In today’s briefing:
- Supply Chain Reconfigurations Gaining Steam
- Asset Class Performance After the Final Hike – Part II Equities, Treasuries, Commodities, and Gold
- Post-Election Uncertainty Looms Following Thai Polls
- Out of the Box #2 – Italian Banks the First Domino?
- UK: Unemployment’s Second Slackening
- The US Economy: A Decade’s Forecast Through an Economic Scenario Generator Lens
- India’s Karnataka Elections a Much-Needed Win for Congress
- Ultra-Bond Futures, USDCNY, and Dollar Index
- CX Daily: Chinese Exporters Turn Toward Emerging Markets
Supply Chain Reconfigurations Gaining Steam
- Evidence is mounting that firms are doubling down on plans to shift production out of China. Geopolitical risks and shifting consumer dynamics will strengthen this trend.
- Economic efficiency is being de-prioritized as firms seek to bolster resilience and security. Reshoring and near-shoring are the new modus operandi.
- China’s large scale, however, means that no single economy will be the new centre of global production. Firms will make different locational choices based on their own needs.
Asset Class Performance After the Final Hike – Part II Equities, Treasuries, Commodities, and Gold
- Equities and Treasuries shine once the Fed’s final rate hike is in, but the latter do so with much lower risk.
- Commodities lag once the tightening cycle is in, likely reflecting declining economic activity as higher rates push down GDP growth.
- After a weak six months, the return on Gold recovers quickly, comfortably beating the broader commodity index.
Post-Election Uncertainty Looms Following Thai Polls
- The reformist Move Forward Party has outperformed prior expectations and emerged as the largest party in parliament, while Pheu Thai was relegated to a close second place.
- Parties aligned with the military-royalist establishment were the target of voter ire, as the electorate sought new political options that promised changes to the status quo.
- Despite its victory, an MFP-led government is unlikely to be tolerated by establishment forces. The humbled Pheu Thai remains in a position to lead a grand coalition government.
Out of the Box #2 – Italian Banks the First Domino?
- Net interest margins and profitability measures are unusually high, while financial strength and asset quality show significant improvement with low non-performing loans and bad debt
- Italian banks are facing difficulties in funding their TLTRO repayments scheduled for this summer
- The BTP Bund spread will be THE thing to watch the coming months, and it has severe implications for asset markets
UK: Unemployment’s Second Slackening
- The UK unemployment rate increased by 0.1pp for the second consecutive month to 3.9% in Mar-23 as labour market levels rebounded further.
- Change is coming from an under-sampled area, raising the risk of statistical error. A fall in vacancies would corroborate this weakening if sustained.
- Total pay growth remains too rapid to be consistent with the inflation target and should encourage the BoE to hike by another 25bp in June.
The US Economy: A Decade’s Forecast Through an Economic Scenario Generator Lens
- The US economy faces challenges such as rising interest rates, inflation, geopolitical unrest, and banking instability, potentially leading to a recession, amid a global economic slowdown.
- Economic Scenario Generators (ESGs) are advanced computational tools used for generating plausible future economic scenarios, aiding in risk management, asset valuation, and investment decision-making.
- Using an ESG, predictions for 2030 include a slowdown or recession in 2024 with return to normal growth rates afterward, peak inflation and a lackluster stock market performance in 2024.
India’s Karnataka Elections a Much-Needed Win for Congress
- Elections in the Indian state of Karnataka delivered a setback to Modi’s BJP. Despite the prime minister’s popularity, party infighting and anti-incumbency were hard to overcome.
- Congress better managed its internal divisions and made a campaign pitch based on economic well-being which resonated with voters.
- Congress will aim to re-use its winning tactics for upcoming state polls, but defeating the BJP at the national level remains out of reach for now.
Ultra-Bond Futures, USDCNY, and Dollar Index
- China’s retail sales and industrial production fell short of expectations in April.
- The People’s Bank of China (PBOC) has increased long-term liquidity through the medium-term lending facility (MLF).
- The PBOC and the government will likely need to consider implementing monetary and fiscal stimulus to support the economy.
CX Daily: Chinese Exporters Turn Toward Emerging Markets
- Exports /Cover Story: Chinese exporters turn toward emerging markets
- China-Australia /: China and Australia resume trade talks in sign of stabilizing ties
- Espionage /: China sentences Hong Kong-based U.S. citizen to life for espionage
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