Welcome to our weekly EM editorial where we shed light on the most important developments in the EM space in the context of the impulses from the USD markets.

Things are heating up in the global macro space as we are standing at crossroads. Is the macro momentum finally rolling over globally (including in the US) or are we amidst a potential rebound from China that wreaks havoc with the current increasingly dovish Western consensus?

Biden and his administration moved first in the flared-up trade conflict between the US and China by increasing tariffs on EVs, Solar Panels & Semis among other things. While these goods are not exactly the main traded items between the US and China, it is a symbolic and pre-emptive strike against Chinese authorities rumored to ponder a devaluation of the CNY.

The EU remains caught in the middle and will likely be on the receiving end of a truckload of subsidized EVs and Solar Panels in coming quarters, which leaves us with the vibe that the US-Sino relationship remains inflationary in the US but disinflationary in the Eurozone.

Without anyone noticing, Chinese export prices have re-increased sharply in recent months and this could prove to the be the exogenous factor that wreaks havoc with easing plans in the US.

Chart 1: Europe is a (much) more important trade partner on vehicles for China