In today’s briefing:
- Strong Fed Policy Conviction Contrasts with PBoC, as Global Supply Chains Lose Their Appeal
- COVID-19/ Economy/ CCP/ Environment/ Lunar
- Vikings At The Gate
- Does Chile’s Rate Curve Flattening Offer an Opportunity?
- UK: Output Recovery Arrives Less Late
Strong Fed Policy Conviction Contrasts with PBoC, as Global Supply Chains Lose Their Appeal
- There is a high degree of divergence in the conviction held by the Fed and People’s Bank of China about their respective economic outlooks for 2022.
- Asian countries remain reluctant to jettison their tough approaches to COVID-19, particularly China, hence raising the risks of continued disruption to global supply chains as seen in the automotive sector.
- Demographic, environmental and geopolitical forces have reduced the attraction of offshoring supply chains. Labour shortages will boost the importance of capital productivity as US onshoring gathers momentum.
COVID-19/ Economy/ CCP/ Environment/ Lunar
- Omicron reaches China. It will test China’s defences and its ability to showcase a “successful” Olympics.
- China vowed to accelerate investment and boost domestic consumption to help stabilize growth. It’s much easier to get investment going than it is to get consumers to spend more.
- Racing ahead of schedule, China’s electric cars are on track to reach 20% of nationwide auto sales this year, well ahead of the government’s forecast of 2025.
Vikings At The Gate
- The power of the rate of change of things is very important here. Look at money creation for example. The extreme volatility in credit creation is a result of Covid-policies
- we may be in for a 2019-like contraction in USD reserves in the financial system already before year-end.
- I am even tempted to say that you should both buy the USD and duration (in most currencies) with an arm and a leg already now.. And equities overall..
Does Chile’s Rate Curve Flattening Offer an Opportunity?
- With global rate curves bear-flattening, slopes in several emerging countries have reached extreme levels, arguing for steepening trades. I discuss the arguments for and against a steepening trade in Chile.
- The main arguments in favor are the slowing growth and inflation likely peaking in the coming months, which imply that the monetary tightening may be in the late stages.
- To initiate the trade, I prefer to wait until the MPC meeting later this month for the central bank to provide more clarity on the potential duration of the cycle.
UK: Output Recovery Arrives Less Late
- UK output growth exceeded expectations as it jumped by 0.9% m-o-m in Nov-21 to be 0.2% above its pre-covid peak.
- Health spending helps offset the suffering in some sectors, but most have completed their recovery, albeit with a distribution inside each. Renewed covid-related disruption probably knocked GDP in Dec-21.
- We raise our GDP growth forecasts by 0.3pp to 1.0% q-o-q in 4Q21 and 0.7% in 1Q22. Front-loaded growth also means less room to grow later, but potentially more inflation.
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