Not a 2025 Outlook, just the inaugural note of the year.

Treść źródłowa

The calendar has once again exerted its influence on markets and research production. Positive pnl's are reset to zero (negative ones not so much...) and inboxes are inundated with year-ahead outlooks. This isn't one of those. Here I will provide an update on where we stand in the wake of Trump’s second inauguration, with a brief recap of 2024. In many ways, we’re in a similar environment for EM FX to the one we've experienced for the past year so it should be informative to review what's worked.I wrote a post-US election update in mid-November, laying out expectations for USD strength, and some of that has played out. In these first few days of then Trump/Musk regime, we’ve been experiencing a buy-the-rumour-sell-the-fact USD pullback - helped by the impression of a more dovish approach to tariffs on China. My bias here is to patiently fade this dynamic.Looking at the medium term, US and Chinese political choices will dominate. For the EM FX investor, Chinese currency policy will be key. For the equity investor, the broader Chinese fiscal package will dominate, along with retaliatory tariffs. The foundation of my FX view is that the initial phase of Trump 2.0 will extend US exceptionalism (the word popped up in his inauguration speech multiple times) and that he will eventually focus tariff policy on China. Rhetoric from Trump and the broader party towards China has been consistently hawkish, and it would be surprising if there were any lasting ‘deals’ on this front. Talk of currency cooperation belongs on the fringes.In this note, I’ll be discussing:Review of 2024 EMFX pe…