In today’s briefing:
- A Reality Check on the Yuan’s Prospects as a Global Currency
- With May Elections, Thailand Approaches a Major Turning Point
- China’s Two-Track Recovery Exposes Underlying Fragilities
- Fed Lending Survey: Bad for Growth, Spreads, and Equities
A Reality Check on the Yuan’s Prospects as a Global Currency
- The notion of “de-dollarization” is once again in vogue, with the yuan being floated as the dollar’s successor as a global currency. We are skeptical of such maximalist claims.
- Bolstering the yuan so that it develops the necessary features of a global currency would require colossal, and ultimately unlikely, changes in Beijing’s economic and foreign policy.
- Asian governments may complain about dollar hegemony but will ultimately stick to the devil they know while taking measures to manage the downsides.
With May Elections, Thailand Approaches a Major Turning Point
- Parliamentary elections next week come as the military-royalist establishment faces internal divisions and voter ire. Thailand is ripe for a transition in government.
- The Pheu Thai Party of ousted Prime Minister Thaksin Shinawatra is set to become the largest party, but the more radical Move Forward is also emerging as a formidable force.
- A “grand coalition” between Pheu Thai and pro-establishment parties is likely. That could lead to the compromises needed heal Thailand’s deep divisions and end its long malaise.
China’s Two-Track Recovery Exposes Underlying Fragilities
- A short-term unleashing of accumulated pent-up demand is insufficient to drive sustained economic recovery. Beyond the flashy headlines, the economy is struggling to regain pre-pandemic momentum.
- Policymakers in Beijing have in mind the cyclical and structural economic headwinds, but constraints on public finances mean that a substantial degree of stimulus is unlikely.
- However, the government’s continued pursuit of economic security may risk being a distraction, or worse, send signals over future policy that do not engender business confidence.
Fed Lending Survey: Bad for Growth, Spreads, and Equities
- Tighter lending standards for Commercial & Industrial loans point to a US recession.
- Tighter lending standards for Commercial & Industrial loans suggest the US high yield default rate should quadruple this year to above 7% from 1.7% last year.
- Equity market valuation has recently increased, moving in the exact opposite direction of lending standards.
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