In today’s briefing:
- Vietnam: Resilient Economic Growth Driven by Friend-Shoring & Bamboo Diplomacy
- Simple Math – Why Rates Must Fall!
- US Labor Watch – The plot thickens
- 5 Things We Watch: USD-flation, Global Inflation, US Labor Market, Japan, Bitcoin
- [Counting Beans #4]: Soybean Price Tumbles as Headwinds Prevail
- Macro Lessons For 2024
- EM by EM #38: Inflation Returning with a Vengeance?
Vietnam: Resilient Economic Growth Driven by Friend-Shoring & Bamboo Diplomacy
- Vietnam’s GDP expanded by 5.05% in 2023, lower than the government’s official target of 6.5%
- Chinese President Xi Jinping’s first visit to Vietnam in six years aims to strengthen ties between the two communist nations.
- China and the US vying for cooperation with Vietnam in developing rare earth minerals essential for energy transition.
Simple Math – Why Rates Must Fall!
- The divergence among (bond) investors is rapidly increasing. One group expects yields to rise further, while the other expects yields to go down and remain low. I’m in the latter.
- To maintain debt sustainability, real yields must remain below real GDP growth. But with declining potential GDP growth, this is not the case currently, and this includes the US.
- In the Eurozone, the real yield – real GDP picture is distorted because the ECB must aim monetary policy at the weakest link, Italy.
US Labor Watch – The plot thickens
- The US labor market has shown great resilience after the pandemic – together with the rest of the US economy – but employment has stood out as overly resilient with NFP and other labor data coming in very hot some months despite PMIs and consumer data hinting of a slowdown of the overall economy.
- However, there might be a very good reason for this.
- Each month, payroll-data is adjusted with the ‘Birth/Death adjustment’, which takes into account the net job creation associated with opening/closing of businesses, and over a 6 month period, BLS has assumed that around 800-900k jobs were created on a net basis as a function of entrepreneurship alone.
5 Things We Watch: USD-flation, Global Inflation, US Labor Market, Japan, Bitcoin
- Global macro never sleeps, and this week is no exception.
- The new year has started off with a blast, and it looks like dynamics all of a sudden have changed with sentiment going from full risk-on to risk-averse as the calendar has turned.
- The US will be the overshadowing region to watch in the coming weeks as they look troubled the most with prices looking to stay hawkish for some time to come, while the labor market is weakening, but increasing growth due to easier financial conditions could keep the US away from stagflation.
[Counting Beans #4]: Soybean Price Tumbles as Headwinds Prevail
- US Soybean futures have tumbled 4% from their close in 2023 due to favourable weather in Brazil as well as fading demand outlook in US.
- Rainfall in Brazil has arrived in droves and remains strong this week but forecasts point to inconsistent rain next week.
- CONAB and USDA reports this week should be watched for potential downward revisions in Brazil’s production, following Safras e Mercado’s lead.
Macro Lessons For 2024
- Markets tend to overprice mean-reversion in the monetary policy outlook. Fading this dynamic is consistently the best approach outside of surprise regime shifts.
- BoE pricing appears especially divorced from reality as Fed pricing temporarily moves it in lockstep. Rising real rates due to disinflation is not a dominant dovish factor.
- Resilient employment suggests policy is not very tight. That stokes persistently excessive wage growth, which consensus inflation forecasts underweight.
EM by EM #38: Inflation Returning with a Vengeance?
- Increased freight rates could lead significant players in China to delay imports and turn to local demand, depleting existing stockpiles.
- In the US, rising goods inflation might contribute to reversing the disinflation trade or, at the very least, establish a floor for yields.
- These factors create a challenging scenario for emerging markets, as they face potential inflationary pressures and reduced exports.
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