Another great paper highlighted by @StephenSpratt on the USD as King👑. The USD is more key than the EUR or JPY in its KEY role in global finance. If the Fed tightens, markets expect USD assets to decline & demand up. In times of stress, demand for SAFE USD assets rise 👇🏻👇🏻👇🏻
@StephenSpratt USD denominated assets are not just issued by the US but also sovereigns, quasi sov, banks, firms as demand for safe dollar assets & convenience yield drives people to issue in USD.
But key here is that they got the ORIGINAL SIN highlighted earlier on implications of weaker CNY
@StephenSpratt Imagine the Fed after a decade of ZIRP & QE creates a lot of incentives for issuance of USD-denominated debt. But when the Fed tightens, the supply of safe USD-denominated shrinks. For those that depend a lot of USD funding, the local currency depreciates MORE & 👉🏻 ORIGINAL SIN😱
@StephenSpratt Not just offshore USD issuance but onshore in the USD. B/c of the role of the USD & strong demand globally for USD assets, a lot of incentives for issuance of USD bonds/debt backed by risks collateral (junk bonds).
Author says dominance of USD in credit markets rose since 2008!
@StephenSpratt In other words, because of this relative differential in US growth vs the rest of the world (US slowing but not as bad as elsewhere), the USD is tightening global finance. Remember that I always say the FED IS MORE KEY THAN TRADE-WAR. This is why the Fed is under pressure to cut.
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First, nickel is a material that has to be DUG out of the earth & process. Some easier (colder nickel in Russia) & some harder like wet & warm places like Indonesia where you have plenty of it but it's the processing that's difficult.
Here comes China.
The mining & processing of nickel are energy intensive. And more importantly, for Indonesian nickel, it was considered too low grade to do & China had breakthroughs in a technology called high-pressure acid leaching (HPAL). "Low-grade nickel ore is placed into pressure vessels, where it’s treated with sulfuric acid and heated. After that, the nickel that separates out will be suitable for batteries, once it’s refined"
China new home sales fall further & while some may say that the real estate is now not so important for China, it remains a key driver of wealth effects & that is negative. Meaning, the data dump that we will get in 10 mins will likely show a further misaligned economy where consumption falters while supply rises.
This will add to further tensions with the West & even the South as China will need to export that excess supply, driven by policy to rise in the value chain, or to vertically integrate its supply chain, to the rest of the world.
Chinese corporates will increasingly have to do it via tariff arbitrage, as in third country export or building factories where they want to sell.
Some say it doesn't matter as Chinese firms gain market share.
Actually, it does matter. Employment matters. So unless they can get Chinese workers to manufacture goods in third country or in the country/region of export, over time, employment demand will fall in China for manufacturing.
Instead of a landslide, we got earthquakes, Modi & the BJP got the most seats but much less than they benchmarked (400) & less than 2019 (303) at 240. To govern, they need to work with fickle allies to operate a coalition government.
This will require a much more consensus driven governance.
That may be positive or negative depending who u are. Meaning, in the short-term, forming a government takes priority over long-standing reforms that are already politically difficult when they had the government. We may have more fiscal welfares & so if we continue with the same capex, fiscal deficit may widen. Or we may have less capex than before. Irrespective, this area will be watched carefully. Under Modi, grain & fertiliser subsidies remain large & was promised to be in place.
Note that India fiscal deficit has consolidated as of late but remains large. What has changed is the quality - higher tax rev ratios & more capex & less subsidies as share of GDP
Some say that a coalition won’t change as it is still Modi in change. But that is IF a coalition stays the course (he got some really fickle allies) & this that if adds to risk premium in the short-term.
Irrespective, India fiscal is in a rather decent shape so we have a solid foundation to work with here.
This article in the FT doesn't make any sense. The author argues that Modi fails to create job for low-skilled people, esp labor-intensive manufacturing. It also faults Modi for its high-end growth (services, high-tech, infra, etc)
But then it ends with saying, well, don't bother to even develop manufacturing and just work on service exports.
Btw, all the critiques of India makes sense. The issue I have with Rajan and also Congress is their solutions.
They don't have one. Literally. Rajan tells India to forget about trying to do manufacturing & focuses on services.
India exports a lot of services. Manufacturing is the weak spot, not services!!! And if u want a lot of jobs, u need labor-intensive manufacturing.
A country with such a large population needs to growth via all sectors - services, manufacturing, agriculture etc. You can't leapfrog development & go to services.
India & the Philippines have tried that. Not working & hence need to include manufacturing & infrastructure building.
Who likes higher fuel prices in Asia??? Well, no one except Indonesia and Malaysia and by that I mean exporters.
The biggest deficit as a share of GDP goes to Thailand but mostly in LNG. Second is South Korea.
Obvs this is as a share of GDP. Higher fuel costs = higher import costs = someone has to pay for it & eg higher inflation or higher fiscal costs.
Who likes higher food prices? Well, a few - Thailand, Malaysia, Indonesia, Vietnam and India. Obvs this is EXPORTERS only who gain. EM has high food as a share of consumption basket. But net food exporters have levers to pull. They can BAN exporting of food.
Who is most vulnerable? The Philippines. South Korea imports a lot too.
Putting food and fuel together as a share of GDP: Who is most exposed?
Well, South Korea and the Philippines. KRW doesn't like this news.
PHP doesn't like it. One caveat is that SK is much richer so can afford it more than say PH where this will hurt more.