Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

In this note, we show that EM FX and USD have converged to their long-term trends in REER terms, indicating that they are close to fair valuations. However, there is considerable differentiation within EM, providing attractive relative-value opportunities.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.

In this note, we show that EM FX and USD have converged to their long-term trends in REER terms, indicating that they are close to fair valuations. However, there is considerable differentiation within EM, providing attractive relative-value opportunities.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: EM FX Is Fair in REER Terms but Differentiation Abounds

In this note, we go over the currencies that have outperformed and underperformed in the recent bout of the rally for EM currencies along with the reasoning behind their performances and their outlooks.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.

In this note, we go over the currencies that have outperformed and underperformed in the recent bout of the rally for EM currencies along with the reasoning behind their performances and their outlooks.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 the EM Turnaround

Founder

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.

Treasury Secretary Yellen’s comments ten days ago were merely a temporary distraction. Perhaps more surprisingly, at first glance, the release on Wednesday of a much larger-than-expected increase in US CPI-inflation in April has not had much “sticking power”.Core CPI-inflation almost doubled to 3.0% yoy (the high since December 1995) and as a result the Federal Reserve’s “real core” policy rate fell to a multi-decade low of -2.8%. The range-bound 10-year Treasury yield subsequently closed 7bp higher at a 5-week high of 1.69%. The S&amp;P 500 sell-off (-2.1%) and Dollar NEER rally (+0.6%) recorded on 12th May were both the largest since 25th February. However this spike in volatility was modest in the greater scheme of things. More poignantly, these far from dramatic moves have been largely reversed in the past 48 hours. The Dollar NEER is back to within striking distance of the 3-year low recorded on 10th May, in line with our bearish Dollar view. Markets are still only pricing in 15bp of rate hikes by end-2022, versus pricing of 12bp of hikes pre Wednesday’s release of US CPI-inflation data.Markets, rightly in our view, are still not fully convinced that the Federal Reserve will signal, let alone deliver, a tightening of US monetary policy in coming months. The Federal Reserve after all has form, having kept its “real core” policy rate firmly in the red in 2012-2015 (it averaged -1.7%) despite annualised GDP growth averaging a decent 2.2% qoq. By comparison the Federal Reserve’s “real core” policy rate averaged -1.4% between Q2 2020 and Q1 2021 despite GDP growth having averaged only 1.1% qoq. At the very least markets still seemingly have appetite to be long US equities and short Dollars. While not insensitive to valuations and the risk posed by further upside inflation surprises we remain bearish the Dollar near-term.Finally, while much of the debate about Covid-19, vaccination, the re-opening of economies and the bogeyman of inflation has centred on what will happen in 2021, more attention needs to be paid to 2022, in our view.

Treasury Secretary Yellen’s comments ten days ago were merely a temporary distraction. Perhaps more surprisingly, at first glance, the release on Wednesday of a much larger-than-expected increase in US CPI-inflation in April has not had much “sticking power”.Core CPI-inflation almost doubled to 3.0% yoy (the high since December 1995) and as a result the Federal Reserve’s “real core” policy rate fell to a multi-decade low of -2.8%. The range-bound 10-year Treasury yield subsequently closed 7bp higher at a 5-week high of 1.69%. The S&amp;P 500 sell-off (-2.1%) and Dollar NEER rally (+0.6%) recorded on 12th May were both the largest since 25th February. However this spike in volatility was modest in the greater scheme of things. More poignantly, these far from dramatic moves have been largely reversed in the past 48 hours. The Dollar NEER is back to within striking distance of the 3-year low recorded on 10th May, in line with our bearish Dollar view. Markets are still only pricing in 15bp of rate hikes by end-2022, versus pricing of 12bp of hikes pre Wednesday’s release of US CPI-inflation data.Markets, rightly in our view, are still not fully convinced that the Federal Reserve will signal, let alone deliver, a tightening of US monetary policy in coming months. The Federal Reserve after all has form, having kept its “real core” policy rate firmly in the red in 2012-2015 (it averaged -1.7%) despite annualised GDP growth averaging a decent 2.2% qoq. By comparison the Federal Reserve’s “real core” policy rate averaged -1.4% between Q2 2020 and Q1 2021 despite GDP growth having averaged only 1.1% qoq. At the very least markets still seemingly have appetite to be long US equities and short Dollars. While not insensitive to valuations and the risk posed by further upside inflation surprises we remain bearish the Dollar near-term.Finally, while much of the debate about Covid-19, vaccination, the re-opening of economies and the bogeyman of inflation has centred on what will happen in 2021, more attention needs to be paid to 2022, in our view. 

US Markets Playing Along to Fed Tune…for Now

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 weight of the evidence remains mixed yet constructive overall and suggests pullbacks to the 4000-4040 range on the S&amp;P 500 would be nothing more than a buying opportunity. Therefore, we continue to recommend adding exposure to cyclical value areas (Energy, Financials, Materials, Manufacturing, and Transportation) on pullbacks. Below we explain why we believe value’s outperformance is in its early innings, and the basis for our overall constructive outlook.

The weight of the evidence remains mixed yet constructive overall and suggests pullbacks to the 4000-4040 range on the S&amp;P 500 would be nothing more than a buying opportunity. Therefore, we continue to recommend adding exposure to cyclical value areas (Energy, Financials, Materials, Manufacturing, and Transportation) on pullbacks. Below we explain why we believe value’s outperformance is in its early innings, and the basis for our overall constructive outlook.

U.S. Equity Strategy: Value Is Just Getting Going; S&P 500, Micro-Caps At Support

In this note, we argue that as volatility spills over from rising US yields, it may be better to hedge a broad EM currency exposure with the euro rather than reducing it.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.

In this note, we argue that as volatility spills over from rising US yields, it may be better to hedge a broad EM currency exposure with the euro rather than reducing it.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: Hedge EM Currencies with Euro as Volatility Rises

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: EM FX Is Fair in REER Terms but Differentiation Abounds

We show that USD and EM FX on aggregate are close to fair valuations in REER terms. However, there is considerable differentiation within EM,...

Gautam Jain, PhD, CFA

FX Dashboard: Winners and Losers in the EM Turnaround

We go over the currencies that have outperformed and underperformed in the recent bout of the rally for EM currencies along with the reasoning...

Gautam Jain, PhD, CFA

US Markets Playing Along to Fed Tune…for Now

Markets shaken but not stirred by US inflation surprise in April. Fed "real" policy rate not that low relative to history and US growth. We...

Olivier Desbarres

U.S. Equity Strategy: Value Is Just Getting Going; S&P 500, Micro-Caps At Support

The weight of the evidence suggests pullbacks to 4000-4040 on the S&P 500 would be nothing more than a buying opportunity. We also explain why we...

Vermilion Research

FX Dashboard: Hedge EM Currencies with Euro as Volatility Rises

In this note, we argue that as volatility spills over from rising US yields, it may be better to hedge a broad EM currency exposure with the euro...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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