Tuesday , October 22 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

EM Preview for the Week Ahead

2 days ago

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

5 days ago

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

7 days ago

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

9 days ago

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

11 days ago

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

14 days ago

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

16 days ago

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

21 days ago

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

23 days ago

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

24 days ago

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

26 days ago

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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Dollar Firm as Risk-Off Impulses Return

27 days ago

Markets have moved into risk-off mode from a confluence of events emanating from the US
Speaker of the House Pelosi formally launched a formal impeachment inquiry; DOJ inserted itself into Trump’s fight with New York state
Trump’s speech to the UN General Assembly yesterday was noteworthy for its belligerence
RBNZ and BOT kept rates steady, as expected; Czech is expected to follow suit

The dollar is broadly firmer against the majors as risk-off impulses return to the markets await fresh drivers. Swissie and Loonie are outperforming, while Stockie and sterling are underperforming. EM currencies are broadly weaker. TRY and THB are outperforming, while ZAR and MXN are underperforming. MSCI Asia Pacific was down 0.6% on the day, with the Nikkei falling 0.4%. MSCI EM

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EM Preview for the Week Ahead

September 22, 2019

We think the Fed has signaled that the bar to another cut is high.  Unless the US data weakens considerably, we see rates on hold for now and this means the liquidity story for EM has worsened.  Elsewhere, US-China trade talks appear to be going nowhere.  With no end in sight to the trade war, we remain negative on EM.
Korea reports trade data for the first 20 days of September Monday.  Between the US-China trade war and Korea-Japan tensions over exports of strategic materials, we expect Korea trade numbers to remain dismal well into 2020.  Next BOK meeting is October 15 and a rate cut then is possible.
Singapore reports August CPI Monday, which is expected to rise 0.5% y/y vs. 0.4% in July.  It reports August IP Thursday, which is expected to contract -0.6% y/y

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Dollar Mixed on Central Bank Thursday

September 20, 2019

As expected, the Fed cut rates by 25 bp; the dollar firmed after the decision but has since given back some gains
During the North American session, there will be a fair amount of US data
BOE is expected to keep rates steady; UK reported August retail sales
SNB and BOJ kept rates steady, as expected; Norges Bank unexpectedly hiked 25 bp
Brazil cut rates 50 bp to 5.5%; Indonesia cut rates 25 bp to 5.25%; Taiwan kept rates steady at 1.375%; SARB is expected to remain on hold
The dollar is mixed against the majors in the wake of the FOMC decision. Swissie and yen are outperforming, while the Antipodeans are underperforming after weak data prints. EM currencies are mixed too. The CEE currencies are outperforming, while TRY and SGD are underperforming. MSCI Asia

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Some Thoughts on the Fed and Oil Shocks

September 18, 2019

Oil prices have spiked after the weekend attack on Saudi oil facilities.  Will it impact the Fed tomorrow?  No.  We compare the current (but still unfolding) situation to past oil shocks from the 1970s and discuss the policy responses taken.
RECENT DEVELOPMENTS
The weekend bombing of Saudi oil facilities continues to reverberate.  The drone strike removed about 5% of global supplies from the market, leading Brent oil to spike to $72 per barrel Monday before falling back today to $65.  Saudi Aramco reportedly lost about 5.7 mln bbl/day of output from the initial strike.
The timeline for restoring output has been all over the place.  Initial reports suggested about half that loss would be restored by Monday, but subsequent reports suggested the recovery would be

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Dollar Mixed, Oil Spikes as Markets Digest Saudi Attack

September 16, 2019

The weekend bombing of Saudi oil facilities continue to reverberate across global markets
The currencies of the oil producing nations are likely to outperform near-term
US rates continue to adjust ahead of the FOMC
UK Prime Minister Johnson is in Luxembourg today to meet with EC President Juncker
China reported weak August IP and retail sales
.
The dollar is mixed against the majors as markets continue to digest the attack on Saudi oil facilities.  Yen and Loonie are outperforming, while Stockie and sterling are underperforming.  EM currencies are broadly weaker as risk-off impulses build.  RUB and KRW are outperforming, while INR and PHP are underperforming.  MSCI Asia Pacific ex-Japan was down 0.2% on the day, with Japan on holiday.  MSCI EM is down 0.1% so far

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Dollar Soft as Risk Sentiment Stoked Ahead of US Retail Sales

September 15, 2019

US-China relations appear to be thawing
Trading was volatile after the ECB decision; we are still dollar bulls
EM has benefitted from the shift in the global backdrop this week
The US data highlight is August retail sales
Vietnam cut rates 25 bp to 6.0%; Turkey reported July current account and IP
The dollar is mostly softer against the majors ahead of the US retail sales data. Sterling and Swissie are outperforming, while Kiwi and Loonie are underperforming. EM currencies are broadly firmer on continued signs of a US-China thaw. RUB and HUF are outperforming, while TRY and PHP are underperforming.  MSCI Asia Pacific was up 0.7% on the day, with the Nikkei rising 1.1%. MSCI EM is up 0.6% so far today, with China markets on holiday. Euro Stoxx 600 is up 0.1% near

