In today’s briefing:
- The Philippines: Asia Ex-Japan Fund Allocations Hit All-Time Low
- 5 Things We Watch: Five Aspects Surrounding the Banking Turmoil
- Introducing the US Inflation Monitor: Why the Fed Must Lift Rates Further
- Mean Reversion
- UK: Imagining Spurious Fiscal Space
The Philippines: Asia Ex-Japan Fund Allocations Hit All-Time Low
- Philippines ownership falls to record lows among active Asia Ex-Japan managers.
- Only 58% of Asia Ex-Japan managers now have exposure, with most holding less than a 3% portfolio weight.
- Shrinking benchmark weights and a dwindling active investor base means it is becoming ever easier to avoid Philippines exposure entirely.
5 Things We Watch: Five Aspects Surrounding the Banking Turmoil
- On Friday, Silicon Valley Bank – the then 16th largest bank in the US – came to feel the ramifications of hazardous (if even existing) risk management
- The Fed has posed the option of a discount window for banks in distress to mitigate contagion risks. Banks with large holdings of HTM-portfolios may be better off than others
- We find reasons to worry about the banks with a large exposure to Commercial Real Estate in these times of funding stress – due to contagious effects from the crisis.
Introducing the US Inflation Monitor: Why the Fed Must Lift Rates Further
- The 3-month annualized inflation rate increased for every inflation measure included in the US Inflation Monitor.
- The closely watched Core Services ex Housing/Shelter CPI numbers have barely come down in recent months and remain above both Headline and Core CPI.
- Based on the latest CPI report the Federal Reserve will have no other option than to continue hiking rates. But banking contagions risks may become the dominant policy driver soon.
- We seem to be playing to the Oscar-winning movie title “Everything Everywhere All at Once” in the financial markets.
- Two bank failures in the US, and we go from No Landing to Crash Landing.
- The three days move in 2-year yields was the most significant drop since 1987 and a $ 485 billion loss in banks’ market cap.
UK: Imagining Spurious Fiscal Space
- The UK Budget cancelled energy price hikes, as expected. Investment and pension allowance reforms neutralise borrowing changes between 2024 and 2026.
- Residual fiscal space beyond that is politically desirable to keep for a pre-election giveaway. However, it may not exist outside of the OBR’s imagination.
- Sustained brisk potential growth creates excess supply in the OBR view of 1Q23. Without that, GDP and revenues will underperform, further prolonging high debt issuance.
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