🇺🇸 #Fed (1) | As I expected ⬇, the Fed is on track to tighten its policy quickly and strongly for economic and political reasons. christophe-barraud.com/why-is-the-fed…
🇺🇸 #Fed (2) | On the economic front, Inflation is well above target and the risk of a wage/price spiral for low-income families has become real.
🇺🇸 #Fed (3) | Given that the labor market also looks tighter than indicated by the U.R., the Fed can easily justify a tightening move.
🇺🇸 #Fed (4) | However, there is a risk that the Fed could be more aggressive than needed in the short term due to political reasons. #Inflation has become the main concern of households and mainly explains why #Biden approval recently fell to a new low. cnbc.com/2022/04/13/bid…
🇺🇸 #Fed (5) | As I repeated several times, Biden advisors and economists have never been able to understand inflation dynamic, completely missing the spike of rents and its impact on inflation, the consequence of Covid-19 and ongoing supply chain disruptions.
🇺🇸 #Fed (6) | Instead of acting sooner and implementing a fine-tuning monetary policy, they are too late and look ready to put all in on tightening measures without thinking it could plunge the economy into #recession.
🇺🇸 #Fed (7) | My guess is that they could raise rates by 50bps in May and at least 50bps in June and July. I wouldn’t be surprised if they try to test 75bps from June depending on financial conditions.
🇺🇸 #Fed (8) | Focusing on the balance sheet, a $95B monthly reduction would potentially result in selling MBS which could have significant implications on mortgage rates. The latter already bounced a lot in a very short period.
🇺🇸 #Fed (9) | Therefore, the Fed will tighten sharply its policy after #inflation peaked, which would probably result in a quick deceleration. Then, I won’t be surprised if it makes a pause just before midterms after realizing the economy is probably in recession.
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🇨🇳 Chinese officials will be forced to support growth soon in a context where downward pressures are gaining traction.
*The probability of missing growth target (5.5% in 2022) looks high the year of Xi re-election.
1/ The hospitality sector is under pressure with air traffic and restaurant sales plunging YoY in early March.
2/ Sanctions/counter-sanctions linked to #Russia/#Belarus and the collapse of Ukrainian economy will have a significant impact on trade and supply chain. It's more than just natural gas.
🌎 Global GDP Update (1) | The impact will be larger than the consensus expects. Even the most pessimistic forecast I saw recently (-1% for global GDP) looks optimistic.
*In my opinion, it’s clear that Global 2022 GDP growth will be below 3% (v >4.0%e).
🌎 Global GDP Update (2) | Economists from banks will keep underestimating the shock as they use traditional models.
*🇺🇸 economists are the most exposed to a miss as they don’t perceive the gravity of the situation in a context where the 🇺🇸 economy is less exposed.
🌎 Global GDP Update (3) | The shock has multiple direct and indirect effects (supply and demand). Traditional models are not useful to identify the point of demand destruction in case of multiple price shocks.
🇨🇳 #NPC Meeting Debrief (1) | The 5.5% GDP target (upper range of expectations) signals an intent to limit downward pressures from the #property slump, zero-#Covid strategy and #Ukraine war (affecting foreign demand).
*Note: China 2021 GDP growth was 8.1%
🇨🇳 #NPC Meeting Debrief (2) | The fact that officials opted for the upper range of expectations looks very encouraging.
*There is a significant risk of missing this goal the year of Xi re-election.
🇨🇳 #NPC Meeting Debrief (3) | The fiscal support could be much stronger than indicated by the headlines as the government will use unused resources from last year (above-budget income as well as below-budget spending)
*Link: bit.ly/3sHrZZL
🇨🇳 #NPC meeting (1) | #China will be forced to announce new supportive measures in a context where:
1- Hospitality sector remains under heavy pressure due to persistent #Covid restrictions. As an example, according to Airportia, on a YoY basis, air traffic is still falling.
🇨🇳 #NPC meeting (2) | Residential #housing market is crashing.
*In Feb., the 100 biggest companies in #property industry saw a 47.2% ⬇ in sales YoY (v 39.6% prior), according to preliminary data by #China Real Estate Information Corp.
*Weekly figures also point to weakness ⬇
🇨🇳 #NPC meeting (3) | Foreign demand (a key supportive factor over the past few months) is on track to collapse amid #Ukraine crisis.
🇺🇸 🇷🇺 *BIDEN, G7 LEADER AGREE TO RESPOND SWIFTLY TO #RUSSIA:WHITE HOUSE - BBG
*G-7 TO IMPOSE 'UNPRECEDENTED' COSTS ON RUSSIA: WHITE HOUSE
*WESTERN ALLIES SEE KYIV FALLING TO RUSSIAN FORCES WITHIN HOURS
🇺🇸 🇷🇺 *RUSSIA TO BE ISOLATED FROM GLOBAL FINANCIAL SYSTEM, TRADE: U.S. - BBG
*BIDEN IMPOSING STRONG SANCTIONS, NEW LIMITS ON RUSSIA
*BIDEN: IMPACT ON U.S., ALLIES WILL BE MINIMIZED
🇺🇸🇷🇺 *BIDEN: WE WILL LIMIT RUSSIA ABILITY TO DO BUSINESS IN DOLLARS - BBG
*BIDEN: RUSSIA ABILITY TO DEAL IN YENS, EUROS TO BE LIMITED
*BIDEN: SANCTIONING RUSSIA BANKS