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Turkey Monetary Policy Planting Seeds of Future Crisis

September 14, 2019

Turkey central bank meets September 12 and is expected to cut rates 275 bp.  With Erdogan talking about single digit rates and inflation, it’s clear that rates are headed significantly lower.  At some point soon, we think the risk/reward for investing in Turkey will send investors fleeing for the exits.POLITICAL OUTLOOK
President Erdogan sacked central bank Governor Murat Cetinkaya on July 6, ostensibly for not cutting rates quickly enough.  In early August, several high-ranking central bank officials were fired, including chief economist Hakan Kara.  Others that were fired include the central bank’s head of research, the banking department chief, and the risk management chief.  Who needs all these senior positions when President Erdogan is running monetary

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EM Preview for the Week Ahead

September 9, 2019

Despite some positive developments last week, we think the three key issues for risk assets have not been resolved yet.  Hong Kong protests continue, while reports suggest the US and China remain far apart.  Even Brexit has likely been given only a three month reprieve.  We remain negative on EM until these key issues have been ultimately resolved. 
China reports August money and loan data this week but no data has been set.  With the recently announced cuts in reserve requirements, money and loan growth should start to pick up in September.  August CPI and PPI will be reported Tuesday, with the former expected to rise 2.6% y/y and the latter expected to fall -0.9% y/y.  For now, the PBOC is focused on growth, not inflation.
Taiwan reports August trade Monday.

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Latest Thoughts on the US Economic Outlook

September 4, 2019

The US economy is starting to show cracks from the ongoing trade war. While we do not want to make too much from one data point, we acknowledge that headwinds are building whilst US recession risks are rising.
RECENT DEVELOPMENTS
US ISM manufacturing PMI fell to 49.1 vs. 51.3 expected. This is the first sub-50 reading since August 2016 and the lowest since January 2016. The employment component fell to 47.4 from 51.7 in July, while new orders fell to 47.2 from 50.8 in July. The only spin we can put on this PMI reading is that manufacturing makes up only 12% of the total US economy.  But make no mistake, this is a bad sign. ISM non-manufacturing PMI will be reported Thursday and is expected at 54.0 vs. 53.7 in July.
The next round of US tariffs on Chinese goods

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Drivers for the Week Ahead

September 2, 2019

We remain dollar bulls; this is an important data week for the US
Final August eurozone manufacturing PMIs will be reported Monday; UK reports August PMIs this week
RBA meets Tuesday and is expected to keep rates steady at 1.0%; BOC meets Wednesday and is expected to keep rates steady at 1.75%
Swedish Riksbank meets Thursday and is expected to keep rates steady at -0.25%; in EM, the central banks of Chile and Russia meet
Market sentiment rallied last week on a lot of unsubstantiated claims by President Trump regarding trade talks. At best, we know there is no further escalation (for now). At worst, the two sides in reality remain far apart and a deal is unlikely until 2020. That’s no reason to load up on risk or EM. As long as current and planned tariffs are in

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Emerging Markets: FX Model for Q3 2019

August 28, 2019

The broad-based dollar rally remains intact despite the market’s overly dovish take on the Fed
We still believe markets are vastly overestimating the Fed’s capacity to ease in 2019 and 2020
What’s clear is that the liquidity story is not enough to sustain EM
MSCI EM FX is on track to test the September 2018 low near 1575 and then the April 2017 low near 1568
Our 1-rated (strongest fundamentals) grouping for Q3 2019 consists of TWD, PHP, CNY, THB, and KRW
Our 5-rated (weakest fundamentals) grouping for Q3 2019 consists of COP, ZAR, TRY, RON, and PKR
EM FX OUTLOOK
The broad-based dollar rally remains intact despite the market’s overly dovish take on the Fed.

Emerging Markets FX Q3 2019 – Click to enlarge
Developments elsewhere support our view that other

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Dollar Firm as Markets Calm

August 27, 2019

– Click to enlarge
Market sentiment has improved after President Trump said China has asked to restart trade talks
PBOC fixed the yuan basically flat and firmer than what models suggested
The G-7 summit wraps up today with little to show for it
We believe the Chicago Fed National Activity Index remains the best indicator to gauge US recession risks
Germany July IFO business climate came in weaker than expected
The lira experienced a flash crash against the yen in early Tokyo trading; Brazil reports July current account and FDI data
The dollar is broadly firmer against the majors as some semblance of calm returns to the markets. Aussie and Loonie are outperforming, while the Scandies are underperforming. EM currencies are broadly weaker. MXN and THB are

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DM Equity Allocation Model For Q3 2019

