Fed not cutting rates would be a headwind to Asian markets: UBS
Everybody also in Asia, but not just the US but also in Asia. So everybody’s getting ready central bank wires to in the second-half to sort of follow the Fed and also go a bit down certainly would would help the economies. Therefore, yeah, you can consider the risk case, but I would argue if I start where it emanates from which is the US if I look at in all these indicators that I’m watching if it’s excess savings in the, in the consumers more than halfway down after COVID. So it’s not going to collapse tomorrow but you know all these things suggest it has to slow it probably. Below trend growth is where we think so soft learning but nonetheless so long stories. I’m not that worried that the Fed won’t cut, but yeah, certainly is a is a risk if they don’t cut is a headwind to also Asian markets indeed. But you do think that your base case is that the Fed will cut twice this year starting September? Yes, absolutely right. And that there’s also other indicators as I mentioned, the consumer side is already getting getting a bit stretched right and we see as a as an offset. This is maybe also quite interesting. It’s not not only the sort of ammunition for consumption isn’t completely spent, right, but it’s certainly more than half is spent. But you also see that if you don’t have that ammunition anymore, what do you do? You go into credit card debt, right? There’s all things we can we can track, right? So credit card debt is up, delinquency starting to happen. So all this suggests is not that sustainable, which then in turn suggests right things including inflation are about to slow, certainly in the second-half. We’re just getting some lines from governor owed and a lot of this, a lot of these statements are statements of fact about yen depreciation. FX moves are among factors that affect economy and prices. Weak yen pushes up import costs have impact on economy in other ways such as through demand. BOJ will scrutinize yen moves, impact on the economy and guarding monetary policy. But this was the standout for me. The BOJ may need to respond. Via monetary policy. If such impact from yen moves affect trend inflation, is yen depreciation going to get to the Point Hartman where it spurs the BOJ intent? I’ll be honest the the confidence in that we we we already thought you know they would they would sound a lot more and more hawkish than they actually do by now. So in some spring and not quite as hawkish. So I think at this time for the markets to really be convinced you need to see some actual real measures. So yes, I mean we have penciled in a zero 25 on a short and for the for the second-half, right. And you could argue, OK, if the if the BOJ really just on a small scale goes up and yet at the same time Fed goes down, right you, you you’d expect the currency move, but I would bring it down to the OR bring it back to the US dollar, right. Ultimately I think at this point unless the BOJ really, really shows some more concrete action, right, it’s all about the the Fed.