Risk, Recession and Rewards
When markets are turbulent, we are concerned about high volatility. Right now, despite persisting geopolitical uncertainty and economies wobbling at the doorstep of recession, risk remains inexplicably well bid - should that indeed be a worry?
Middle East escalation is seeing flows out of risk trades., but it’s all sketchy- mainstream news is however focussed on US primary voting in Iowa.
Route diversion of maritime vessels is raising shipping costs & transit times. Threat rises of disruption to world trade - slower growth and higher inflation- higher for longer framework comes up - If at all the Fed is not going to be vigilant, then risk of US Treasuries becoming even a big sell - whatever it be, the credibility matters.
Bostic believes that rates should remain unchanged until at least the summer - inflation could "see-saw" if policymakers cut interest rates too soon.
Retail Sales tomorrow & Empire state today - contextually irrelevant.
2023 was the first full year since 2020 in which German economy contracted- the concern is that there is very little chance of any imminent rebound. EZ Industrial Production at -0.3% m/m. German CPI & ZEW today. A daily close below the bull channel base at 1.0923 & 40 dma at 1.0931, doors opened for 1.0700 test.
Fosun Group founder Guangchang says the ‘days of runaway growth have gone’, with China’s private firms suffering from high debt & heavy asset loads -indeed a learning for some of the highlining debt laden companies of EM-
Bailey’s testimony has been cancelled - he speaks in Davos now - more important labour data today. Last week's 1.2675 low held so far - break would test key 1.2610.
PPI came in at 0.3% m/m in Dec vs. 0.2% previous. Inflation not even acknowledged by the Central bank otherwise busy buying JGBs. Come to think of it, it's not olden days when risk off implied JPY strength - multidimensional thinking of the markets in evidence - above 146.10, bet for 147.70.
Trade data's volatile swings - but holds the new normal $ 20 bio per month -time for optimism to become measured - USD INR back at 83.00.R