In today’s briefing:
- China: Mounting Challenges to Compel Far-Reaching Policy Changes
- Indonesia: Policy Twists and Turns Will Hurt Investment Climate
- How Well Is Hedging EM Currencies with the Euro Working?
- Singapore: Upside Risks to Inflation Imply Possible Further Policy Tightening in October
China: Mounting Challenges to Compel Far-Reaching Policy Changes
- Near term: There has been a clear shift in favour of greater stimulus, with the focus not on maximizing growth but on ensuring stability.
- There are four reasons why the announced measures lack potency. The changes do not go far enough to restore consumer confidence.
- Longer term: China will place greater emphasis on securing its geo-strategic position rather than on prioritizing growth.
Indonesia: Policy Twists and Turns Will Hurt Investment Climate
- Investment data show that Indonesia is progressing in its efforts to accelerate economic growth.
- FDI has risen sharply in 1Q22, particularly in the mining downstream sector.
- But policy flip-flops such as the ban on palm oil exports could undermine confidence in policy making.
How Well Is Hedging EM Currencies with the Euro Working?
- In line with my view of the dollar remains strong in the near term, one of the trading strategies that I have suggested hedging an EMFX portfolio with the euro.
- I show that the hedge has performed well by breaking down and comparing the return of the hedged portfolio with the unhedged version.
- For me to recommend taking off the euro hedge, we would need to see the volatility of US rates and the probability of recession falling.
Singapore: Upside Risks to Inflation Imply Possible Further Policy Tightening in October
- Price pressures firmed in March after pausing in February; MAS more hawkish on inflation yet confident that growth fundamentals remain intact with Russia-Ukraine drag offset by earlier reopening of economy
- We rule out an inter-meeting hike for now; MAS likely views the risk of a wage-price spiral as limited after the cumulative pre-emptive tightening moves since January.
- The trajectory of inflation will be key to watch for the October monetary policy decision. Core CPI breaching 4.5% in July and/or a sluggish inflection afterward would make tightening probable.
Before it’s here, it’s on Smartkarma
