Turkey and Hungary’s Harbinger Hikes

Given the scale of demand destruction in the wake of the global health pandemic, central banks should be nowhere near tightening monetary policy. For those that are, policy rate hikes are indicative of intensifying currency stresses and risks of a destabilising...

FX Vol Still Attractive

Since news of coronavirus first spread, markets have struck a decisively risk-off tone with higher yielding currencies selling-off. Commodity currencies and Asian markets have been particularly hard hit. Despite the fresh bout of FX weakness, implied vol has been...

Hedge Tail Risks on Low FX Vol

Implied volatility across asset classes has receded in recent months as the barrage of global systemic risks (US-China trade war, disorderly Brexit and the manufacturing slowdown) has dissipated. Even though FX vol, along with other asset volatilities, remained...

Global Trade Key Driver of EM Returns

Since the peak back in April, most EM equities markets have seen declines or consolidation (top-left chart). The temptation is to view this as a buying opportunity to front-run more aggressive central bank easing (especially from eg the PBoC in China). Although we...

Rising Pressure on BCB for FX Intervention

The BCB reportedly stepped into the FX market last week with a spot sale of dollars that was not accompanied by a repurchase commitment or other intervention measures – the first time this has happened in a decade. The move to stem the slide in the BRL has been...

Domestic Lira Demand a Sign of Turkish Rebound

Last month we warned that the signals from our EM crisis framework were painting a mixed picture of the Turkish economy, which suggests that investors should stay on the sidelines for now. There has been little improvement since then, with credit default swaps...

Buy the USDCNH Dip

VP’s China leading indicator has shown few signs of rebounding and remains in negative territory, presenting a persistent headwind to the RMB. Historically a negative China LEI has led capital outflow by about 6 months and points to further outflow pressures (top-left...

PBoC to take CNHKRW Higher

This post is taken from our August 7th weekly report. USDCNH breached the 6.90 mark last week, having been under 6.30 just four months ago. This 10% depreciation has come against a backdrop of slowing Chinese growth and escalating US trade tensions. Although there...