Expect significant new tariffs on Chinese imports and moderate levies on goods from other nations , as President-elect Donald Trump rolls out his protectionist agenda. However, with his preference for chaotic policymaking and sudden shifts , there’s uncertainty on how soon these import taxes will actually hit. Dubbed “ Tariff Man ,” Trump aims to use tariffs both strategically and tactically . He’s mentioned taxing all Chinese goods up to 60% and potentially setting 10%-20% tariffs on imports globally , but details on these plans remain vague . Key players within Trump’s team are divided: Robert Lighthizer , a staunch tariff advocate, sees permanent duties as crucial to balance US trade , while others, like billionaires John Paulson and Scott Bessent , view tariffs as temporary leverage. Trump’s previous administration had mixed feelings, especially on national security-related trade limits , which he sometimes dismissed, favoring an “open for business” approach. High-profile busin
Emerging market (EM) currencies saw gains as investors prepared for a week of global interest-rate decisions affecting carry trades in developing economies.
MSCI’s index for developing-world currencies recorded its second gain in nine sessions, rising less than 0.1% as of 10am in London. Meanwhile, the EM stocks gauge fell 0.3%, led by declines in tech shares, including Tencent Holdings Ltd and Taiwan Semiconductor Manufacturing Co Ltd.
Barclays strategists noted increased unpredictability in market moves recently due to political surprises globally. This volatility has impacted carry trades, where traders borrow at lower interest rates in developed markets to invest in higher-yielding developing-world assets. The strategists, including Themistoklis Fiotakis, highlighted that the case for carry trades is weaker, given the volatility and potential for further disruptions.
Volatility Spikes Navigating a gradually slowing US economy and uncertainties surrounding the upcoming US presidential elections, investors face a turbulent market. Volatility spikes can quickly erode carry gains, complicating investors' ability to maintain positions. With limited cushion from US rate spreads and emerging currencies already priced to erode, the carry trade case remains weak.
Carry trades funded in yen and dollars have suffered the most, with Chile’s peso and the Taiwanese dollar being particularly affected. Both the Bank of Japan (BOJ) and the Federal Reserve are set to decide on interest rates on Wednesday. The possibility of further policy tightening by the BOJ sent the yen to an almost three-month high last week.
Investors will closely examine the Fed’s policy announcement and chair Jerome Powell’s remarks for any hints supporting expectations of a first interest-rate reduction in September.
Regional Developments In Latin America, Venezuela’s opposition claims it can prove Edmundo González won Sunday’s election, according to María Corina Machado, who led the campaign against President Nicolás Maduro.
India took steps to limit foreign ownership of its bonds, signaling discomfort with the substantial inflows linked to the inclusion of its debt in a key global index.
Ethiopia’s eurobond saw its most significant jump since December after securing a $3.4 billion program with the International Monetary Fund, pushing the security maturing in 2024 to its highest level since November 2021.
Key Takeaways:
- Emerging market currencies gained slightly as global interest-rate decisions approached.
- MSCI’s index for developing-world currencies rose less than 0.1%, while the EM stocks gauge fell 0.3%.
- Volatility and political surprises have impacted the viability of carry trades.
- The BOJ and Federal Reserve's upcoming rate decisions are critical for market direction.
- Regional developments include Venezuela’s election dispute, India's bond ownership limitations, and Ethiopia’s IMF deal.
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