Thread by @Trinhnomics

Good morning Hong Kong!! @Trinhnomics is back! Shop open! Just give me some time to clear some admin! So happy to be back!!! Tons to talk about of course!

Created a Maternity folder & dumped all my emails during my leave there & inbox is cleared already by 230pm (tried to go through them since this morning but so many thousands more & needed a new strategy!!!). Okay, now the fun stuff - economics & markets! FX moves since I left👇🏻

Now that I've put all the emails in one folder to worry about later - let's discuss the two themes dominating markets: Delta Variant & inflation. We focus on the Delta Variant first & why Asian FX for the most part (ex TWD & CNY/CNH) have done poorly vs the USD & why the USD rose

I won't go into all the things I missed in Q2 and early Q3 as that is futile like my attempt this morning to delete all the emails to zero. We go 1st into why THB & AUD as well as many ASEAN + India FX haven't done well. So what's the Delta Variant?

To keep it short: it's more contagious (1st reported in India) - as in an infected person can spread to 3-4 vs the original variant spreading to 1-2 (according to Yale Medicine). Meaning, u can get a bunch of people sick very quickly.

So what about vaccinations? Protected?

The Delta Variant has many symptoms like a cold ( headache, fever & sore throat but less of a cough). DV leads to more hospitalization & deaths. Kids + younger adults also susceptible (vs the original).

Pfizer + Moderna 88% effective vs disease & 98% vs hospitalization.

So great if u're vaccinated for those. The AstraZeneca vaccine is about 60% effective against disease & 93% effective against hospitalization. Johnson & Johnson similar to the AstraZeneca results. U can see how things start to diverge as if u got MRNA vaccines then more protected

Pfizer & Moderna are more expensive so u can see how this DV is about the haves & haves not (as in the US vs the world almost & to a lesser extent the DM vs EM). But not all DM is amazing at vaccination. Take Australia. Below are stats from Bbg & it'll take 6mths at current rate.

Meaning, Australia has Melbourne + Sydney under lockdown (they even halted construction) as it goes for zero Covid as vaccination will take a while to do. Therefore, AUD takes a hit from both AU centric factors (lockdowns) plus overall risk-off & USD rallying (we'll discuss later

Why is the THB the worst Asian currency? Well, things haven't really meaningfully improved for Thailand even though it got cheap interest rates & exports OK as it got a raging virus (thanks to the DV) & amongst the WORST vaccination rates in Asia. So Thailand tourism gotta wait.

Thailand new Covid cases (most are the DV) are spiking (& not peaking till August according to the gov) & that means suppression measures as vaccination is woeful & that means its economy suffers.

If 2020 is all about suppression then 2021 is all about the vaccines.

Here is a question: if the AUD languished so much despite few cases (relatively speaking) & decent vaccination say relative to IDR, then why is IDR appreciating vs AUD? (A follower asked me & a great question!)

Well, it's the change of expectations/performance vs level.

As in Australia reacts much more HARSHLY to these cases (lockdown of key economic areas = weaker growth) & so the RBA has to ask the question if it can taper like it said it would etc. Meanwhile, IDR already priced in poorer Covid performance & reaction function of ID is diff.

Here's Indonesia econ data so far since I've been gone - low CPI & PMI not great. The spike of cases + deaths will impact ID but the question is whether BI will cut rates when IDR already weakened? Likely not this wk. Question is whether lockdowns'll be extended beyond 20th July.

As countries grapple with whether they do ZERO Covid (as in shut the borders etc) or live with some Covid but have manageable health system, they need vaccines to mitigate the effects of Covid. Many ASEAN economies are turning to Western vaccines (Thailand doing the other pivot).

Gotta run for now. Will continue my catch up session later. Here's today's moves - all about the Delta Variant (DV), as in fear of global growth & reflation trade fading. Bonds rallying, crude fallin', equities & Asian FX on sale!!!