Welcome to our weekly EM watch, which typically centers around developments in Asia and Latin America.

We continue to see signs of Chinese efforts to balance global metals markets by exporting local excesses, while the export-sector driven growth in China limits the probability of major local fiscal stimulus to fuel domestic consumption. The softening of the USD side of the equation will likely leave local monetary authorities in a wait-and-see mode despite continued weakness in both CNY and JPY. We remain short USDJPY and metals accordingly.

Let’s have a look at the details.

The Chinese comeback in export-oriented industries is increasingly evident in our non-manipulative data, and the acceleration seen through June and July is noteworthy as it contrasts the weakness seen in Western consumer-based metrics.

The industrial output is now (finally) clearly back above pre-pandemic levels, and the export economy in China is out of the woods, which is in contrast to continued weak consumption locally. The export success will likely limit the appetite for major fiscal stimulus, and next week’s Plenum is hence most likely more about addressing the lack of FDI in China than addressing local consumption via fiscal measures.

Chart 1: The Chinese industrial output is accelerating