Macro Matters April 2022

(Source: Merlea Macro Matters)


The debate over inflation continues to evolve. A year ago, no one was talking about inflation in the United States or anywhere else. Six months ago, inflation was clearly accelerating, but the evidence was strong that it was driven by supply chain disruption, suggesting that a restoration of supply chain efficiency was all that was needed to reduce inflation.

Two months ago, the conventional wisdom was rapidly shifting toward worry that inflation would be more prolonged and problematic than previously expected. The view was that inflation was becoming embedded in the expectations of businesses, workers, and consumers and that this would become self-fulfilling. That is why central banks, led by the Federal Reserve, were starting to tighten monetary policy.

Now, with the war in Ukraine causing a severe increase in the prices of food, energy, and metals and exacerbating supply chain disruption, and with the renewed COVID-19 outbreak in China threatening to weaken global supply chains, there is growing angst about inflation.  There is concern that the genie has been let out of the bottle and that suppressing inflationary pressure will now require a much more severe tightening of monetary policy, even at the risk of slowing or reversing economic recovery.

With the US Federal Reserve starting the process of tightening monetary policy, it appears that there is a growing confluence of monetary policies in many countries, with the Bank of England (BoE) and Taiwan’s central bank having recently boosted interest rates. In addition, the European Central Bank (ECB) signalled an end to asset purchases.

The concurrent actions of many central banks are a response to the recent surge in global inflation. In addition, many central banks are averse to allowing the interest rate differential with the United States to rise sharply lest this leads to massive capital outflows and currency depreciation. Meanwhile, the war in Ukraine represents a challenge for central banks that must focus on both inflation and employment.

The war in Ukraine also threatens to inflict significant problems on food distribution in many emerging countries, according to a report from the Conference Board. The report notes that Russia and Ukraine, together, account for about 6% of global grain production and about 16% of global grain exports. In addition, they produce a sizable share of the world’s fertiliser. The war could disrupt much of this. In Ukraine, crops might not be planted in sufficient numbers and transport is already becoming problematic as shippers’ recoil from entering Russian and Ukrainian ports.

Russia’s invasion of Ukraine is threatening food security across the world, with prices for energy, fertiliser and food reaching all-time highs, New Statesman analysis found.

A sharp decline in Russian and Ukrainian production could render shortages and much higher prices in many emerging countries, especially in the Middle East and Central Asia. However, existing stockpiles in other countries, especially the United States, India, and the European Union, could be used to fill in the gaps. This could be critically important in maintaining social and political stability. Experience tells us about that significant surges in food prices have presaged social and political upheaval in several Middle Eastern countries.


Bond exposure is commonly thought of as a defensive strategy, but bonds haven’t always been a good diversifier to equity exposure. In fact, equity/bond correlations were mostly positive for much of the period from 1976 through 2000. Even in the 1960s, when inflation was muted, stock/bond correlations were more muted but not as negative as they’ve been over the past two decades. The post-2000 diversification power of bonds supported a relatively scarce supply of safe assets globally, as a product of the global “savings glut,” increased financialisaton, low and stable inflation and more transparent, predictable central bank policy.

On a long-term basis, we expect these trends to continue. Governments have been winding down COVID-19 fiscal-stimulus programs, reducing supply even after accounting for the end of quantitative-easing programs. As a result, safe assets are likely to remain scarce.

On the other hand, real, or inflation-adjusted, yields remain low, so bonds are still expensive. Given the higher upside risk to inflation from the Ukraine war, and with rate hikes on the way, the diversifying potential for sovereign bonds has been—and is likely to remain—below normal. Even post-2000, when bonds were diversifying to equities, the repricing of short-term bond yields meant that correlations were less negative than average during hike cycles.

Since the early 1980s, the US 10-year yield has tested the top of the channel on numerous occasions only to be rejected and subsequently fall back into the range. Investors have increasingly been “conditioned” by this over the decades with an “ingrained buy the dip mentality.” However, with real negative rates now at the greatest deficit to nominal rates in forty years, buyers are hesitating. Has the “inflationary straw” finally broken the camels’ back?”

I would expect correlations to revert as markets gain clarity on the longer-term impacts of the war, as inflation starts to show signs of peaking and as central-bank policy paths become better established. Another possible path is one where the negative impact from inflation is strong enough to trigger a recession, resulting in a pause or even reversal of rate hikes. In fact, market pricing has started to call for cuts in late 2023. Given the below-average expected returns from bonds and diminished diversification benefit in the near-term, we believe it makes sense to be tactically underweight to direct duration exposure.

