In today’s briefing:
- Singapore: Multiple Catalysts, Upside Surprise to 2022 Growth Likely
- Sino-Indian Tensions: Sleepwalking into a Crisis?
- US Equities with Rising Yields and Oil
- Is the Risk Premium High Enough in the Russian Ruble?
- The Fed’s QT Explained (No, it’s Not The End Of The World)
- UK: Labour Market Keys Open BoE Doors
Singapore: Multiple Catalysts, Upside Surprise to 2022 Growth Likely
- First, we see borders being opened progressively through the year, allowing the return of migrant workers whose absence has constrained production in key sectors.
- Second, Singapore’s manufactured exports will prosper as semiconductor demand continues to strengthen, even off a high base.
- Third, the recovery in regional demand will spur a rebound in the cluster of services that cater to the region including finance and trade.
Sino-Indian Tensions: Sleepwalking into a Crisis?
- This is a highly political year for leaders of both countries, a time when neither can afford to be seen backing down should there be an unintended clash.
- Yet, an arms build-up and an increasing contest for influence in the Indian Ocean region are creating conditions that an accidental confrontation could escalate into something nasty
- Unless the top leadership intervenes with measures to cool tensions and build confidence, we would not be surprised to see another round of clashes like the one in May-June 2020.
US Equities with Rising Yields and Oil
- The rise in Oil and US Yields has come at a time when the equity market is struggling to maintain recent highs
- These dynamics are probably linked as a hawkish Fed & rising yields across the curve question one of the major supports for US equity markets – cheap money
- The chart below shows that we saw something similar a few months ago
Is the Risk Premium High Enough in the Russian Ruble?
- The Russian ruble has been the worst-performing currency in EM over the past month leading to the question: Is the currency cheap based on the risk premium priced in it?
- Comparing the current episode with the 2014 annexation of Crimea by Russia, we conclude that the market is pricing in a 10% probability of an invasion followed by crippling sanctions.
- With the currency not particularly cheap and given the asymmetric risk-reward, I would opt to not have any exposure to it for the time being.
The Fed’s QT Explained (No, it’s Not The End Of The World)
- Quantitative Tightening is now old news: everybody and their mother are talking about it, and headlines about QT are everywhere.
While QT sets the direction of travel to be very different from QE, there are four main pillows the US will be using to engineer a softer landing.
- In a nutshell: watch the announcement on the pace of QT, the updated Treasury issuance strategy and how repo rates and credit spreads trade.
UK: Labour Market Keys Open BoE Doors
- UK unemployment continued to decline after furlough. Activity levels are low and falling, but the 4.1% UR implies capacity as tight as when the BoE hiked to 0.5% in Nov-17.
- A hike in Feb-22 now appears likely, barring imminent news. Vacancies and wage growth have fallen back to 2019 levels, supporting the Bank rate’s return to 0.75% later this year.
- The cautious policy outlook in 2019 carried the gradual and limited mantra, contrary to current fears of aggressive tightening.
Before it’s here, it’s on Smartkarma
