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Warning In The Emerging Markets

May 07, 2018 1:39 PM ETEEM, EMB, IEF, UUP8 Comments


  • As the US dollar rises, emerging market debt is plunging.
  • Emerging market debt is heading back towards the 2016 lows.
  • The US dollar is up, but only slightly, begging the question as to what happens if the dollar rises back to 2014 highs?

The US dollar declined sharply for nearly the entire year of 2017 when 'global synchronized growth' was all but a unanimous call on Wall Street. Historically, when global growth is robust, the dollar declines and foreign currencies benefit and when global growth slows or there is a global recession, the US dollar rises.

Back in 2017, I wrote many notes to members of EPB Macro Research warning about not only a US economic slowdown but a global growth slowdown as well.

It took a fair amount of time for that thesis to play out but now, five months into 2018, much of the data out of Europe and other major foreign countries is deteriorating rapidly, causing the US dollar to rise and other currencies to depreciate relative to the dollar.

Back in early April, I wrote a note to subscribers informing them to watch the US dollar and its rise as a confirming signal of our current thesis of a global growth slowdown in 2018 and 2019.

Interestingly, the dollar has seemingly bottomed after a multi-month decline. The dollar (UUP) is one of few currencies up over the past one month and the past one week.

A strong outperformance in the US dollar is a leading indicator of global weakness. A bottom and subsequent sharp rise in the US dollar (UUP) is something to watch out for as a confirmation of a global economic slowdown.

- April 8, 2018, EPB Macro Research

Before moving on to the actual move in the US dollar and the major impact it is having on emerging market debt most specifically, I think it is important to point out a few 'canary in the coal mine' data points that emphasize the pending global slowdown and subsequent rise in the dollar.

Euro Area PMI:



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This article was written by

Eric Basmajian profile picture
Tracking Economic Inflection Points To Guide Your Asset Allocation Strategy

Eric Basmajian is an economic cycle analyst and the Founder of EPB Macro Research, an economics-based research firm focusing on inflection points in economic growth and the impact on asset prices.

Prior to EPB Macro Research, Eric worked on the buy-side of the financial sector as an analyst at Panorama Partners, a quantitative hedge fund specializing in equity derivatives. 

Eric holds a Bachelor’s degree in economics from New York University.

EPB Macro Research offers premium economic cycle research on Seeking Alpha. 

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