DCSIMG

EM FX Monocle – Into the summer lull

 ”Life after the storm” was a good title for our May EM FX Monocle – indeed, EM FX volatilities have declined and the currencies started to recover in June. The European problems haven’t been resolved yet, and there are no quick fixes, but with the sentiment worse as it is, and the policymakers’ readiness to intervene, we believe the worst is behind us in this cycle phase for EM FX.

• EM FX declined sharply in May but managed to stabilise in June, now hovering just above water YTD. In particular the high betas such as the HUF, the PLN and the MXN performed. There is room for more, we expect, as long as no more really bad news hits the market.

• Even with further declines in commodities in June the commodity currencies have picked up from recent lows. Acknowledging the risks we see further performance: in the EM world the RUB is the attractive pick.

• EM FX implied volatilities have declined in June, but still remain at high levels relative to April 2012 and relative to G7 volatilities. The summer range-bound markets may bring them down further.

• If we are wrong, and risk-off intensifies again, do not expect to see such sharp EM FX losses as in May: now nearly all EM central banks, even Brazil’s, have turned to protecting their currencies against declines. In this respect we still prefer the TRY the most, as the CBT prefers to keep rates high.

Read the full report here.

 

Latest research

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• IMF expected to endorse 17 billion dollar loan to Ukraine • Riksbank minutes from April meeting due out at 9:30 today

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SEK Rates: SGBi auction preview

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Swedish Morning Briefing - Wednesday 23 April

• Kerry warns Russia to tone down its rhetoric • Chinese PMI looks set to rise

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FI Eye-Opener: China not rebounding like it used to

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Swedish Morning Briefing - Tuesday 22 April

• Deal clinched during Geneva meeting • Ingves says deflation not likely

FI Eye-Opener: Portuguese bond auctions back

US Treasuries with a beating ahead of the Easter. Some gains ahead for bonds today. US existing home sales out today – Euro-zone flash PMIs later. A flood of auctions on the agenda already today. Portugal to resume its bond auctions. Fresh cash injection to boost French bonds this week.

Euro Rates Update

The latest Euro Rates Update is now available

Swedish Morning Briefing - Thursday 17 April

• Separatists in Donetsk plan for a local referendum • A summit in Geneva to discuss the crisis in Ukraine