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Emerging markets have been spared as the new week begins
Performance by EM currencies against USD yesterday and today
Aside from the Turkish lira – which is playing a bit of catch up since Turkish markets were closed last week – most EM currencies are actually holding their own against the dollar as we begin the new week.
US-China trade woes are taking a back seat, equities are trading higher, and Mexico manages to strike a trade agreement with the US. The final point there is what is helping to boost sentiment as we begin trading today but can the reprieve last?
Well, Credit Argicole certainly doesn’t think so. Their latest report says that investors should brace for fresh headlines on trade discussions (US-China that is) due in the coming days, noting that the additional $200 billion tariffs on Chinese goods will continue to weigh on EM. The report also highlighted that while there is temporary easing of Turkish contagion concerns, the underlying trend for the nation’s assets remains weak.
The only currency they see able to hold its ground is the Mexican peso as they argue that a confirmation of the US’ new trade accord with Mexico “should foster an additional leg of appreciation” in the peso.
I believe their sentiment is one that is shared by many in the market right now. And even with the relief rally in the Mexican peso, that alone cannot carry the whole EM basket:
What’s more is that there is additional pressure on EM central banks and currencies coming from the fact that the Fed is still continuing to hike rates.
September will be the next one coming and with each rate hike that comes, it only brings in more EM nations into the spotlight as concerns continue to mount. We’ve already had Argentina, Brazil, Russia, Turkey, and South Africa among the key victims this year. It’s only a matter of time before the list expands.