Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.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 US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.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: Are EM Currencies in a Carry-Trade Environment?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

The market environment remains very mixed, with constant Sector rotations resulting in very few Sectors out- or under-performing for sustained periods. At the same time, market dynamics give us little-to-no reason to be bearish (aside from the simple fact that the S&amp;P 500 has not pulled back even 5% for over 6 months). Growth Sectors (Communications, Technology) and large-caps (S&amp;P 500) have been the primary winners and we recommend sticking with them until we see evidence of change. To that end, we are watching 1.38-1.45% on the 10-year Treasury yield; as long as the 10-year is below this level we expect to see growth and large-caps continue to outperform, however a break above 1.45% would likely signal a shift in favor of value and small-caps.Charts Highlighted: SPX, WTI Crude Oil, XOP, US Dollar, DXJ, YZCAY, BTU, HCC, ARCH, ARLP, METC, HNRG, CCJ, PALAF, DNN, UUUU, UEC, LEU, ATCO, MATX, SBLK, CMRE, GSL, GNK, NMM, EGLE, DSX, SB, and ESEA

The market environment remains very mixed, with constant Sector rotations resulting in very few Sectors out- or under-performing for sustained periods. At the same time, market dynamics give us little-to-no reason to be bearish (aside from the simple fact that the S&amp;P 500 has not pulled back even 5% for over 6 months). Growth Sectors (Communications, Technology) and large-caps (S&amp;P 500) have been the primary winners and we recommend sticking with them until we see evidence of change. To that end, we are watching 1.38-1.45% on the 10-year Treasury yield; as long as the 10-year is below this level we expect to see growth and large-caps continue to outperform, however a break above 1.45% would likely signal a shift in favor of value and small-caps.Charts Highlighted: SPX, WTI Crude Oil, XOP, US Dollar, DXJ, YZCAY, BTU, HCC, ARCH, ARLP, METC, HNRG, CCJ, PALAF, DNN, UUUU, UEC, LEU, ATCO, MATX, SBLK, CMRE, GSL, GNK, NMM, EGLE, DSX, SB, and ESEA

S&P 500 Near Support; Watching Energy For Strength; Buying Coal, Uranium Miners, & Dry-Bulk Shippers

The Russell 2000 (IWM) has been moving sideways for 7 months between $208 and $234.50, emblematic of the mixed market environment that we still find ourselves in. As long as $208 support holds we remain constructive on the overall market. On the plus side, conditions have been improving over the past two weeks -- not getting worse (more on this below). This increases the odds of a breakout above $234.50 on the IWM in the coming weeks or months, which would signal the start of a new broad-based bull market.Charts Highlighted: EEM, JD, NFLX, TSLA, YZCAY, BTU, HCC, ARCH, ARLP, CG, ARES, AB, CNS, VRTS, BSIG, VCTR, FDUS, PLD, REXR, FR, STAG, IIPR, TRNO, PSA, EXR, CUBE, LSI, and NSA

The Russell 2000 (IWM) has been moving sideways for 7 months between $208 and $234.50, emblematic of the mixed market environment that we still find ourselves in. As long as $208 support holds we remain constructive on the overall market. On the plus side, conditions have been improving over the past two weeks -- not getting worse (more on this below). This increases the odds of a breakout above $234.50 on the IWM in the coming weeks or months, which would signal the start of a new broad-based bull market.Charts Highlighted: EEM, JD, NFLX, TSLA, YZCAY, BTU, HCC, ARCH, ARLP, CG, ARES, AB, CNS, VRTS, BSIG, VCTR, FDUS, PLD, REXR, FR, STAG, IIPR, TRNO, PSA, EXR, CUBE, LSI, and NSA

Conditions Continue To Improve; EM Buy Signal; Growth Outperforming; Gold Vs. SPX Downtrend Intact

Taiwan Semiconductor (TSMC) / Technical Analysis

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

Shanghai Stock Exchange Composite Index / Technical Analysis

While there are always exceptions at the individual stock level, MSCI Emerging Markets (EEM-US) and Japan (TOPIX, TOPIX Small) have been some of the weaker areas to invest throughout 2021. We now see early signs of positive change and we recommend adding exposure to emerging markets and Japan.

While there are always exceptions at the individual stock level, MSCI Emerging Markets (EEM-US) and Japan (TOPIX, TOPIX Small) have been some of the weaker areas to invest throughout 2021. We now see early signs of positive change and we recommend adding exposure to emerging markets and Japan.

Buying Opportunities Within Emerging Markets and Japan; US Dollar Failing At 93.50

United States

The U.S. Dollar Index(USDX) indicates the general int'l value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. The ICE US computes this by using the rates supplied by some 500 banks. FOR REAL TIME SEE EIS ICEA<GO>.

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Dollar Index (DXY CURNCY)

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

As the volatilities of the US dollar and EM currencies have dropped, we test the hypothesis and conclude that EM FX is in a carry-trade...

Gautam Jain, PhD, CFA

S&P 500 Near Support; Watching Energy For Strength; Buying Coal, Uranium Miners, & Dry-Bulk Shippers

On August 31 we noted to expect some consolidation in the S&P 500 after it hit our 4535 initial target. The S&P 500 is now testing key support at...

Vermilion Research

Conditions Continue To Improve; EM Buy Signal; Growth Outperforming; Gold Vs. SPX Downtrend Intact

Emerging markets (EEM) appear to be bottoming; one attractive buy candidate is JD.com (JD). We also highlight buy opportunities within Energy...

Vermilion Research

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

We see early signs of positive change within EM, and we present a strong case as to why we believe now is an opportune time to add exposure.

Vermilion Research

Buying Opportunities Within Emerging Markets and Japan; US Dollar Failing At 93.50

MSCI Emerging Markets (EEM-US) and Japan (TOPIX, TOPIX Small) have been some of the weaker areas to invest throughout 2021. We now see early signs...

Vermilion Research

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