Summary

Andreas Steno highlighted the great discrepancy between east and west – Asian trends are more benign than western trends. Money growth in the US is negative, positive in China. With stability of US deposits in question and an inverted yield curve, banks are not profitable. Bank failures are still far from 2008 levels, but the trend is not favourable, and we could get there over the year. Emergency lending, as seen through M2 normalised, is at 2008 levels, and the Fed balance sheet is shrinking. USD liquidity will shrink also due to the debt ceiling. Andreas predicts USD funding stress from June onwards. The Euro area will not be a haven in this environment as demand for loans is gone leading to credit contraction in addition to the lending composition looking weak. On the other hand, Chinese trends point to decent growth in 2023 which in turn could spill-over to a Japanese rebound in optimism. Andreas recommended Short EURUSD a steepener in Z4 Vs Z5 in SOFRS or a steepener in Z3 vs Z5 in EURIBORS and Long Japanese equities with naked JPY exposure. In short, buy bonds in the west and equities in the east.

Topics