American hat. Hat independence day – Click to enlarge
Political uncertainty is likely to persist in the US; the big unknown is whether this will impact the US economy
US core PCE reading will be of particular interest and is expected to rise 1.8% y/y; Quarles (voter) and Harker (non-voter) speak
Dovish BOE comments are weighing on sterling; France reported weak CPI and consumer spending data
Tokyo September CPI was lower than expected; FTSE Russell made some announcements regarding WGBI
Rate cuts in EM continue; Brazil reports August central government budget data
The dollar is mostly firmer against the majors as another eventful week winds down. Swissie and Loonie are outperforming, while Stockie and sterling are underperforming. EM

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Dollar Firm Despite Rising US Political Uncertainty

September 27, 2019

Focused On Strategy – Click to enlarge
The dollar continues to benefit despite US political uncertainty
President Trump claimed to be getting “closer and closer” to a trade deal with China; we are very skeptical
There is a lot of US data to be reported and a heavy slate of Fed speakers today
ECB board member Lautenschlaeger has resigned; sterling continues to soften as Brexit optimism fades
Netanyahu has been tasked with forming the next Israeli government; Singapore August IP contracted -8.0% y/y; Philippines cut rates 25 bp to 4.0%, as expected
The dollar is mixed against the majors as markets digest US political developments.  The Antipodeans are outperforming, while Swissie and sterling are underperforming.  EM currencies are broadly weaker.  PHP and INR are

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