Manik Narain

Data flow from the PMIs have been quite solid, between the commodities and the tech cycle, emerging market equities have held up quite well.

EM fixed income benchmarks are giving double digit returns so there is a lot of appetite out there to chase those returns higher still, post-BOJ there is a small pullback but it's concentrated on oil-centred emerging markets and the market seems confident the low-yield environment and stabilising emerging growth is consistent with EM assets holding up.

The current account deficit is expanding at a time when growth is slowing so there are signs fundamental forces were working against the lira even before the coup, i don't feel very excited about the lira at this stage.

It's certainly fair to say that foreign investors are concerned about the extent to which the purges will impact stability over the near to medium term, and what the impact on business confidence and investment propensity will be.

The data is telling us that EM's exernal sector is effectively still in recession - that is one factor that will keep currencies volatile and equity markets quite choppy, these are growth-sensitive asset classes and that is one part of the story that is under deep strain at the moment.

The Chinese data was broadly in line with expectations but for a lot of investors it's quite surprising how little pass through there has been from very strong credit stimulus in the last six months into broader economic activity.

We did see a raft of very weak PMI data across emerging markets this morning, which is a timely reminder after the rally last week, induced by the BOJ stimulus, that a lot of the fundamental headwinds for EMs remain in place, that tug-of-war is reflected in the market this morning.

Inflation came out at 8.9 percent at the end of last year and they have just hiked minimum wages and raised civil sector pay so there are some inflation shocks still to come there, the market really does want to see them making greater strides (in tackling inflation) now, so we really need to hear something from the central bank.

It will be quite a challenging year for EM, it was a very extreme start to the year and it isn't likely that the pace of that weakness can be extrapolated forward but there are still quite a lot of major underlying issues that aren't fully reflected in the price.

This is a major surprise - they've done 9-10 percentage points better than what the polls were suggesting, so the market is pricing that move towards stability.

The ECB is the architect of this move overnight, besides the direct impact of ECB easing, which can be friendly for risk markets, it also reduces the prospect of the (U.S. Federal Reserve) tightening in December.

There is a sense the comments from the ECB indicate a growing push back against the sell-off in bond markets that's been in place for the past month or so, and a push back against both euro strength and market volatility.

There are still outstanding loans in euros and Swiss francs in Hungary and Poland. The bottom line is the corporate sector is still indebted and weakness in the forint feeds on itself, affects the corporate debt problem and inflates government debt ratios.