In today’s briefing:
- BOJ’s Looser for Longer Stance Risks Pushing Yen To 155/USD
- Commodities Are Surprising, but Not in the Way You Think
- CX Daily: Low-Carbon Transition Has China’s Shipbuilders Seeing Green
- India: Robust Economic Momentum Despite Some Seeming Fiscal Deterioration
- UK Critical Inferences Extend into 2025
BOJ’s Looser for Longer Stance Risks Pushing Yen To 155/USD
- US jobs data last week hints at a slowdown. But is it slow enough for the Fed to trust that they have done enough to bring inflation under control?
- Japan is at the cusp of exiting decades of deflation. Despite CPI >2% target, BoJ fears that it is premature to declare victory.
- BOJ’s looser-for-longer stance v/s Fed’s higher-for-longer policy divergence risks tipping the Yen 155 to the dollar.
Commodities Are Surprising, but Not in the Way You Think
- Our analysis of commodity returns surrounding recessions reveals that commodity prices typically do NOT decline in the run-up to a recession.
- This is also the case once the recession starts, even though the historical results are mixed.
- Interestingly, recent commodity price development diverges significantly from historical patterns, raising the question if there will a recession at all.
CX Daily: Low-Carbon Transition Has China’s Shipbuilders Seeing Green
- Shipbuilding /In Depth: Low-carbon transition has China’s shipbuilders seeing green
- Luxury /: China’s appetite for luxury is back
- Corruption /: Former top Xiamen legislator sentenced to life in prison
India: Robust Economic Momentum Despite Some Seeming Fiscal Deterioration
- India remains the fastest-growing large economy, with RGDP accelerating to 7.8% YoY growth in Q1FY24. Services (53% of the economy) grew 10.3%YoY, and should enable 7%+ RGDP growth for FY24.
- Fixed investment spending grew 8%YoY, the fifth consecutive quarter of 8% or more growth. The improbably large real net export deficit will likely lead to upward revisions to GDP.
- The fiscal deficit in Apr-Jul’23 was 33.9% of the FY24 target, even with a massive 54%YoY increase in revenues assigned to states. Latter will shrink in H2FY24, cutting fiscal deficit.
UK Critical Inferences Extend into 2025
- Assumptions around productivity, the NAWRU, inflation expectations, pent-up inflation, and the effective neutral interest rate dominate medium-term forecasts.
- We see little excess demand either outside of employment or in productivity, with elevated inflation expectations responsible for high wage and price pressures instead.
- Modest changes in excess demand indicate policy is only a little tight. The effective neutral rate may temporarily go above 5%, capping cuts to a level with a 4-handle.
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