EM Market Report

Risk appetite taking control of markets

Thanim Islam
Thanim Islam 08 November 2022

- China opening up to review zero-Covid policy

- US push for Ukraine/ Russia peace talks

- Outcome of US midterms in focus

Yesterday

Optimism of China reviewing it's zero-Covid policy continued to drive markets yesterday, with risk assets such as GBP and EUR strengthening against the dollar. Despite China health officials refuting claims of an easing of zero-Covid policy, markets still seem optimistic that perhaps a change is afoot, especially after news that China agreed the first approval of an mRNA Covid-19 vaccine for use in China.

A report from the Washington Post over the weekend also suggested that the Biden administration has privately requested that officials in Ukraine enter into peace talks with Russia. The report comes ahead of the G20 meeting next week – a possible platform for Putin and Zelensky’s peace talks? This has also factored into the higher risk appetite in markets.

Higher risk appetite can also be attributed ahead of US midterms, which currently points to the Republicans winning at least one chamber of Congress. Higher equity markets could result in a stronger GBP if the correlation between the two continues.

The EUR also benefitted from better than expected industrial production figures from Germany, as well as a survey from the eurozone showing that investor sentiment rose in November for the first time in three months.

The USD, to no surprise, continued to weaken with the dollar index now lower than last week's hawkish Fed meeting, and index now at the lowest since October 28th. For the dollar to rebound, Thursday's inflation figures will need to come in higher than expected to support the Fed's hawkish policy.

GBP vs G10

Against rates at 17:00, 07.11.22.

Currency pairs Daily move (%)

GBPNZD

0.95%

GBPNOK

0.88%

GBPCAD 

0.86%

GBPAUD

0.85%

GBPJPY

0.75%

GBPUSD

0.70%

GBPSEK

0.45%

GBPCHF

 0.40%

GBPEUR

0.40%

GBPDKK

0.35%

Today

Data points

Currency Event Period Consensus Previous
EUR Retail sales September -1.30% -2%

Speeches

  • Swiss National Bank (CHF) chairmen Jordan
  • Chief Economist of the BoE Huw Pill (GBP).

Our thoughts

Focus today will continue to be on the US midterm election. due to the reasons mentioned above, we could well see this renewed risk appetite continue to the benefit of GBP, EUR and at the mercy of the USD.

Also developments in China will continue to be closely looked at and news suggesting easing measures will likely benefit risk assets but particularly the EUR on account of their trade relations.

EUR, a strong retail sales report will also add to the recent optimism for the euro.

Chart of the day

As equity markets have tumbled throughout this year, so have the GBPUSD and EURUSD pairs. But are we near the bottom?

Risk appetite has increased with US midterms, China possibly looking to review its zero-covid policies and potential for peace talks between Russia and Ukraine and as a result perhaps we are seeing a floor on the recent weakness on the respective currency pairs?

Time will tell..

08112022 cotdSource: Bloomberg Finance L.P.

Have a great day.