Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

A month ago, I recommended hedging broad EM currency exposure with the euro. In this note, I first evaluate how well the hedge worked and then address the question of whether to continue to hold the hedge or not. I demonstrate that the hedge has been very effective based on the hedged returns and I also recommend continuing to hold on to the hedge as risks remain on the horizon.Separately, the attached file is a snapshot of the EM currency market in which I seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

A month ago, I recommended hedging broad EM currency exposure with the euro. In this note, I first evaluate how well the hedge worked and then address the question of whether to continue to hold the hedge or not. I demonstrate that the hedge has been very effective based on the hedged returns and I also recommend continuing to hold on to the hedge as risks remain on the horizon.Separately, the attached file is a snapshot of the EM currency market in which I seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

How Effective Has the Euro Hedge Been for EM FX?

After strengthening through early October, the US dollar has turned trendless. I evaluate the change in performance of EM currencies when the dollar was at a peak versus now. Specifically, I go over the regional and country divergences to identify the outperformers and underperformers. I also highlight the currencies where I see the most value.Separately, the attached file is a snapshot of the EM currency market in which I seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

After strengthening through early October, the US dollar has turned trendless. I evaluate the change in performance of EM currencies when the dollar was at a peak versus now. Specifically, I go over the regional and country divergences to identify the outperformers and underperformers. I also highlight the currencies where I see the most value.Separately, the attached file is a snapshot of the EM currency market in which I seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Updating EM FX Winners and Losers

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the trades in more detail. The tables include expected returns on the trades on a 3-month horizon assuming mean reversion in this period.

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the trades in more detail. The tables include expected returns on the trades on a 3-month horizon assuming mean reversion in this period.

Alpha Bites: Current Trade Recommendations in EM FX and Rates

With the dollar strengthening this month, EM currencies have suffered, which is reminiscent of a similar episode in Q1. However, there is greater differentiation this time around, both on a regional basis as well as at the country level. We go over the outliers to identify the reasons they did not react entirely based on their respective betas. If there is no explanation for the deviation, then the idiosyncratic behavior is likely not justified and may represent a trading opportunity.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

With the dollar strengthening this month, EM currencies have suffered, which is reminiscent of a similar episode in Q1. However, there is greater differentiation this time around, both on a regional basis as well as at the country level. We go over the outliers to identify the reasons they did not react entirely based on their respective betas. If there is no explanation for the deviation, then the idiosyncratic behavior is likely not justified and may represent a trading opportunity.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Winners and Losers in EM FX Amidst Dollar Strengthening

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Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

US macro data, including measures of US inflation, non-farm employment, retail sales, manufacturing output, ISM PMIs and consumer confidence indices, have been far less volatile since the peak in global risk aversion in March-April 2020 when the first national lockdowns decimated global growth. However, volatility in most of these monthly metrics remains high relative to history. This is particularly true for core CPI-inflation, non-farm employment, consumer confidence and the ISM non-manufacturing PMI. Yet volatility and directionality in US Treasury yields, including at the short-end of the curve, and in particular the Dollar has been modest in recent months. The Dollar NEER has oscillated in a range of just 1.7% for the past 11 weeks and within that range daily volatility has been very low. Moreover daily volatility in most major currencies has fallen further in the past month, with only a few notable exceptions. Volatility in the S&amp;P 500 has recently picked up but remains broadly in line with the past 12 months and has arguably been spurred by the Evergrande saga rather than by US (or global) macro data releases. Finally volatility and directionality in Brent crude oil prices have also been far more limited in recent weeks.That is of course not to say that US macro data have not mattered and will not matter going forward. They have and they will. At the very least macro data are a key input into Federal Reserve monetary policy which in turn has a strong bearing on US and global financial markets, as evidenced by markets’ reactions to the Fed’s 16th June policy. However, our analysis suggests that financial markets have become somewhat more detached from US macro data releases, even when these have materially deviated from consensus forecasts. At the very least their direct impact on US equity and interest rate markets and global FX and commodity markets has been modest in recent months.

US macro data, including measures of US inflation, non-farm employment, retail sales, manufacturing output, ISM PMIs and consumer confidence indices, have been far less volatile since the peak in global risk aversion in March-April 2020 when the first national lockdowns decimated global growth. However, volatility in most of these monthly metrics remains high relative to history. This is particularly true for core CPI-inflation, non-farm employment, consumer confidence and the ISM non-manufacturing PMI. Yet volatility and directionality in US Treasury yields, including at the short-end of the curve, and in particular the Dollar has been modest in recent months. The Dollar NEER has oscillated in a range of just 1.7% for the past 11 weeks and within that range daily volatility has been very low. Moreover daily volatility in most major currencies has fallen further in the past month, with only a few notable exceptions. Volatility in the S&amp;P 500 has recently picked up but remains broadly in line with the past 12 months and has arguably been spurred by the Evergrande saga rather than by US (or global) macro data releases. Finally volatility and directionality in Brent crude oil prices have also been far more limited in recent weeks.That is of course not to say that US macro data have not mattered and will not matter going forward. They have and they will. At the very least macro data are a key input into Federal Reserve monetary policy which in turn has a strong bearing on US and global financial markets, as evidenced by markets’ reactions to the Fed’s 16th June policy. However, our analysis suggests that financial markets have become somewhat more detached from US macro data releases, even when these have materially deviated from consensus forecasts. At the very least their direct impact on US equity and interest rate markets and global FX and commodity markets has been modest in recent months.

Macro Data Dog Not Wagging FX Market Tail

Malaysia

The Malaysian ringgit is the official currency of the Federation of Malaysia. 

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How Effective Has the Euro Hedge Been for EM FX?

In this note, I first evaluate how well has the euro hedge for EM FX that I recommended a month ago worked and then address the question of whether...

Gautam Jain, PhD, CFA

FX Dashboard: Updating EM FX Winners and Losers

As the US dollar turns trendless, I go over the regional and country divergences to identify the outperformers and underperformers in EM. I also...

Gautam Jain, PhD, CFA

Alpha Bites: Current Trade Recommendations in EM FX and Rates

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the...

Gautam Jain, PhD, CFA

FX Dashboard: Winners and Losers in EM FX Amidst Dollar Strengthening

In the latest bout of dollar strengthening, we go over the outperformers and underperformers among EM currencies to identify potential trading...

Gautam Jain, PhD, CFA

Macro Data Dog Not Wagging FX Market Tail

US Dollar, Treasury yields, US equities and even crude oil price detached from still volatile US macro data (inc inflation, payrolls and consumer...

Olivier Desbarres

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