Worst quarterly performance in years for emerging markets

Wednesday, September 30, 2015

The Taiwanese dollar attempted to regain some of the territory lost this quarter during overnight trading as it traded back below 32.900 against the US dollar. Despite pulling back 0.8% at the time of writing the TWD is set for its biggest quarterly loss since the third quarter of 2011 as foreign investors hastily pull out cash amid slowing Chinese economic growth. Having lost over 6.3% against the USD this quarter, outflows from the TWD are symbolic of the recent flight of foreign investment in emerging markets and the situation is unlikely to improve any time soon. Analysts are doubtful that tomorrow’s release of China’s manufacturing PMI will assuage investors with those polled by Bloomberg expecting the official manufacturing PMI reading to come in at 59.7 in September while expectations for the final Caixin manufacturing PMI are slightly more pessimistic at 47.0.

Despite a pessimistic longer term outlook Asian markets were upbeat overnight as most major stock indices across the region saw higher closes during the last session of the third quarter, however, the modest gains offer little comfort. Stock indices across the region have suffered significant losses over the past three months as volatility spiked on emerging market concerns and uncertainty surrounding the US Fed’s interest rates decision. In a quarter marred by a surprise renminbi devaluation, slowing economic growth in emerging markets and a lack of clarity from the US Fed investors are nursing heavy losses. Still, some effort was made to recover at least some of the lost ground with Japanese stocks leading the charge higher ahead of China’s week long National Day holidays which starts tomorrow.

The dollar index continues to find firm support around the 200 day moving average as investors fleeing emerging market currencies find safety in the greenback. The dollar has found firm support around 95.700 over the past few sessions, however, moves on the upside are being capped by resistance in the form of the 50 day moving average. The dollar has broadly traded sideways against a basket of major currencies since the Fed decided to keep interest rates unchanged after September’s FOMC meeting and we expect it to remain well supported in the near term as investors struggle

TWD experiences substantial weakness throughout Q3

TWD Curncy Taiwan Dollar Spot 2015 09 30 08 45 01

NKY adds 2.7% overnight, barely putting a dent in Q3's 14% loss

NKY Index Nikkei 225 Daily 30 2015 09 30 08 15 52

DXY continues to trade rangebound amid uncertain outlook

DXY Curncy DOLLAR INDEX SPOT 2015 09 30 08 44 40

Events for today

0005

UK

Sep

GfK Consumer Confidence

0050

JP

Aug

Retail Sales

0930

UK

Q2

GDP

1445

US

Sep

Chicago PMI

1530

US

w/e

EIA Energy Stocks

Topics: US Fed, PMI, DXY, TWD
More from: Kash Kamal