Benign Globally, Messy Locally

Benign globally, messy locally - Aug. EM/DM Leading Indicator Watch

(August 26)

• Our global diffusions still point to steady growth and a fading inflation impulse. The calm is visible only in aggregate, as each country varies.
• For DM, UK is the clearest negative growth outlier, so we stay long SONIA Dec-27 futures (SFIZ7).
• We would fade any rise in AUD 2y yields back towards the year's highs above 4.75%. We are looking to re-establish long JPY after taking profit on our short CHF vs long JPY Aug 3.
• For EM, idiosyncratic risks override good growth LEIs. We take profit on our Indonesian equity long.

DM

• UK: Growth headwinds + fading inflation impulse => Stay long SONIA Futures (SFIZ7)
• Japan: Impossible trinity still not resolved, expect more JPY policy actions
• Australia: Housing headwinds + negative real wage growth => look to fade rise in 2y yields
• Sweden: Positive outlier as growth LEI remains very strong, retain bullish SEK bias

EM

• Brazil: Growth leading indicators remain resilient, waiting for October elections to pass
• S. Korea: Economy remains K-shaped, as semi boom has yet to trickle down
• India: RBI regime model remains hawkish, El Niño food inflation risks remain
• Indonesia: From extremely hated to less hated, take profits on equity long

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