Wednesday, July 26, 2023

“In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.” – Eric Hoffer ||

Hello all! On this day in 1609, an English astronomer called Thomas Harriot sketched the first map of the moon, six months ahead of Galileo’s better-known drawings. Fast forward 414 years, and we are scrambling to set up manned bases on that terrestrial body. Human curiosity is just amazing.

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WHAT I’M WATCHING

Watch the lags. We can appreciate the consumer and corporate resilience shown so far this year – solid profits and more people in jobs are to be celebrated. But a sharp shift is coming, because no matter how much we may insist that “this time is different”, some rules don’t change. More on this below.

African friends. Recent developments in Africa suggest that diplomacy is struggling to keep up with just how fast alliances are changing. This has far-reaching consequences for global finance. More on this below.

Fedspeak. A 25bp hike today is pretty much in the bag, so no suspense there. What I will be listening for is the tone around how optimistic the FOMC board is regarding the progression of inflation. Will it consider the battle won, or will it choose cautious words and hint at more hikes ahead?

Central bank divergence. This week, we also have key meetings from the European and Japanese central banks. The ECB seems to be moving as close to lockstep with the Fed as possible, but Japan could deliver some surprises, with inflation creeping up and a monetary policy long due for an overhaul. Apparently, almost 20% of economists expect the Bank of Japan to tweak its yield curve control policy at its meeting on Friday. This could trigger some volatility in US Treasuries and exchange rates.

GOING DEEPER

This time is not so different