Listed Property

Australia’s listed property stocks have turned in their best reporting season in a decade, prompting price target upgrades In recent months, the target price uplift matched the extent of average earnings upgrades, also 2.1 per cent, while net tangible asset growth came in at around 9 per cent. This is good news for a sector which experienced hefty write-downs in retail real estate during the height of the pandemic.

Despite the strong fundamental backdrop, share price performance year to date has been mixed due to fears of rising interest rates. Major mall owners – which include Vicinity Centres and Westfield operator Scentre – with re-leasing spreads increasing which reflects the difference between old and new rents improving while asset values also rose amid a record run in mall deals.

Shopping centre visitation also rebounded in November and December after lockdowns ended and again in February as the omicron wave receded. Office landlords – such as Dexus, the country’s largest holder of office towers – which have also felt the disruption caused by increasingly flexible work practices held up relatively well with more than 2 per cent in earnings growth.

Australia has benefited from an uptick in white collar employment with the national unemployment rate at its lowest level in 13 years. This improvement in employment levels has translated into stronger tenant demand for office accommodation across Australia.

There is demand for better COVID-safe work environments and increased demand to be in areas that provide short commutes to improve employee satisfaction and attract the best talent.

Listed property has way outperformed the income return generated from other sorts of income producing asset classes such as fixed interest and infrastructure since 2010, and given REITs have a strong focus on income, they remain a compelling solution for investors seeking higher-yielding assets.

We continue to favour REITs with positive free cash flow and a strong balance sheets coupled with active managers who can add value through development and capital management. 2022 will continue to be a year of structural shifts, favouring the growth of the alternative sectors and increased M&A activity as REITs look to grow and diversify earnings.


Firstly, despite central bank messaging about transitory, low and gradual inflation, Australian consumer prices are rising at 3.5% annually with increases expected to accelerate. The Reserve Bank of Australia’s preferred trimmed mean inflation figure ignores 15% of the highest and lowest price rises. Secondly, current inflationary pressures reflect an unusual combination of demand and supply factors, many of which are likely to persist. Demand has been underpinned by pent-up post-lockdown spending, low interest rates and central bank liquidity.

Financed by central bank bond buying, government spending (sometimes poorly targeted) has substantially exceeded declines in income during the lockdowns. Simultaneously, short, and long-term supply issues, now exacerbated by the Ukraine conflict, have created shortages of commodities, goods, and services. Oil prices have risen five-fold since the artificial lows of 2020 due to energy politics and a poorly planned and executed energy transition to renewables. Higher food prices reflect extreme weather, especially droughts and floods.

Supply chains have still not fully recovered from isolation requirements, mobility restrictions and border closures which disrupted production and transport links. If China’s zero Covid-19 policy continues, periodic interruptions of factories and ports are possible. Geopolitical tensions between the west and China and now, Russia and associated trade restrictions and sanctions have affected trade, technology transfers and investment flows. All these factors result in higher prices, delays, and increasingly unreliable availability.

Thirdly, policymakers lack the tools to bring inflation under control, at least quickly. Standard operating procedure is to suppress demand to match production. But winding back government spending, increasing rates, and reversing loose monetary policies may jeopardise a fragile recovery in an economy addicted to stimulus and facing other hazards. Actions, such as a one-off payment to the worst affected or reducing taxes on fuel, will have limited and short-term impact. If not offset by adjustments elsewhere, they will add to – not reduce – demand, increasing price pressures and may worsen public finances.

 Increasing interest rates is problematic. With inflation high, to be effective, central banks would have to rise sharply – by at least 4 to 5% – to normalise real interest rates. In the “everything bubble”, such increases could trigger lower real estate and share prices, far beyond the relatively modest corrections experienced since late 2021. It would also increase interest expense on the high level of government, business, and household debt, especially mortgages.

Financial distress for over-stretched borrowers risks a new financial crisis. This means any rate rises will have to be carefully calibrated to avoid side effects, limiting their efficacy.

Global Markets

Globalisation is being tested like never before after the hit of Covid and war. The pandemic had already raised questions about the world’s reliance on an economic model that has broken trade barriers but made countries heavily reliant on each other as production was delocalised over the decades. Companies have been struggling to cope with major bottlenecks in the global supply chain.

