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Emerging Markets Update

Emerging, Markets, updates, fx trader, forex

Emerging Markets ended last week on a soft note. Fed tightening expectations were buffeted first by hawkish Dudley comments and then by the more balanced FOMC minutes.

On net, the markets adjusted the odds for tightening by year-end a little higher from the previous week, and stand at the highest odds since the Brexit vote. Yet despite the strong jobs data in June and July, odds of a move on September 21 or November 2 are still low, with the December 14 meeting seen as the most likely for the next hike.

Fed chair Yellen speaks at the annual Jackson Hole Symposium on Friday, and will be the highlight of the week. Given that Dudley mirrors Yellen quite closely, we think she could deliver a hawkish message this week. If so, that would give the dollar more traction. EM and risk are most vulnerable under this scenario.

Taiwan reports July export orders Monday, which are expected at -1.3% y/y vs. -2.4% in June. It then reports July IP Tuesday, which is expected to rise 1.8% y/y vs. 0.9% in June. The economy recovered in Q2, so it will be important to see if this continues in Q3. Given the headwinds on the economy, we think the central bank will cut rates 121.5 bp again to 1.25% at its quarterly meeting in September.

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