Currencies
It is easy to claim that the ECB is failing in light of today’s elevated inflation readings. Yet, the reality is more subtle and the ECB’s performance lays the ground for stronger growth ahead.
In this short weekly report, we review some of our favorite FX trades.
Symptoms of a liquidity trap for Chinese households are appearing. Our proprietary indicators for the marginal propensity to spend among households and enterprises continue falling. There has been a paradigm shift in Beijing’s approach to policy stimulus. Authorities will be slow to introduce large stimulus. Hence, China-related financial markets are set to fall further.
Risk assets would perform well over 12 months only if inflation falls to 2% without triggering a recession. That would be unprecedented. We recommend investors stay defensive.
Expectations for oil demand growth through 2023-24 are way too optimistic. Until these expectations fall to -0.5-1 percent, the oil price has further downside. Plus: collapsed complexity confirms that AI is in a mania, while basic materials stocks and ZAR/EUR are rebound candidates.
