Takeaway: The recent convoluted, “data-dependent” guidance out of the FOMC has been and should continue to be a boon to EM asset prices.

Don’t look now, but the EM relief rally is happening. We’re not going to spend too much time on the “why” in this note, having already done that 2x last week and in a 72-slide presentation and conference call a little over 1M ago. Today, we’re content to merely call attention to the weather: it’s sunny outside in EM land.



NOTE: Please refer to the explanation at the conclusion of this note for color on how these signals are derived and how to incorporate them into your investment process. Email us if you have additional questions.




This concomitant breakout across EM capital and currency markets and across the capital and currency markets of commodity-producing nations is extremely newsworthy in the context of #GrowthSlowing and systemic risk accelerating in China in 1Q14. We’ve argued this ‘til we were blue in the face over the past 12-18M, but if you didn’t know that Chinese demand was NOT the primary factor in determining asset prices in these markets, now you know.


In reviewing the MAR 19 FOMC statement and Janet Yellen’s recent commentary around the FOMC’s intention to: A) become incrementally more data dependent; and B) keep interest rates well below what they consider appropriate, at every step of the way, for the foreseeable future, one has to come to the conclusion that the Fed is less hawkish on the margin – despite the fact that the board continues to actively and rhetorically support tapering.


We think the market, at least marginally, is starting to sniff out what we’ve been communicating ad nauseam throughout the YTD: both the Fed and the Street are likely to be surprised to the downside with respect to GDP growth and that catalyst is likely to cause the former entity to decelerate the pace of tightening and/or pursue a strategy of outright monetary easing at some point over the intermediate term. That measure can take on various forms – including dovish rate guidance and general ambiguity (vs. communicating a clear path of tightening) – which is exactly what we’ve seen in recent weeks.  








It’s worth noting that the Bloomberg consensus 2014 real GDP forecast has come in -20bps since an early-MAR peak of +2.9%. We already expect 2014E to come in towards the low end of our forecast range, so once again consensus is playing catch up to our preexisting expectations for domestic economic growth – this time in the opposite direction (recall that we were the growth bulls in 2013).




At some point, we expect consensus to start playing catch up to our preexisting expectations for the slope of US monetary policy. Until a marginally dovish Fed (vs. expectations) is fully priced in, we reckon you can continue to go bargain hunting across the spectrum of bombed-out EM assets. That sure beats the heck out of buying the dip in a bubbly social media stock at these ridiculous valuations!






Darius Dale

Associate: Macro Team


TACRM Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI):

TACRM™ is specifically designed to provide tactical security selection, general global macro market color and suggested dynamic asset allocation weightings. One of the ways it does this is by providing a standardized measure of momentum across various asset classes and systematically making sense of those signals.


This VAMDMI score is derived by calculating three independent z-scores of closing price data on a weekly basis and then calculating the arithmetic mean of this sample.


  • Short-term z-score: 1-3M sample
  • Intermediate-term z-score: 3-6M sample
  • Long-term z-score: 6-12M sample


Each independent sample size is determined dynamically by prevailing trends in global macro volatility. Specifically, if the BofA Global Financial Stress Index is making lower-lows on an intermediate-term basis, then each of the sample sizes are larger in duration; if the BofA Global Financial Stress Index is making higher-lows on an intermediate-term basis, then each of the sample sizes are smaller in duration.


The momentum signaling indicator chart we highlight above generates a signal(s) when a particular market(s) crosses a critical quantitative threshold after having been above/below that level for at least 3M:



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