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.
Mean Reversion
- 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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