August 25, 2019

We recently introduced our Developed Markets (DM) Equity Allocation model. Building on the success of our EM model, this new framework extends our analysis to cover 24 DM equity markets. Our analysis is meant to assist global equity investors in assessing relative sovereign risk and optimal asset allocation across countries within the DM universe.
DM EQUITY OUTLOOK
Global equity markets have come under pressure in recent weeks as the US-China trade war intensified. Given the latest flare-up, we do not expect a trade deal until 2020 at the earliest. We remain very concerned about the global headwinds and do not believe that the liquidity story is enough to offset the downside risks to growth.
Market expectations for aggressive Fed easing have helped support global

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Dollar Firm Ahead of Jackson Hole

August 22, 2019

FOMC minutes were not as dovish as many had hoped; bond and equity markets are set up for a big reset
Today sees the start of the annual Fed symposium in Jackson Hole; the US reports a slew of data
Markit flash eurozone August PMI readings were reported; ECB publishes the account of its July 25 meeting
Japan-Korea relations continue to deteriorate 
Indonesia delivered a dovish surprise; Mexico and Brazil report mid-August inflation data

The dollar is broadly firmer against the majors ahead of the Fed’s Jackson Hole Symposium.  The yen and Loonie are outperforming, while Stockie and Kiwi are underperforming.  EM currencies are mostly weaker.  IDR and RUB are outperforming, while TRY and PLN are underperforming.  MSCI Asia Pacific was down 0.3%, with the Nikkei

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Emerging Markets: Preview of the Week Ahead

September 17, 2018

Stock Markets
EM FX ended mixed in Friday, capping off an up and down week.  RUB and TRY initially firmed on their respective rate hikes but gave back some of those gains heading into the weekend. Trade tensions are likely to remain high, as press reports suggest President Trump is pushing ahead with tariffs on $200 bln of Chinese imports even as high-level talks are planned. With US rates pushing higher, we think the backdrop for EM remains negative.

Stock Markets Emerging Markets, September 12 – Click to enlarge

Singapore
Singapore reports August trade Monday. Non-oil Domestic Exports (NODX) are expected to rise 5.3% y/y vs. 11.8% in July. The economy remains somewhat sluggish, while CPI rose only 0.6% y/y

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Emerging Markets: What has Changed

September 10, 2018

Summary
Philippine central bank signaled another big hike.
Poland central bank appears to be moving its forward guidance out further.
Russia officials are sending confusing signals regarding monetary policy.
Russia officials stand ready to support the ruble debt market if new US sanctions negatively impact it.
South Africa’s African National Congress pledged to undertake land reform responsibly.
Moody’s cut its 2018 growth forecast for South Africa to 0.7-1.0% from 1.5% previously.
Central Bank of Turkey signaled it will hike rates at the September 13 meeting.
Argentina announced a new export tax to help narrow the budget deficit.
Brazil presidential candidate Jair Bolsonaro was seriously wounded at a campaign

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Emerging Market Week Ahead Preview

September 4, 2018

Stock Markets
EM FX ended last week on a firm note, but weakness resumed Monday. Higher than expected Turkish inflation hurt the lira, which in turn dragged down BRL, ARS, ZAR, and RUB. We expect EM to remain under pressure this week when the US returns from holiday Tuesday. 

Stock Markets Emerging Markets, August 29 – Click to enlarge

Korea
Korea reports August CPI Tuesday, which is expected to rise 1.4% y/y vs. 1.5% in July. If so, inflation would remain well below the 2% target.  BOK just left rates steady at 1.5% on Friday. Next policy meeting is October 18, and no change is expected then. It reports July current account data Thursday.
South Africa
South Africa reports Q2 GDP Tuesday, which is expected

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Emerging Markets: What Changed

September 3, 2018

Summary
China stepped up efforts to attract more foreign inflows to the onshore bond market.
Russia has softened its unpopular pension reform proposal.
The African National Congress withdrew an existing land expropriation bill.
Moody’s downgraded twenty Turkish financial institutions.
Turkey central bank Deputy Governor Erkan Kilimci has reportedly resigned.
Moody’s moved the outlook on Egypt’s B3 rating from stable to positive.
Argentina President Macri asked the IMF to accelerate disbursement of its $50 bln credit line.
Argentine central bank hiked rates 15 percentage points to 60% and pledged not to cut until December.
Brazil central bank offered the first new auction of FX swaps since June 22.
US President Trump

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Emerging Markets: Week Ahead Preview

August 27, 2018

Stock Markets
EM FX was whipsawed last week but ended on a firm note. We look past the noise and believe that the true signals for EM remain higher US interest rates and continued trade tensions, both of which are negative. Turkish markets reopen after a week off. Nothing fundamentally has changed there, and so it still poses some spillover risk to wider EM.

Stock Markets Emerging Markets, August 22 – Click to enlarge

Mexico
Mexico reports July trade Monday, which is expected at -$1.7 bln. Banco de Mexico releases its quarterly inflation report Wednesday. Inflation was a higher than expected 4.81% y/y in mid-August, still above the 2-4% target range. Next policy meeting is October 4, and much will depend on

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