EM's snapshot - watch RMB/SDR and ECB - TDS

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 30, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Guatemala) - Cristian Maggio, Head of Emerging Markets Strategy at TD Securities noted that emerging markets have started the week with a positive mood, although the Asia session didn’t kick off on the same note of optimism.

    Key Quotes:

    On China, the IMF Board will meet today with the RMB inclusion first item on the agenda. We have already mentioned that this is likely to be a done deal, with the RMB likely to be given a 14-16% share of the SDR basket. Whether the RMB inclusion will lead to short term CNH/CNY appreciation is a completely different matter though. In fact, we believe this will not be the case, with only a very long term appreciating trend stemming from such inclusion, but likely to be largely offset by more compelling short term factors.

    Nonetheless, this remains a historical moment that gives China more legitimization about its role in the world. It is still worth keeping an eye on how markets react to the announcement and tomorrows’ open in Asia.

    The ECB will likely be more material in its market implications. With speculation the ECB may introduce a two-tiered deposit rate, we look at potential implications which may involve adding upper limits to the current account, in addition to the current minimum/required reserves held at the ECB. This would be similar to the setup in Denmark.

    Such a system would allow the ECB to both cut the deposit rate thereby lowering real yields but at the same time lessen the amount of excess reserves in the system thereby cutting the total ‘tax’ burden on the banking system.

    On Friday, we’ll also have a close look at the Opec meeting, although there still seems to be little to no appetite for lowering production. This suggests oil prices stable or lower after the meeting. Quotas will be rebalanced to reflect Indonesia’s re-joining the organization.
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