The recovery, since April-May, has had two engines:
First, the gradual reopening, in the US (with some setbacks along the way) and globally.
Second, the roll-out of big fiscal stimulus (in the US, and more broadly)
We have to watch these two engines. The low fatality rates and the greater appreciation for the importance of superspreading events and mask use (and aversion to big 2nd round lockdowns), means that big 2nd round lockdowns are unlikely, unless hospitalizations/death really move.
Hence, reopening engine should be assumed to move the recovery forward, at least in the next 1-2 months (before weather effect is a wildcard). This is generally the case in both the US and Europe, although we have to watch the data (death and hospitalizations in particular).
But the other engine, could look different. There are big question-marks around Phase IV stimulus in the US. Both in terms of size and timing (and both matters). And politics are playing into this, meaning that we may not get the most economically rational policy implemented...
If this second (fiscal) engine slows, or stops, it may not be enough that the re-opening engine is still running. [I do not have to mention that monetary policy alone cannot do the heavy lifting at this level of rates and FCI]
I will leave it at that. END
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Everybody knows the details of US used car prices, the technicalities of the rent calculation, and even the oddities around obscure CPI components such as medical services...
but perhaps it is better to look at the big picture (global trends and China)...
- just a few of charts
The trend in global core inflation is almost back to normal (chart above)
And when you look at China, you think; should we not worry about deflation?
Headline CPI is as negative as in the covid shock, and almost as negative as in the CFC shock
And when you look at the latest China data, things are getting worse (assuming that you do not like deflation)
Despite the re-opening in 2023, the Chinese economy is observing greater deflationary effects, with momentum getting incrementally more severe in recent months.
The higher for longer narrative is looking increasingly stale
(a few big picture charts)
First, the global trend in core inflation momentum is very clear. The worst is certainly behind us...
Second, while some economies have shown greater resiliency to higher rates than expected, global credit is very weak, especially vs 2022, but also vs pre-covid trend.
I have been travelling, so only commenting on the terrible Chinese FDI data with a few days delay, even if it one important topic I care a lot about
Thread...
First, net FDI flows (counting both inflows and outflows) are now sharply negative, and it is the Chinese liabilities (the investment by foreigners into China, that is driving the swing)
- $66bn now
vs
+$100bn in Q1 2022
MASSIVE swing
Second, digging into the inflows, we can break the data into Greenfield FDI and reinvested earnings by combining SAFE and MOFCOM data.
The negative reinvested earnings (multinationals repatriating their earnings out of China, rather than reinvesting) is a key factor...