Last week’s mixed global macro data should continue to support emerging markets this week, but what are the news triggers that traders will be watching?
While our favorite economies in Asia, Latin America and Eastern Europe are still chugging along, they each remain fairly reliant on the health of the G3 to keep their growth trends on track.
U.S. numbers (NFP, jobless claims, housing starts) remain sluggish but European data (factory orders and especially outstanding German PMI) signal that times are better in the land where a few months ago we all thought the dreaded “Black Swan” had come to roost. The ECB meeting confirmed that Europe is climbing the worry wall and despite austerity talk should continue to support global expansion.
Commodity prices remain supportive. We expect to see continued evidence that iron ore and steel prices in Asia are firming. Last week’s comments from RTP (quote) and Russia’s Norilsk (NILSY, quote) tell me end demand is there.
Valuations are far from stretched. Although emerging markets retail and consumer names are usually relatively insulated from the global macro cycle, they also look like the most vulnerable trades right now. Stay focused on value and free cash flow generation when you play the emerging cellular companies like VIP (quote), CHA (quote) and CHU (quote), not to mention the frontier communications giant MICC (quote).
Next week we get more follow-though in Europe on industrial production. The U.S. markets will of course focus on this afternoon’s Fed policy meeting and then the consumer inflation and retail sales numbers on Friday.
In emerging markets, keep looking for a whole bunch of data to come out of China. July CPI and PPI numbers come out tonight and should steal the spotlight from retail sales and industrial production releases.
Inflation is really the big topic in China right now. If inflation remains significant, there is not much chance Beijing will relent on its recent lending curbs. But if prices look stable, there is a chance we may see the more supportive policy environment that China bulls are hoping to get.
And of course it’s still earnings season. Big emerging markets releases to watch include TTM
(quote) and LDK (quote) today, PBR (quote) and a bunch of Brazilian utilities tomorrow, brewer ABV (quote) Thursday and Ambassador favorite FBR (quote) on Friday.