In today’s briefing:
- India: Stagflation Woes Rear Its Ugly Head
- China: Taking the Pulse of the Economy Heading into 2Q22
- Which EM Currency Has Suffered the Most Since Russia’s Invasion of Ukraine?
- India Bans Wheat Exports; Baby Formula & Diesel Shortage in US: Repeat of Beggar Thy Neighbor Policy
- UK: Labour Market Cycles Inflation Up
India: Stagflation Woes Rear Its Ugly Head
- Lacklustre capital goods production points to weak investment activity. We remain unconvinced on the self-sustained capex upturn, and hew to our bearish forecast of +7% y/y growth in FY23.
- Headline inflation climbed further, which comes on the heels of the RBI’s off-cycle meeting. Today’s WPI print also points to stirring price pressures.
- The RBI comes under competing pressures to act after the authorities pressure the central bank to keep yields in check. This runs counter to the global tightening of financial conditions.
China: Taking the Pulse of the Economy Heading into 2Q22
- Lockdowns are taking a toll on the supply-side while depressing domestic demand.
- Monetary data shows that credit easing channels are not working smoothly, despite policymakers’ efforts to steer credit to the real economy.
- At best, therefore, we expect a relatively soft rebound in 2H22, and full-year GDP growth at 3.5%, below the consensus of 4.2%.
Which EM Currency Has Suffered the Most Since Russia’s Invasion of Ukraine?
- The dollar has strengthened significantly since Russia’s invasion of Ukraine, which has led to a broad risk-off environment. Among EM currencies, the worst performer has been the Hungarian forint.
- Adding to the economic woes resulting from Russia’s aggression, the forint has suffered as the central bank has signaled less aggressive monetary tightening even with inflation hitting a two-decade high.
- PM Orban has worsened the situation with his pre-election spending and by going against the EU by resisting further sanctions on Russia. Relatedly, funding from the EU is at risk.
India Bans Wheat Exports; Baby Formula & Diesel Shortage in US: Repeat of Beggar Thy Neighbor Policy
- What is the common theme for beggar thy neighbor policies and higher inflation rates as evidenced by surging wheat prices, higher diesel prices, and infant formula shortages?
- These factors are likely to continue to favor value stocks which have outperformed the growth stocks in the past six month globally, including in South Korea.
- Value-Oriented sectors including financials, telecom, F&B, and oil refineries have been outperforming the growth sectors in Korea in the past six months and we believe this trend could continue.
UK: Labour Market Cycles Inflation Up
- Employment increased ahead of April’s jobs tax hike, and vacancies since then stayed high. Hours have also recovered despite depressed self-employment levels.
- Firms appear to be focusing on retention, with bonus payments surging while regular pay growth slows. Nonetheless, wage settlements have been their highest since 2008.
- This combination of rising wage deals and falling unemployment looks to be around a cyclical peak in underlying inflation pressures, probably pushing the BoE to hike in June.
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