“Global markets are going wild today. The big bet against the Japanese yen is unwinding, and the dollar is getting crushed against a host of currencies around the world (the dollar index is down a sizable 1.3%).
Many of these currencies come from emerging markets (EM), which have been tanking over the past few weeks against the dollar as U.S. Treasury yields have risen.
And the losses in EM haven’t been limited to currencies – stocks and bonds have taken a hit as part of the EM sell-off as well.
The big sell-off in the dollar today is a reversal of this trade. Now, everyone is looking ahead to tomorrow’s jobs report in the U.S., which could be a crucial release in terms of determining which way the momentum in global markets swings.
Will a better-than-expected jobs number confirm the strengthening dollar story of the past few weeks, or will a worse-than-expected number provide more fuel for the dollar sell-off as fears that the Federal Reserve will have to remain accommodative for longer begin to seep back into the marketplace?
Société Générale Head of Emerging Markets Strategy Benoît Anne asserts that either way, it doesn’t really matter for EM.
In a note to clients today, he writes:
No matter what happens tomorrow, sell GEM assets…”
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