The Asian contagion continues as global bellwether, South Korea, continues to weaken dramatically across the board. Exports fell 11.14 percent, a three-year low, and weakening imports indicate slowing domestic demand as well as input for future export growth.
Exports to China drop 17.4 percent, particularly memory chips, as China continues to slow which accounts for a third of all South Korean exports.
Semiconductor exports drop nearly 25 percent. Consensus is betting on Chinese stimulus measures to take the edge of weakening South Korea and ASEAN countries.
The problem with this assumption is the failure to remember that China began abandoning its "commitment" to deleveraging in 2018. In addition, with Chinese banks adding a record amount to their balance sheets, a large portion of January's liquidity flood aided overleveraged corporates roll over their debt.
February's Chinese manufacturing PMI number aren't exactly promising with the state print dropped from 49.5 to 49.2 while the Caixin manufacturing PMI bumped up from 48.3 to 49.9.
The highly cyclical chemical sector, which does not bode well during global slowdown, is peaking from consecutive lower-lows.
If we look at the AE7 FX index, which comprises Asia's top seven exporters, we can see the collective turn down which is negatively correlated to the dollar.
DXY (top); AE7 FX Index (orange); Emerging Market FX ETF CEW (green)
The AE7 has been trending with the broader emerging market FX, which began to turn higher with the yuan rally in late Q4-18. However, as the macro deteriorates further, it appears EM is looking to head lower which will be beneficial to the greenback.
This, too, will have profound impacts on dollar-denominated emerging market debt (EMB), which can be seen here.
The Korean won is consolidating against the dollar with aims to retest the 2017 uptrend.
The neighborhood weakness is spilling into the KRWCNY with the yuan strengthening against the won. The 2016 "global synchronized recovery" trend is now broken.
The yuan is beginning to weaken against the dollar as the world begins to poke holes through China's stimulus efforts. If the dollar is able to regain steam, it's probable the yuan will weaken to at least .147 to the dollar.
Remember the yuan's link to both gold and equities, primarily the prior. The TACVOL score for USDCNY is -1.59 (still bearish near-term) but USDHKD is 1.86 and approaching the upper bound. More on that in a minute.