In today’s briefing:
- Why Are World Markets Falling?
- Fed Unperturbed by Equity Market Declines as Housing Cushions the Blow to Households’ Net Worth
- Light at the End of Long Eurozone Tunnel?
- Money/ COVID-19/ Babies/ Agents/ Taiwan
- UK: Retail Has a Pre-Christmas Hangover
Why Are World Markets Falling?
- Global Liquidity is skidding and forcing risk asset prices lower
- 70% of World’s Central Banks are now running ‘tight’ monetary policies
- Bond markets may have called this right. Viz the collapse in term premia
Fed Unperturbed by Equity Market Declines as Housing Cushions the Blow to Households’ Net Worth
- US equity investors’ expectations have been fickle by failing to appreciate that there would be payback demanded by the Fed for their unprecedented policy easing during the COVID-19 pandemic.
- The Federal Open Market Committee (FOMC) will be pleased to witness the recent correction in equity prices and will view price declines as a signal of policy credibility.
- US equities remain vulnerable to liquidity contraction. Housing has also boosted households’ wealth, and the Fed would provide policy support if home and equity prices fell simultaneously.
Light at the End of Long Eurozone Tunnel?
- Covid-19 cases in most Eurozone countries remain at or near record levels and in many the death rate has risen in past five weeks.
- Governments have thus maintained strict social distancing and travel rules which are weighing on Eurozone’s economic growth and Euro.
- But United Kingdom, which has announced a loosening of rules, could be template for how things unfold in Eurozone and cheap Euro may eventually rebound.
Money/ COVID-19/ Babies/ Agents/ Taiwan
- To shore up the cooling economy, Beijing cut its benchmark lending rate for the second consecutive month, while also lowering a mortgage reference rate.
- China’s lockdowns and restrictions risk causing greater disruption to manufacturers and supply chains than during earlier waves of the pandemic, the FT reported.
- China is effectively at the zero-growth stage, and the trend looks unlikely to be reversed, despite efforts to push a “Three Child” policy, and offer more support to new parents.
UK: Retail Has a Pre-Christmas Hangover
- A two-month retail binge ended with a horrible hangover in Dec-21. More things fell and by further than expected, although the hospitality trade may not have suffered as much.
- We maintain our Q4 GDP growth forecast of 1.0% q-o-q. Front-loaded Christmas spending will have temporarily weighed while implying a worse consumer trend.
- The BoE already discounted a depressing winter, so realising that should not offset the hawkish pressures pushing it to another rate hike in Feb-22.
Before it’s here, it’s on Smartkarma
