If you're still long emerging markets or inexplicably still hanging around in some of the various carry trades that are under siege, next week could be a bit of a nail-biter.
While idiosyncratic flareups grab all the headlines, the underlying issue for emerging markets is obviously Fed tightening and while everyone knew the tide would go out sooner or later, what nobody could have foreseen was a scenario where low tide would coincide with the U.S. running a series of policies that have effectively pigeonholed the Fed.
Late-cycle fiscal stimulus is inflationary (lean = hawkish), tariffs are near-term inflationary (lean = hawkish) and the President of the United States has now openly called for lower rates (paradoxically = hawkish, because leaning dovish risks subjecting yourself to allegations of being beholden to the executive).
This week, we'll get the Fed minutes and Jerome Powell at Jackson Hole. That's dangerous at a time when EM equities are in a bear market and EM FX is under immense pressure.
(Implied vol. in EM FX relative to DM FX now sitting near decade highs / Bloomberg)
When you think about Powell in the context of EM, never forget these comments delivered at
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