I’ll let the charts do the talking this week. This is always a good idea when it’s been a while since you’ve had a broader look at markets. As far as I can see, not much has changed. The U.S. CPI report is still the most important economic report of the month. The violent sell-off in response to what was a small upside surprise to U.S. core inflation in August is all you need to know. Markets would like to see a sustained roll-over in inflation, and an associated pivot in Fed tightening. So far, this is not happening. Equities have suffered badly in the wake of the August CPI data, and a 75bp rate hike from the Fed later this month is now a done deal. Some sell-siders have even stuck their neck out, calling for a 100bp hike. It’s gnarly.
Read MoreWhat’s happening in Ukraine is important. The fog of war remains thick, but the incoming news is increasingly clear. Ukraine’s counteroffensive is progressing more quickly than even the most optimistic experts had predicted. The latest reports suggest that Ukraine is on the brink on retaking Donetsk, and its airport, which would be extraordinary. There are now signs that Ukraine’s success on the battlefield is being admitted on Russian state TV. Assuming this news out of Ukraine is even partly true, we are now, in my view, in a very dangerous phase of the conflict. I am saying this precisely because Ukraine’s offensive itself is morally and politically unchallengeable. Ukraine has a right to defend itself, and to exploit its military initiative. Considerations about Russia’s potential response to what can only be described as a humiliation are absent, in both Kyiv and Western capitals. Such considerations might arise soon enough, but for now the sentiment is clear. Russia is getting a good beating and it had it coming. I wholeheartedly agree.
Read MoreI am still collecting my thoughts, and catching up with work, after holiday, so a few Random Shots are in order. For general reading inspiration I’d recommend Aeon, Arts and Letters Daily, The Hedgehog Review and The Point. I try to consume as much from all of these as I can, in between the mandatory market/investment-related research.
Read MoreIt's little over a year ago that that I almost choked on my coffee when I read in the FT that Blackrock, one of the world’s largest asset managers, was recommending investors to increase their allocation to Chinese equities and bonds. This wasn’t because I thought this was a bad investment, per se, The comment by Wei Li, chief investment strategist at Blackrock, that Chinese assets are under-represented in portfolios given the relative size of China’s financial market is probably true. More interestingly, in a world where (some) economists are worried about the imbalanced trade relationship between the US and China—due mainly to subdued Chinese domestic demand and excessive savings—a reversal in capital flows between the world’s major economies is exactly what the doctor ordered. This is especially the case if, as is customarily hoped, it coincides with a liberalisation of and the opening of China’s capital account, and more freely floating CNY.
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