China: Positive data will help sustain EM rally for now - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that another positive factor for the pound of course is that global financial market conditions remain very favourable.

Key Quotes

“Given the UK’s 6.9% current account deficit in Q1, external financing is crucial for the pound and certainly global conditions are currently helpful. The data flow from China this morning will help keep broader financial market conditions stable. Industrial production, retail sales and aggregate financing data for June were all stronger than expected and real GDP for Q2 was also stronger than expected, with the annual rate remaining at 6.7% rather than decelerating as expected.

Perversely, one of the consequences of Brexit is to lower further sovereign yields in core developed economies that has reinforced the attractiveness of investing in emerging markets. Cross-border flow data on Bloomberg indicates strong portfolio inflows in emerging Asia, Brazil and South Africa in recent weeks. The positive data from China today will no doubt help maintain the recent strong EM FX performance for now.”