In today’s briefing:
- Japan Watch #2: Ueda Is Under Increasing Pressure to Act
- Operating Leverage in Reverse: The Impact on Equity Markets
- Resilience in World Economy Is Only of Modest Help to Asia
- Avoiding Recession Raises All Rates
- China’s Recovery Progresses but Elements of Fragility Remain
- CX Daily: Hubris And Heartache: Behind The Tragedy Of Beijing’s Deadly Hospital Fire
Japan Watch #2: Ueda Is Under Increasing Pressure to Act
- Japanese inflation is getting increasingly embedded – >80% of basket components increase YoY.
- Expectations ahead of the Ueda-led BoJ policy statement are low
- In general, a move higher in the Japanese Core CPI speaks in favor of a defensive equity allocation
Operating Leverage in Reverse: The Impact on Equity Markets
- Operating leverage works both ways. With the gap between earnings growth and sales growth now negative, stock markets have entered a phase of ‘reverse operating leverage.’
- To determine the impact of reverse operating leverage on future equity market returns, we looked at all instances when sales growth topped earnings growth since 2000.
- As it turns out, a recession determines whether ‘reverse operating leverage’ hits equities or not. And since we expect a recession…
Resilience in World Economy Is Only of Modest Help to Asia
- The world economy has been more resilient than thought but the demand for Asian manufactured goods has been hurt by cyclical headwinds and lower commodity prices.
- Global services activity, in contrast, has done better but this provides fewer benefits for Asian exporters. Still, a fuller tourism recovery should provide a boost to Asia.
- However, capital expenditures in developed economies are proving resilient, while positive dynamics such as infrastructure spending and investment inflows provide support for growth.
Avoiding Recession Raises All Rates
- Global activity has remained remarkably resilient to recessionary forces. A prolonged path of stagnation may spare the acute pains of recession but carries other costs.
- Persistent excess demand sustains inflationary pressures, including through second-round effects that are particularly pronounced in the UK.
- Policy needs to stay tighter for longer, increasing the hysteresis potential as rates need to defer demand ever further into the future, opposite to the 2010s’ regime.
China’s Recovery Progresses but Elements of Fragility Remain
- Economic data in March showed that the recovery is underway, but the pace is uneven and shows signs of slowing in areas like retail sales, fixed investment, and real estate.
- Forward-Looking indicators such as corporate confidence, loan demand, and housing market sentiment are improving, but a “wait-and-see” attitude is prevalent.
- We upgrade our views on Chinese growth given that the recovery remains on track, but this is subject to a considerable margin of error given our reservations.
CX Daily: Hubris And Heartache: Behind The Tragedy Of Beijing’s Deadly Hospital Fire
Hubris and Heartache: Behind the tragedy of Beijing’s deadly hospital fire
China lodges complaint about South Korean president’s ‘erroneous’ remarks on Taiwan
China loses more of its share of U.S. imports to ‘low-cost’ Asian rivals
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