Ever since the Emerging Markets tanked below last ditch support in August, we have been watching for a rebound to what is now major resistance. On EEM that is around 36. At 36.20 we are there.
It had looked like a no brainer shorting opportunity, but a funny thing happened along the way; the USD got very wobbly and the Fed has started mentioning poor old Uncle Buck’s name a lot lately in their policy meetings. See this post for charts of USD, Euro and a great graphic culled from out there on the Twitter machine showing USD mentions by our fearless but maybe a little uncomfortable monetary leaders.
Back to the post’s main theme, a breakdown in USD would further instigate commodities and the likes of the EM’s. So the tenuous state of the dollar should be watched closely now since many other markets are going to take their cues from it.
By Doug Noland
Credit Bubble Bulletin
With the (king) U.S. dollar index trading Friday above 100 for the first time since 2003, the unfolding EM – ongoing “global reflation trade” – unwinds broadened and turned more disorderly. Brazil is now lurching toward crisis. Friday trading saw the Brazilian real slammed for 2.6% to the low since April 2003, boosting y-t-d losses to 18.2% (down 27.2% y-o-y). Brazil sovereign CDS surged 13 bps Friday to 302, the high since early-2009. Notably, Brazil’s dollar yields surged 23 bps Friday to a multi-year high 5.08%. For the week, Brazilian (real) yields jumped 43 bps to 13.40% (traded as high as 13.79% intraday Friday).
May 13 – Bloomberg (Filipe Pacheco and Paula Sambo): “Bonds and stocks of Petroleo Brasileiro SA fell after a newspaper reported that the company is in talks with creditors to extend a deadline for publishing audited results and avoid a possible acceleration of payments. Petrobras’s $2.5 billion in bonds due 2024 declined 2.7 cents to 90.55 cents per dollar, the biggest daily drop since Jan. 30. Yields on the notes jumped 0.45 percentage point to 7.74%. The preferred shares of the company at the center of the nation’s biggest corruption probe slid 2.5%… extending this week’s slump to 10%. The Rio de Janeiro-based oil driller has held negotiations with about 15 banks and investment firms in the past few weeks to extend the deadline, Folha de S. Paulo reported…”
Continue reading EM Contagion & A New Z.1
 Might as well add in some of our own $.02 on the yield curve, S&P 500 and gold… Risk ‘ON’ –NFTRH
With the caveat that I am very far from the most proficient bear trader around, we note that the short against the EM’s (via EEV) is being covered this morning.
NFTRH/NFTRH+ recommended a bounce to the SMA 50 as a lower risk short entry (I had personally entered sooner) for those interested, and today EEM is getting to a point where I’ve got to take the profit (EEV roughly doubles the percentage). It’s moving too far from the EMA 10, and could be subject to a snap back soon. Cash is my favorite thing right now so it is also by far my most heavily held thing.