In today’s briefing:
- The Gold BRICS – A Coming Threat to US Dollar Hegemony?
- 5 Things We Watch – Fed, ECB, BoJ, RBA & Credit
- With a Positive Real FF Rate Restored, FOMC Hiking Cycle Is Nearly Done
- Indonesia: Attractively Valued Amid Good Growth with Low Inflation and CA Surplus
- China Politburo Targets Boosting Domestic Demand, Private Sector
- Euro area watch: 7 charts on the ECB and EUR-inflation
- Head Fakes in Euro and DXY
- Change in Portfolio Weighs – The Fed Rules: Increasing the Weights of Equities and Treasuries
- Consumer Watch: Is the FED & ECB nudging the same herd? 5 charts we watch
- CX Daily: WeChat’s Short Video E-Commerce Drive Suffers From a Lack of Customers
The Gold BRICS – A Coming Threat to US Dollar Hegemony?
- Announcement of Gold-backed BRICS currency unit rumoured for August, 2023. Could this disrupt the US dollar?
- BRICS and ‘Friends’ have already amassed over 8k tonnes or more gold bullion than is held in US official reserves
- Threat to US dollar comes from undermining of US finance not denomination of trade. Integrity of dollar is a domestic question, outside of BRICS, and dependent on future fiscal solvency
5 Things We Watch – Fed, ECB, BoJ, RBA & Credit
- It’s central bank week again! Always a busy week when the biggest central banks publish their monthly interest rate decisions, but as always we are on our toes to provide you with actionable and timely coverage of all the rate decisions, meeting takeaways and more from Fed, ECB, BoJ & the rest.
- Our main thesis is that the overall message across the board will be slightly dovish given recent CPI numbers which suggest that the central banks’ job is done and that inflation will come down fast.
- But maybe central banks keep looking in the rearview mirror, afraid to make a mistake that will ignite inflation again.
With a Positive Real FF Rate Restored, FOMC Hiking Cycle Is Nearly Done
- The hike to 22-year-high 5.375% restores a clearly positive real policy rate. Powell said there’s “still a long way to go” before reaching 2% target, so policy must remain restrictive.
- We think a mild recession coupled with 6+ months of YoY declines in M2 will enable core PCE inflation to recede to 3.5%YoY by Nov’23 and 2.5% by Jun’24.
- Key indicator is MoM change in core PCE. The cumulative MoM gain in core PCE has averaged over 4.5% in the past 29 months. 5.5% peak FF rate by Sep’23.
Indonesia: Attractively Valued Amid Good Growth with Low Inflation and CA Surplus
- With a positive real policy rate of +2.23% and 3.5% appreciation of IDR ytd, BI was comfortably able to keep its policy rate unchanged despite this week’s US rate hike.
- Despite the commodity price correction, Indonesia will likely post a 2023 current account surplus of 0.2% of GDP; its fiscal deficit was 1.6% of GDP in the latest 12 months.
- The equity market is trading at a trailing P/E of 14.7x, marginally below its 30-year mean. With RGDP of 5% in 2023 and 5.5% in 2024, we recommend being Overweight.
China Politburo Targets Boosting Domestic Demand, Private Sector
- China’s top decision-making body on Monday highlighted the need to boost domestic demand and for policies to prop up the country’s private economy.
- The July Politburo meeting is closely watched for signs of measures Beijing will implement to shore up growth, as the country’s post-pandemic economic recovery has lost momentum over the past few months.
- “At the moment, the economy is facing new difficulties and challenges — mainly insufficient domestic demand, difficulties in the operations of some enterprises, risks and hidden dangers in key areas, and a complex and severe external environment,” stated the readout of the meeting chaired by President Xi Jinping.
Euro area watch: 7 charts on the ECB and EUR-inflation
- I have finally had a few moments to digest the ECB meeting amidst stories that the Bank of Japan will tweak its YCC policy tomorrow.
- The macro environment never fails to entertain.
- Here is why the ECB will likely pause from here, while European inflation could reach target already by September/October.
Head Fakes in Euro and DXY
- It’s easy to identify breakouts because they are the most noticeable and generate a strong response.
- It is precisely what happened when DXY broke below 100.53.
- On the other hand, head fakes are often met with silence as hope for sustained trends persists.
Change in Portfolio Weighs – The Fed Rules: Increasing the Weights of Equities and Treasuries
- We believe the odds that the Fed is done hiking have increased significantly after the latest FOMC meeting and Powell press conference.
- The key reason to lift the weight of Equities and Treasuries is that historically both asset classes have performed well after the final Fed hike.
- We looked at the average and median return on US and Developed Market Equities, US Treasuries, Commodities, and Gold following the end of the tightening cycle since 1970.
Consumer Watch: Is the FED & ECB nudging the same herd? 5 charts we watch
- As we conclude this week’s Central Bank Bonanza, we believe it is pertinent to share some of the soft data charts we are closely monitoring while assessing the outlook for the upcoming quarters.
- The wisdom of the crowds, often overlooked, can offer an interesting perspective for financial markets currently processing the latest rate decisions.
- In the coming days, we plan to offer a more comprehensive take as to how we see things going in the coming quarters and how we would choose to ideally play it.
CX Daily: WeChat’s Short Video E-Commerce Drive Suffers From a Lack of Customers
- Tencent /In Depth: WeChat’s short video e-commerce drive suffers from a lack of customers
- Climate /: Former U.S. Treasury head urges Beijing and Washington to unite and tackle climate change
- Leverage /Charts of the Day: China’s household, overall debt-to-GDP ratios rise to a record
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