Thread by @Trinhnomics

Where are we?

We are here 👇🏻: synchronization of global slowdown. That said, the US is still relatively stronger. Meaning, until the US comes down more to earth closer to the China & the EU, the USD remains strong. So people hoping for the Fed's "insurance" cut to soften the USD

Smoothing is just a 3-month moving average & I do it b/c high frequency data tends to be rather volatile so good to smooth. PMIs are soft indicators & below 50 is contraction vs previous month & above is expansion vs previous month - also supposed to be seasonally adjusted.

When u think about the USD, u have to think relative performance of the USA 🇺🇸 & not ABSOLUTE b/c the USD lubricates the global economy & so a relatively stronger USA, even slowing, is still bolstering the USD.

If u're EM, u don't want American exceptionalism or a strong USD.

Jerome Powell has no choice but strike a dovish tone since end Dec & recently b/c the ECB dovish & the BOJ too. The US w/ PIRP at 2.5% while others at NIRP means relatively speaking US real rates are much higher .

Either the US absorbs others' export of excess capacity or ...

The turnaround of JPO has more to do w/:
a) China slowdown & it sheltering current account via the decline of imports & also allowing some weakness of FX & so dragging down EM & the EU as they are more synchronized w/ China;
b) ECB & Japan trying to reflate their eco w/ NIRP...

The strength of the USD means that US firms have erosion of FX price competitiveness & US purchasing power strong so higher imports & it means that even if the US is not doing so badly that it needs a rate cut it sticks out like a sore thumb w/ PIRP & here we are - bind together.

While the US has "exorbitant privilege", as Valéry Giscard d'Estaing coined in the 1960s, it also is not that entirely independent in monetary policy as the world becomes more integrated via US firms' earnings & also it has to respond to others' monetary policy & growth cycles.

Markets' expectations of July cut 100% priced in - look at the implied rate cut for the next 1yr. Either the Fed delivers rate cut or there will some re-pricing of asset prices.

Asian markets also pricing in more ✂️. We may have slow growth but silver lining is rates'll be lower

Basically the pt of this entire rant is & my message on CNBC:
a) Markets hoping for a US slowdown so that we'll have rate cuts to soften the USD to give Asian central banks space to respond to their own economic cycle;
b) That's positive b/c Asian CBs can cut (BOK & BI this wk)✂️