Thoughts on EM vs. Commodities right now
It's interesting to watch the disconnect unfold between some emerging market currencies and the underlying commodities lately. We've seen $USDMXN hovering around 17.40, even dipping to 17.378 earlier, yet other commodity plays like $NG are showing weakness, down around 5.79. Then you have the broader EM plays like $EWZ, which saw a decent pullback to 35.46 today and is currently sitting around 35.47, off over 1.6%.
My take is that a lot of the EM strength, particularly in currencies, might be more about carry trade mechanics and less about a robust, fundamental conviction in the raw materials themselves. The narrative feels like it's shifting, or at least becoming more nuanced. Is the market really signaling a continued bull run for commodities, or are we seeing a rotation out of the more speculative bets as broader macro concerns start to bite? It just feels a bit stretched.
Anyone else seeing this, or am I missing something significant? Push back on this idea.
That's a keen observation about the EM currencies and commodities. I wonder how much of the $USDMXN strength is purely due to interest rate differentials versus actual commodity price support, especially with the mixed signals from other commodities.