Emerging markets still feeling China’s pain, the ringgit’s fall brings back memories and Merkel gives a thumbs up to Greece. Here are some of the things that people in markets are talking about today.
1. China fallout continues
Emerging markets continued to see fallout from China’s shift last week to a more market-oriented exchange rate, raising bets that Asian nations will weaken their currencies. The MSCI Emerging Markets Index lost 1 percent, dropping to its lowest level since October 2011, while foreigners pulled funds from mainland stocks traded in Hong Kong. Taiwan’s dollar fell, while a gauge of 20 exchange rates fell to a record low.
2. The ringgit brings back memories
The plunge in the Malaysian ringgit is bringing back memories of the Asian financial crisis of the late 1990s. The benchmark stock index closed at its lowest since 2012 and bonds fell, with fears investors will dump more Malaysian assets. Add to that domestic political issues, says one strategist, and “the ringgit will stay on the back foot.”
3. Merkel’s vote of confidence for Greece
German Chancellor Angela Merkel returned from summer vacation full of confidence about Greece, saying the International Monetary Fund will likely join Greece’s third bailout while signaling a willingness for debt relief to help make it happen. The comments were partly aimed at her party’s lawmakers, who want assurances the IMF will pitch in, before they vote on the matter on Wednesday. The Athens Stock Exchange rose 0.6 percent.
Meanwhile, Euro-area finance ministers protected depositors from any losses in the bailout, which puts senior bank bondholders in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout. Senior bonds of Greek banks tumbled on the decision.
4. Commodity rout continues
Oil led commodities lower as Iran said OPEC production may hit a record after sanctions on the country are lifted, and as U.S. drilling activity sustained gains. Hedge funds resumed their retreat from U.S. oil, cutting bullish positions for the seventh time in eight weeks. The Bloomberg Commodity Index slid to a 13-year low, while copper sank as much as 1 percent and aluminum declined 0.8 percent in London. The ruble tumbled 1 percent.
5. U.S. data
This morning we get two interesting data points from the U.S. The first is the Empire Manufacturing report, which comes out at 8:30. It’s expected to rise from 3.86 to 4.50. Then at 10 a.m., we get the NAHB Housing Market Index, which is expected to rise from 60 to 61, indicating growing homebuilder optimism. Later in the week we’ll get more data on the state of manufacturing with the release of the Philly Fed Index, and the Markit U.S. Manufacturing PMI.