Russia’s war in Ukraine has raised fears about further disruptions, with everything from energy supplies to auto parts to exports of wheat and raw materials under threat. Prior to the conflict, the global recovery from the pandemic was expected to continue in 2022 and 2023, helped by continued progress with global vaccination efforts, supportive macro-economic policies in the major economies, and favourable financial conditions.  The war in Ukraine will however hinder global growth and aggravate inflationary pressures, creating a new negative supply shock for the world economy, just when some of the supply-chain challenges seen since the beginning of the pandemic appeared to be fading.  The effects of the war will operate through many different channels and are likely to evolve if the conflict deepens further. In the near term, many governments will need to cushion the blow of higher energy prices, diversify energy sources, and increase efficiency wherever possible.

Year-on-year inflation in the OECD area continued to climb, reaching 7.2% in January 2022, as measured by the consumer price index (CPI) – its highest rate since July 1991. This was up from 6.6% in December and just 1.6% in January 2021. (Excluding Turkey, January CPI was 5.8% vs. 5.5% in December.


The US yield curve staged the first inversion in 16 years, as markets price in Federal Reserve policy tightening and the associated follow through risks to economic growth.

The Fed may look to raise interest rates in 50-basis-point (0.5%) increments rather than the standard 25-basis-point increments to combat the high levels of inflation that have been seen recently. Doing this would accelerate the raising of rates, bringing the effects of those hikes forward.  Mr Powell also pushed back against concerns that an inverted yield curve would signal the economy is headed for a recession, saying it “made more sense to focus on the shorter end, where curves remain steep.” He said this because while they believe the “US is currently in a strong position” (in terms of its labour market), “high inflation jeopardises the country’s otherwise strong economic recovery”.

Powell also mentioned that the effects of the war in Ukraine constitute a “supply shock one would tend to want to look through”. This signals that the Fed does not believe it is able to control inflation coming from the disruptions to the supply of food and other raw materials in Ukraine, as monetary tools generally only influence demand, rather than on supply. I continue to believe the Fed will however tread cautiously and “err on the side of caution” and adjust rates at a pace that won’t compromise growth. However, the risks are that inflation will remain elevated for some time. Is the U.S. economy headed for a recession? Economists — are mixed on this question. Most economists rate the chances of a near-term U.S. recession at significantly less than even odds. That’s despite the outlook for Europe and the global economy continuing to deteriorate.

The economy is still growing, and most indicators show that. But most also don’t yet reflect fallout from the Russian invasion and the surge in oil prices over the past couple of weeks. A widely accepted gauge for identifying economic turning points comes from the Leading Economic Index, a grouping of 10 indicators. It’s still flashing green but less brightly than before. The index includes a range of statistics tracking manufacturing orders, consumer sentiment, housing building permits, employment, credit/interest rates and more.


Europe looks incredibly vulnerable and is facing a recession. It will be forced to accommodate millions, possibly 10 million Ukrainian refugees, who will have to be clothed, fed, and sheltered, and they’ll be doing that for a long time since Putin is turning their homes into smoking rubble that will take years to rebuild.

The European Central Bank will be between a rock and a hard place – damned if it raises interest rates to combat inflation and defend the Euro, damned if it doesn’t. I suspect it will opt to defend the Euro. European equities are caught in the crosshairs of the war between Russia and Ukraine, down 12.6% Year to Date. Equity risk premiums in Europe have risen sharply owing to accelerating earnings yields despite the recent rise in bond yields. Europe is most at risk due to its high dependence on Russia for energy and its proximity to the situation.

The minutes of the ECB’s February meeting confirmed a marked a shift to a much less sanguine view of inflation.

The war in Ukraine is fuelling concerns of disruption of gas supplies to Europe. Rising energy prices are passing through to headline inflation mechanically, as we saw in March.

Eurozone headline inflation jumped to 5.8% in February, driven by higher energy costs, and this trend is likely to accelerate given. The intensification of the conflict. The core inflation rate – excluding energy, food, alcohol, and tobacco – also surged to 2.7%, reversing January’s fall as both services inflation and non-energy industrial goods inflation accelerated. Rising energy prices could soon start to be a drag on consumer spending. However, some of the passthrough to retail would be limited in several European countries and those offering government offset schemes such as France and Italy.

