BOJ hikes amid energy shock; yen undervalued but short-term 160 test. ECB may hike once as insurance; Fed sits tight. $100 oil not economy killer but shifts inflation/growth risks: Europe inflation up, US growth down. Markets too hawkish on yields; lock in short/medium duration bonds, EM bonds, high yield. Add hedges: TIPS, gold, energy equities.
Yields
NDX
RUT
Oil
Metals
USD
Standard Chartered
7.5
Investment Bank $864.00B
Manpreet Gill
8.5
Asks how to read BOJ's hawkishness and its response to the inflation shock from the Middle East.
Joumanna Bercetche
Manpreet Gill
BOJ has a tougher job; stronger growth and domestic inflation even before energy shock argued for hikes; energy shock keeps them on a path of slowly edging rates higher.
Asks what turns the yen around.
Joumanna Bercetche
Manpreet Gill
Key is when the gap between yen rates and US/EU rates closes; yen is undervalued; 12-18 months case for stronger yen is in place; short-term 160 level is a test.
Asks if similar hawkish signals will come from BOE, ECB, and Fed.
Joumanna Bercetche
Manpreet Gill
More so in Europe than US due to gas price sensitivity and ECB's singular focus on inflation; ECB may hike once as insurance; Fed has more room to sit tight.
Asks about $100 oil not being an economy killer and what the economy killer would be.
Joumanna Bercetche
Manpreet Gill
$100 is not an economy killer when adjusted for inflation and energy efficiency gains; high oil prices are still a challenge; question is whether it's more a growth or inflation challenge; in US, job market is weaker than 2022; more upward inflation revisions in Europe, more downward growth revisions in US.
Asks if overtightening into this inflation shock would be a mistake.
Joumanna Bercetche
Manpreet Gill
Prudent to wait and see; headline CPI rise from oil is expected, key is second-order effects; pushed out Fed rate cut expectations to tail end of year.
Asks about fixed income trades.
Joumanna Bercetche
Manpreet Gill
Great time to lock in yields on short-to-medium duration bonds, high yield, EM bonds; markets are too hawkish, keeping yields higher than they should be; opportunity more in EM bonds at index level and short duration high yield.
EM bond benchmark is evenly split between importers and exporters, providing balance.
Asks about hedging against a potential flare-up in the Middle East.
Joumanna Bercetche
Manpreet Gill
Prudent to add hedges: TIPS (inflation expectations first), gold (long-term stagflation hedge), and energy-correlated equities on reversals.
