19 December 2018 by jbchevrel
Ahead of what market participants expect to be a dovish FOMC, we have seen risk rallying across asset classes and the dollar soften. Apart from ITALY (-12), which owns its tightening move to the finding of a compromise between Rome and Brussels, EM sovereign CDS have benefitted from a softer US dollar and the consolidation of US rates at a lower level. Indeed 10y US Treasuries have rallied c45bp since the local peak reached on Oct 9. The short end rally was also arguably impressive: we came from pricing 4.1 hikes to December 2019 FOMC (including today’s) to 1.4, this AM. Putting this differently, assuming a hike today, longs need to see no hike over 2019 to finish in the green. Although this looks like a big move, it has been welcomed by EM risk, decently strong today, led by middle East names. Indeed LEBAN (-40) and TURKEY (-16) are the best performers in CDX EM, as Trump ordered a full US troop withdrawal from Syria (yes, he meant Syria, not Irak).