In today’s briefing:
- Drivers Behind the Turnaround of Asian Currencies
- EA: Weights Compound Inflation in Jan-22
Drivers Behind the Turnaround of Asian Currencies
- The turnaround of Asian currencies is likely to continue with growth resurfacing in the region ex-China and the interest rate differential with the rest of emerging markets narrowing.
- The main risks to watch are whether the slowdown in China worsens and weighs on the region as a whole and whether central banks embark on FX interventions again.
- While the overall view on Asian currencies is constructive, I prefer cross-country trades to take advantage of differences arising from idiosyncratic drivers and to eliminate the dollar risk.
EA: Weights Compound Inflation in Jan-22
- Flash EA HICP inflation continued its extremely strong trend as broad support lifted it to 5.1% y-o-y in Jan-22. That was well beyond even our above-consensus forecast.
- About a third of that 0.6pp error reflected weightings, with the rest more “core”. The shift up in the core trend seems set to remain problematic for economic models.
- It looks increasingly likely that the downtrend will only noticeably begin in H2, with hawkish pressure mounting on the ECB in the interim.
Before it’s here, it’s on Smartkarma
