Weekly Intelligence Report – CNY, small caps and India

07 Jun 2016

Given market focus on the nuances of Federal Reserve (Fed) policy making and the constant flow of macroeconomic data, regular readers of the Weekly Intelligence Report might have expected us to comment on Friday’s surprisingly weak payrolls data, and what this might mean for the timing and pace of future Fed rate hikes. However, we aim, in this publication, to comment on issues which we believe are either receiving too little attention, or on which we have something new to say. Neither applies here: the payrolls data grabbed everybody’s attention, and rates markets moved sharply to reprice a later, and slower pace of monetary tightening. The data spoke, and the market listened. We have nothing new to add to this particular debate.

Meanwhile, the remnimbi has been quietly, but steadily depreciating. Higher CNY fixings have garnered little market attention, and have not triggered market stresses, in stark contrast to the turbulence of earlier this year, and in 2015. In the first of this week’s articles, Steve Friedman examines why this might be the case, and warns against ruling out a return of CNY related turbulence.

In the second of our pieces, Andy Craig considers a somewhat overlooked implication of last week’s overdue European Central Bank CSPP (corporate sector purchase programme) announcement – the potentially very positive impact not just on the directly targeted corporate bond market, but also on the whole corporate capital structure, and particularly on small caps.

Lastly, Anand Shah looks at the positive drivers, both short term and longer term, for the Indian economy in light of the  acceleration in Q1 GDP growth to an eye-catching 7.9% year-over-year. India’s rapid growth could not stand in starker contrast to the secular stagnation fears gripping the developed world, as highlighted by Friday’s weak US payroll data, bringing us back full circle to our opening comments.

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