US dollar is part of 'negative cocktail' for Emerging Markets - JP Morgan

JP Morgan's head of cross-asset fundamental strategy, John Normand, expressed his view on the US dollar in the coming months during an interview with Bloomberg TV earlier today.

Key Highlights:

There is a confluence of systemic issues affecting EM.

Now there is a re-correlation of the USD with interest rates.

That's overlapping with a number of idiosyncratic issues in EM.

US 2-year yields starting to 'crest' as a lot of Fed tightening is priced over the next year.

If that happens, the dollar will stabilize and come off against a number of EM currencies.

Fed is aware of what is happening globally.

But Fed also has to be "true to the data".

Not much in the data and financial markets domestically that says there is a lot of stress.

If EM currencies were 10% lower, then only investors will start to rethink on US profits.

But that moment is still several months away.

Still could have more EM stress without the Fed changing policy.”