With Trump set to announce another $200BN in Chinese tariffs as soon as Thursday, sparking fears of a more acute phase of global trade wars and sending the dollar higher and US equity futures lower, the emerging market contagion vortex is starting to take on a life of its own and as Bloomberg notes this morning, “even when the most vulnerable countries vow to protect their currencies, the dollar steps in to rain on their parade.”

As noted earlier, the selloff in emerging market currencies has been relentless, dragging down the MSCI FX index to the lowest level in over a year, pressured by the trio of the South African rand, which dropped after Pretoria reported that the nation had entered only its second recession in 9 years, the Turkish lira, which is down again after the central bank failed to restore confidence that even a telegraphed rate hike will be sufficient to curb the country’s soaring inflation, and the Argentine peso which slumped 4% yesterday after president Macri’s latest announcement of emergency measures did little to raise sentiment.

Meanwhile, in addition to the imminent announcement of a new $200BN in China tariffs, US investors are now eyeing the Fed’s September rate hike which now appears inevitable, helping the dollar extend gains which in turn is further pressuring emerging markets amid deepening worries over idiosyncratic risks in emerging markets including Argentina’s fiscal woes, Turkey’s twin deficits, Brazil’s contentious elections and South Africa’s land-reform bill.

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