It’s falling apart for emerging markets again.

Earlier this month, as the lira collapsed and emerging market equities fell into a bear market, it became abundantly clear that the dollar needed to take a pause in the interest of preventing an outright meltdown in developing economies.

The key thing to understand about U.S. equities summiting new peaks recently is that it came amid a steady grind lower in the greenback, catalyzed in part by Trump’s criticism of the Fed, criticism that was followed by what the market (perhaps mistakenly) read as a dovish speech in Jackson Hole by Jerome Powell.

While U.S. stocks have remained largely insulated from global turmoil this year thanks to expansionary fiscal policy, record earnings, and buybacks, it’s important to remember that the very same late-cycle fiscal stimulus that boosted earnings and catalyzed buybacks is prompting Fed hawkishness and driving up the dollar.

The argument now is that in order for U.S. stocks to continue higher, the dollar needs to relax so that sentiment outside of the U.S. can stabilize, thereby avoiding a scenario where bear markets in China, EM, European autos, copper, etc. finally spills over.

In short, it’s no coincidence that the S&P hit new highs as the dollar started to fall and as the yuan stabilized.

Well, if Thursday is any indication, it doesn’t take much in the way of dollar strength to reignite concerns in EM FX. You can see things starting to drift in the wrong direction on both MSCI and JPMorgan’s gauges:

(Click on image to enlarge)

(Bloomberg)

The Turkish lira came under renewed pressure this week (see here) and the Argentine peso is in free fall, prompting another emergency hike (here and here). This is starting to look ugly again. Here’s how EM FX has performed on the week:

(Click on image to enlarge)

(Bloomberg)

Just to underscore the point, have a look at one-month historical volatility on the poor rand:

(Click on image to enlarge)

(Bloomberg)

You might recall that earlier this month, just hours after USDTRY was quoted as high as 7.23 coming off a weekend during which Erdogan railed against the U.S. and pledged not to raise rates or seek an IMF lifeline to stop the bleeding in the lira, USDZAR flash crashed in yet another apparent Mrs. Watanabe stop out moment (more here).

Not helping matters on Thursday was news that Turkey’s deputy central bank governor is all set to resign.

Ultimately, it looks like it’s going to take more than a little fleeting strength in the Mexican peso tied to a nebulous trade deal with Trump to hold things together in EM.

Pray for dollar weakness or, ideally, a Fed pause.