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“Smart Money: How digital currencies will win the New Cold War - and why the West needs to act now”, the book Brunello Rosa has written with Casey Larsen for Bloomsbury Publishing, will be available in all major bookshops from October 24th, 2024.
This book discusses the fundamental theme of the “geopolitics of central bank digital currencies” in a non-technical manner, and is aimed at the general public. It does not shy away from discussing their most controversial implications, including the risks to privacy, the stability of the banking system as we know it, or the re-organisation of the global financial architecture around these new instruments.
Go to the book's webpage on brunellorosa.com
In their latest podcast Brunello Rosa and Manas Chawla discuss the “bipolar” behaviour exhibited by markets in the last few weeks.
11 October 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss the two conflicts in Ukraine and the Middle East continue, with no end in sight.
4 October 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss why the election in Brandenburg confirmed the AfD’s rise in East Germany
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20 September 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss why the Cold War between US and China is intensifying.
13 September 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss the difference between defending the “freedom of speech” and spreading misinformation.
6 September 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss why the Israel-Hezbollah military exchanges re-open the risk of a further extension to the conflict in the Middle East
30 August 2024
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23 August 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss why the recent market rout masks a healthy repricing of valuations
16 August 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss how major central banks are at a turning point, and its implication for global markets.
11 August 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss why the US elections are at a crossroads after the recent events.
2 August 2024
In their latest podcast Brunello Rosa and Manas Chawla discuss why the double mistake of “Ursula” and “Giorgia” doesn’t bode well for the EU
26 July 2024
In June 2023, Rosa & Roubini Associates has been recognised for the second consecutive year as the best independent macroeconomic research & advisory firm by Corporate Vision Magazine
R&R provides independent research on the global economy
R&R provides independent advice on global issues
by Brunello Rosa
14 October 2024
In our column last week we discussed the extraordinary performance of financial markets during the past few weeks, and how a determining factor of this performance was the stimulus package introduced by the Chinese authorities in late September. We discussed how Hong Kong’s Hang Seng index had gained 30.3% in a month, making up almost the totality of the 33.4% increase it had recorded from January; and how in mainland China the Shanghai stock index had managed to reverse its previous decline: a 20.6% increase in the last month had brought its yearly performance into positive territory, with a 12.5% gain year-to-date up to that point.
In fact, in September the Chinese authorities implemented a series of stimulative measures. On the monetary front, the People's Bank of China (PBOC) introduced several monetary easing measures to inject liquidity into the financial system, support the flagging property market, and encourage lending to businesses. These included cutting the seven-day reverse repo rate by 20 basis points, from 1.7% to 1.5%, and reducing the required reserve ratio (RRR) for banks by 50 basis points. The RRR cut would lower the weighted average RRR for financial institutions to about 6.6%, while banks that previously implemented a 5% RRR would not be involved in the cut. This RRR cut was expected to inject approximately 1 trillion yuan worth of long-term liquidity into the financial market.
On the fiscal side, Chinese authorities introduced a series of fiscal-easing measures aimed at bolstering the country's slowing economy. Key elements of this package included a significant increase in the debt ceiling, to address the growing local government debts. The government aims to replace hidden local government debts with more transparent liabilities, easing fiscal pressure and freeing up resources for economic development. Additionally, the issuance of 2.3 trillion yuan in special-purpose bonds was announced to support infrastructure projects and stabilize the property market by promoting affordable housing.
In the financial sector, the authorities plan to issue special treasury bonds to recapitalize major state-owned banks, enhancing their capacity to support the real economy. These fiscal moves are complemented by targeted support for vulnerable groups, including increased financial aid for students and one-time subsidies for low-income households to stimulate consumption. These measures are part of a broader strategy to ensure that China meets its 2024 economic growth targets (5% GDP growth) despite challenges in fiscal revenues and rising debt risks.
In spite of this long list of measures, last week Chinese stocks suffered their worst fall in 27 years. On Wednesday the Shanghai stock exchange lost 6.6%, while the Shenzhen composite index tumbled by 8.2%. According to press reports, this fall in equities on Wednesday was caused by the disappointing outcome of the National Development and Reform Commission on Tuesday. On that day, the Commission held a press conference in which officials were expected to reveal the details of the stimulus measures announced in September. Instead, the NDRC officials mostly reiterated September’s announcements and commented on the general economic situation, thus disappointing investors.
However, we believe this is likely to be a temporary hiccup. The Chinese economy is ailing, and deflation is biting, driven by an incipient decrease in population. If China does not want to repeat the experience of Japan, where the economy was mired in deflation for almost 30 years, it will need to provide all the needed fiscal stimulus. That is the reason China’s finance minister held a press conference on Saturday to reassure market participants that China is ready to do more spending and borrowing to support banks and the ailing economy. Additionally, we expect another 25 to 50 bps cut in the RRR by the end of the year, depending on market and economic conditions. We expect this “bad news for the economy, good news for the market” situation to prove supportive for equity markets into the year’s end.
