Alpine Macro's Blog

03 December, 2021

Fed Versus ECB

This chart shows the preferred price measures of the Fed and ECB. The Fed targets the PCE deflator, whereas the ECB focuses on the harmonized index of consumer prices (HICP). Based on these price indices, inflation rates in the two economies have been largely identical for the last two decades. Currently, U.S. inflation is running at 5.0% versus 4.9% in the eurozone.

Despite very similar inflation rates, there is a chasm in the market’s outlook for central bank policies. Interest rate futures are pricing an early and rapid tightening from the Fed, while the ECB is expected to be slow and measured.

Will there be some convergence in the expected path for Fed and ECB policy rates? What will be the investment implications?

Harvinder Kalirai
Harvinder Kalirai

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26 November, 2021

Cut Cyclical and Boost Defensive Equity Exposure

The Chart shows that relative cyclical/defensive equity performance is “joined at the hip” with long-term inflation expectations. This holds true for both domestic-oriented and global-oriented stocks. One-sided upside inflation surprises and a surging dollar cannot last forever. Higher equity volatility in 2022 should also lend support to defensive plays.

But not all defensive equities are created equal. Some normally stable companies, such as consumer and health care services, have been hammered by the pandemic. Others, such as commercial services, have been and will remain steady. Still others, such as utilities and telecom services, face structural headwinds like stranded energy assets that warn against bottom-fishing.

David Abramson
David Abramson

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22 November, 2021

One-Sided Inflation Surprises: How Much Longer?

The Fed is under intense pressure to “do something”. Money markets keep ratcheting up and bringing forward expected Fed rate hikes as one-year inflation expectations go vertical. Consumers are spooked by a rising cost of living. Yet, under the surface, long-term inflation expectations are grounded, judging from 10/2-year breakeven spreads and 5-year, 5-year forwards. Inflation relief is not imminent, but that could be the big theme for next year. Among the winners: Big Tech, homebuilders and energy stocks.

David Abramson
David Abramson

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18 November, 2021

Japanization of the U.S. Economy?

Is there such thing as “Japanization” of the US economy? Here you will find my take on this important issue, along with those from Mohamed El-Erian, Jim O’Neil, Richard Koo, Takatoshi Kato and others.

Chen Zhao
Chen Zhao

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18 November, 2021

Chinese Reflation: Reaching An Inflection Point?

China’s latest macro numbers confirm that the economy has continued to decelerate across the board. The upshot is that Chinese policymakers appear to be awakening to the deteriorating growth numbers and are stepping up easing efforts, particularly in the real estate sector. We have been repeatedly warning that immediate policy loosening is urgently needed to avoid a major economic slump and a hard landing in the housing sector. It is encouraging that the Chinese authorities are finally taking action. What does this mean for Chinese growth? How will Chinese stocks perform Where does the RMB fit in?

Yan Wang
Yan Wang

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