Daily Brief Macro: India’s Prospects: One (Huge) Positive and Three Risks and more

Is India the next growth miracle? Market sentiment is increasingly optimistic that this will be so. In particular, the country’s remarkable progress in digitalizing the economy has created the conditions for a burst of entrepreneurial activity. However, some of its traditional weaknesses such as limited openness, macroeconomic mismanagement, and social cleavages need to be remedied to unlock India’s full economic potential. 

• Seek carry / exposure in Eastern Europe, if you think the USD will weaken further – it is your best BETA
• Prefer metals to oil as the correlation between a weaker USD and higher commodity prices is stronger and more stable in precious -and industrial metals over time
• Hold less (USD) cash than in 2022 as investors will seek for the USD cash exit door

After years of hardball on economic and foreign policy, policymakers in Beijing are embarking on major policy pivots that aim to resuscitate an ailing economy and re-engage with foreign governments on friendlier terms. The jury is still out on whether these are sufficient.

• Flash PMIs broadly bounced back a little in Jan-23, as activity proved surprisingly resilient. Manufacturing’s trend decline broke, at least temporarily.
• Most firms are still reporting activity declines, albeit fewer than before, aided by falling energy prices. Resilience remains too broad to break tight labour markets.
• Central banks need cyclical pressures to fall back to target-consistent levels. Postponing that victory sustains the need for tight monetary policy.