Manufacturing PMIs were mixed across EMs. Against that, the US Markit manufacturing PMI accelerated further. This has kept the portfolio quite short EMFX with the gap vis-à-vis G10 remaining wide. The overall net USD positioning is now close to 72%.
Decelerating EM manufacturing PMIs meet robust data from the US: Manufacturing PMIs across emerging markets were mixed with some countries experiences sharp falls, likely on the back of the resurgence in COVID-19 cases due to the Delta variant or idiosyncratic factors such as the unrest period in South Africa. Overall, we saw further deceleration relative to the previous month with some exceptions. Against that, the Markit manufacturing PMI for the US accelerated to 63.4. This has kept the positioning of the portfolio firmly short EM for a second month while G10 is close to neutral. The net positioning of the broader portfolio is at 83% long USD, which is a new high in recent periods.
Relative to history, positioning reached a new high in terms of being long USD in recent years, with the 3m average at 72% relative to 66% in the previous update. The focus on services PMIs is likely to remain high as economies reopen at different paces.
Positioning: The portfolio remains short EMFX as manufacturing PMIs in emerging markets decelerated with some exceptions, which were not sufficient to offset the continued improvement in data from the US. The divergence between G10 and EM remains wide, with the portfolio being neutral on the former and bearish on the latter. A few countries saw manufacturing PMI improving, mainly in the LatAm region such as Colombia and Mexico. On the other hand, Indonesia and South Africa experienced a significant fall with the former dropping to 40.1 and the latter to 43.5. INR saw the biggest improvement on a month-to-month basis.
Risk appetite stumbles after overnight gains; global manufacturing PMIs soften; US 10y real yields make another intraday record low; WTI spills -3%; US 10y at 1.1760%
Latin America:
The performance of Latam currencies was somewhat mixed, given the offsetting effects of a weaker USD and broader commodity price weakness. CLP was the main underperformer of the region, depreciating by 1.45% amid a 1.3% drop in copper prices despite strong economic activity and PMI releases. In contrast, BRL was the region’s best performer, appreciating by 1.08% amid expectations that the BCB will accelerate its hiking cycle and deliver a 100bp hike on Wednesday. The price action in rates was also mixed, but the moves were relatively small across the board. The stronger data in Chile triggered a small selloff in the front-end of the CLPxCAM curve and the 1y tenor closed 7bp higher at 1.84%.
