EM On The Brink: Rates, Oil, And Vol Collide At A Must-Hold Level

EM on the brink

Pressure is building fast in EM, and key levels are now being tested. Three macro forces are now aligned against EM. Oil, rates, and volatility are all moving in the same direction, while “forgotten” macro relationships snap back into focus. With positioning stressed and VXEEM surging toward panic levels, this is a must-hold moment for EM.

The level

EEM is testing the major long-term trendline, now trading just below the 100-day. This is a must-hold level. A close below $56 risks further downside, with the 200-day still lower.

Source: LSEG Workspace

 

Oil matters for EM

EEM and USO are moving in near-perfect inverse tandem.

Source: LSEG Workspace

 

Rates matter for EM

Old relationships markets had “forgotten” are reasserting themselves. Rates matter again, especially for EM. Chart shows EEM vs US 10-year (inverted).

Source: LSEG Workspace

 

The rates vol shock

EEM doesn’t like sharp moves in bond volatility. Chart shows EEM vs MOVE (inverted).

Source: LSEG Workspace

 

Massive stress in EM

EEM “VIX” (VXEEM) has exploded higher, printing fresh highs and approaching Liberation Day panic levels.

Source: LSEG Workspace

 

"Overshooting" VIX

VXEEM vs VIX is blowing out, markets are finally pricing EM risk for what it is.

Source: LSEG Workspace

 

Not all EM is equal

Regional and monetary impact.

Source: ZH Pro

 

Conclusion

If the trendline doesn’t hold, EM doesn’t drift lower, it accelerates, with rates, oil, and volatility all moving against it at once.