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by Mirko Giordani
16 October 2024
by Shane Gravel
15 October 2024
by Brunello Rosa and Nato Balavadze
17 October 2024
by Lāsma Kokina
10 October 2024
by Nato Balavadze
8 October 2024
by Marco Lucchin
9 October 2024
Week: 14 - 20 October
The Week Ahead: Inflation To Fall In EZ And UK; QoQ GDP To Advance In China; ECB To Cut Rates
In the US, in September, retail sales are expected to increase by 0.3% m-o-m (p: 0.1%).
In the EZ, in September, headline and core inflation rate are seen easing off to 1.8% y-o-y (p: 2.2%) and 2.7% y-o-y (p: 2.8%). In October ZEW economic sentiment index is expected to increase to 16.9 (p: 9.3). Still in October, industrial production is seen rising to -1.2% y-o-y (p: -2.2%). Among the largest EZ economies, in September, headline inflation rate is seen falling to 0.7% y-o-y (p: 1.1%) in Italy.
In the UK, in September, headline and core inflation rates are likely to ease off to 1.9% y-o-y (p: 2.2%) and 3.5% y-o-y (p: 3.6%). In August, unemployment is expected to remain at 4.1%. In September, retail price index is seen rising by 3.1% y-o-y (p: 3.5%).
In China, in Q3, GDP growth rate is expected to advance by 4.6% y-o-y (p: 4.7%). In September, industrial production is expected to increase by 4.6% y-o-y (p: 4.5%).
CBs to cut rates. In the EZ, the ECB is expected to cut its main policy rates by 25 bps, i.e. its i) interest rate on the ‘main refinancing operations’ to 3.40%; ii)interest rate on the ‘marginal lending facility’ to 3.65%; and iii) ‘deposit facility’ to 3.25%.
The Quarter Ahead: China Announces Growth-Boosting Fiscal Measures; Israel Plants To Target Iranian Military
China unveils fiscal stimulus measures to revive growth. China’s Finance Minister Lan Fo’an said the government has room to increase the deficit. The finance ministry announced a stimulus package to boost the economy, including increased government debt to aid low-income households, support the property market, and recapitalize state banks, though the size of the package was not disclosed. Economists agree China needs more fiscal support, with estimates ranging from 2 trillion to over 10 trillion yuan.
The US officials say Israel is planning to target Iranian military and energy sites in response to the October 1 attack, but no final decision or timeline has been set. The Israeli military is prepared, and a response could come during Yom Kippur. Iran's attack caused minimal damage in Israel.
Real Economy: Headline Inflation Fell In US And Germany; Retail Sales Rose In EZ And UK
In the US, in September, headline inflation rate eased off to 2.4% y-o-y (c: 2.3%; p: 2.5%), whereas core inflation rate rose to 3.3% y-o-y (c: 3.2%; p: 3.2%). On a monthly basis, inflation increased by 0.2% (c: 0.1%; p: 0.2%). In October, Michigan Consumer Sentiment edged down to 68.9 (c: 70.8; p: 70.1).
In the EZ, in August, retail sales increased by 0.8% y-o-y (c: 1.0%; p: -0.1%).
Among the largest EZ economies, headline inflation rate cooled off to 1.6% y-o-y (p: 1.9%) as expected in Germany.
In the UK, in August, IP is expected rose to -1.6% y-o-y (c: -0.5%; p: -2.2%).
Financial Markets: Stock Prices Increased; Yields Edged Up; Dollar Increased; Oil And Gold Prices Increased
Market Drivers: Stocks hit record highs boosted by positive surprises at the start of earnings season. NVIDIA's rise boosted growth stocks. Meanwhile, hopes for a half-point rate cut faded after a consumer inflation surprise. Bond yields rose on inflation data. In Europe, stocks gained on hopes of ECB rate cuts and more China stimulus.
Global Equities: Increased w-o-w (MSCI ACWI, +0.6%, to 852.73). The US S&P 500 index rose (+1.1% w-o-w, to 5,815.03). In the EZ, share prices increased (Eurostoxx 50, +1.0% w-o-w, to 5,068.55). In EMs, equity decreased (MSCI EMs, -1.7%, to 1,159.56). Volatility decreased rose marginally to 21.20 (VIX S&P 500, 52w avg.: 14.6; 10y avg.: 18.1).
Fixed Income: w-o-w, the 10-year US Treasury yields rose (+9 bps to 4.07%). The 2-year US Treasury yields edged up (+3 bps to 3.95%). The German 10-year bund yields increased (+6 bps to 2.21%).
FX: w-o-w, the US Dollar Index increased (DXY, +0.4%, to 102.89; EUR/USD -0.4%, to 1.09). In EMs, currencies declined (MSCI EM Currency Index, -0.6% w-o-w, to 1,771.01).
Commodities: w-o-w, oil prices jumped (Brent, +0.9% to 78.76 USD/b). Gold prices increased w-o-w (+0.2% to 2,674.20 USD/Oz).
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