In today’s briefing:
- EM by EM #21 Why China is uninvestable yet tough to short
- EUR watch: Why the ECB outlook is 100% off in 4 charts
- Comment on Exchange Rate EUR/USD – August 4, 2023
- PPI Nugget: New Pressures On Producer Prices To Come?
- CX Daily: The Slow-Burning Insurance Crisis Unfolding in the Shadows
- ECB Poses a Probable Peak After Hike
EM by EM #21 Why China is uninvestable yet tough to short
- Key points upfront:The USDCNY tourist trade is no longer a quick and easy source of profit, as the PBoC aims to discourage speculative activities by letting speculators bleed.
- Despite facing challenges related to structural growth and domestic fragility, the CCP remains committed to safeguarding its export sector, even if it means sacrificing consumption and local government investments.
- We expect ongoing depreciation, albeit at a rate that aligns with the PBoC’s tolerance.
EUR watch: Why the ECB outlook is 100% off in 4 charts
- The ECB hiked as we anticipated and the EUR weakened materially alongside a dovish re-pricing of EUR rates.
- Smack dab at our forecast and positioning, but is the ECB outlook fair at this point?
- We find the updated staff projections amusing to say the least and hence also struggle to understand current market pricing of the ECB relative to peers.
Comment on Exchange Rate EUR/USD – August 4, 2023
- During the period under consideration, i.e. July 3rd – August 4th, 2023, the EUR/USD exchange rate was moving upwards until July 17th, 2023, but thereafter it followed a downward trend.
- However at the start of August, the Euro notched an uplift and was still trading higher than the levels in beginning of July.
- According to Graph 1, during the first twelve trading days of the period under consideration, the pair was fluctuating along the range 1.085-1.125.
PPI Nugget: New Pressures On Producer Prices To Come?
- Energy is the main culprit behind the reacceleration but it is also starting to spill-over the various broader goods categories.
- The cyclical inflation pressure is back in the US before the inflation reaches its target.
- It will be tricky for the Fed to get CPI/PCE back to 2% with these cyclical trends.
CX Daily: The Slow-Burning Insurance Crisis Unfolding in the Shadows
- Insurers /In Depth: The slow-burning insurance crisis unfolding in the shadows
- Tax /: China’s nationwide property tax plan set for further delay
- Housing /: Beijing district scraps price limits on pre-owned homes
ECB Poses a Probable Peak After Hike
- The ECB responded to the persistent overshoot of headline inflation with another 25bp rate hike, contrary to the consensus, and indicated this is likely the peak policy rate.
- Monetary policy will remain data-dependent, but the focus is increasingly shifting to how long rates stay at the peak before being cut. We expect a year on hold.
- Leaning into a final rate hike raises peer pressure on the Fed and the BoE. The BoE has an inflation expectations issue to conquer, so it’s appropriate to go further.
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