Yesterday was an important day of last 22 years; US inflation data made that. Canada hiked 100 bps last day and today Philippines hiked 75 bps, biggest rise in last 22 yrs. We expect India may go for 75 bps before next fed meet on 27 July.
We are foreseeing rate hike race in Asia to retain foreign capital. Next week ECB meet is of utmost importance now. After yesterday’s US CPI surge, case open for a super-hike- 100 bps from FED. If that happens, SE Asia, emerging Europe, and eventually Latin America will face huge pressure.
Now is time to evaluate Old economics; the macros; current account and fiscal health, inflation, FX reserve on case-to-case basis. Rate hike race and currency contagion in emerging Asia is playbook.
China property distress is severe, however there 2 too good sign, i) Record trade surplus in china and ii) large forex reserves, they may prompt China for super stimulus worth $ 1.1 trillion.
US consumers and banks have solid cash buffers. The BIG POSITIVE story is FROTH has greatly been removed from Cryptos, FAANG, metals, energies and agri commodities. Currently trend is bearish in all RISK-ON assets.
Forward guidance is ; Recession is already here, and looks like RICH RECESSION. Especially developed markets are much more resilient compare to past recessions. Current FED policy is explicitly front-loaded. Exponentially tightening, so we may see dramatic reversal in inflation, followed by slower hikes. Avoid being over pessimist is unsolicited tip!!
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