The complex combination of a war and severe sanctions are likely to prompt the European Central Bank (ECB) to ignore higher inflation and postpone the withdrawal of the stimulus for now. However, the war in Ukraine complicates the ECB’s dilemma of tackling accelerating inflation that cannot be softened by monetary policy.

Russia’s invasion of Ukraine is adding to the long list of constraints and bottlenecks that are impacting global supply chains since the start of the pandemic. As a result, commodity prices are surging higher amidst concerns of supply disruptions and port closures.

While European equity performance has declined in lockstep with tightening financial conditions, we feel investors are discounting three important factors in their allocation to Europe (1) consensus earnings revisions re-accelerating for 2022 (2) continued fiscal support via the Resilience and Recovery Fund (3) monetary policy is likely to remain accommodative until de-escalation of the war.

United kingdom

Britain’s recovery from the Covid-19 pandemic is being put at risk by the escalating price pressures and blow to business confidence caused by Russia’s invasion of Ukraine, the latest snapshot of the economy has shown. The flash estimate of activity from S&P Global and the Chartered Institute of Procurement and Supply (Cips) found the UK’s service sector growing rapidly but optimism about the future at its weakest in almost 18 months.

The BoE has begun its rate hiking cycle, lifting rates at the past three meetings to 0.75% but this will do little to curb the energy shock, which is being driven by supply issues and the Ukraine war.

Gas prices have risen sharply over the past year, but the OBR, which publishes its economic forecasts twice a year, said Russia’s invasion of Ukraine had “major repercussions for the global economy, whose recovery from the worst of the pandemic was already being buffeted by Omicron, supply bottlenecks, and rising inflation”. Business expectations are now at their lowest for almost one and a half years, pointing to a marked slowing in the pace of economic growth in coming months.

The Bank of England’s traditional response to rising inflation is to raise interest rates. It has done this three times in the past few months. That means some people who have borrowed money could see their monthly payments go up, especially on mortgages tied to the Bank of England’s rates. The idea is that when borrowing is more expensive, people will have less money to spend. As a result, they will buy fewer things and prices will stop rising as fast. But when inflation is caused by external forces, such as the global squeeze on energy prices, then this might not be the answer.


Japan’s relatively slow economic recovery and low inflation have bolstered the case for the Bank of Japan to keep its monetary easing for an extended period, in sharp contrast to the U.S. Federal Reserve, which has apparently entered a rate hike cycle to fight inflation.

Source: IHS Markit and Jibun Bank. Jibun Bank Composite, Manufacturing and Services Purchasing Managers’ Index. Readings above 50 indicate an overall increase compared to the previous month, and below 50 an overall decrease

The divergent policy paths have weakened the yen against the dollar, with the BOJ making a rare move into the bond markets to keep 10-year Japanese government bond yields from rising above its implicit upper limit.

Core consumer prices in Japan’s capital rose at the fastest annual increase in more than two years in March, propelled by soaring energy costs. The relentless uptrend in global commodity prices following the war in Ukraine could ruin import-reliant Japan’s fragile recovery from the pandemic, even as domestic COVID-19 infections wane and social distancing curbs are reduced. The Tokyo core consumer price index (CPI), which excludes volatile fresh food but includes energy items, rose 0.8% year-on-year in March, the fastest pace since December 2019 and higher than a median market forecast for a 0.7% gain. It followed a 0.5% rise in February. It was only recently that the nation became free of anti-virus restrictions for the first time since early January after quasi-states of emergency ended on March 21 in 18 prefectures including Tokyo and Osaka.

Russia’s invasion of Ukraine has heightened geopolitical risks and raised supply concerns, sending crude oil and other commodities sharply higher to the detriment of the Japanese economy.  The ruling Liberal Democratic Party will start discussions on the specifics of the economic package. Key items likely to be discussed in the coming weeks include a plan to hand out ¥5,000 per pensioner and the reactivation of a provision that would allow for a temporary cut in gasoline taxes amid surging crude oil prices.


China is in an entirely different position as it tries to maintain zero Covid with sharply rising cases, and the lingering effects of last year’s property crackdown. Now it faces much less inflation pressure and can maintain its monetary policy easing cycle, as well as intensifying its domestic investment programs aimed at technology independence, as well as infrastructure investment.

The Financial Stability and Development Committee (FSDC), the top economic decision makers, made a public statement last week vowing to support financial markets and economic growth. It covered a range of issues including that monetary policy will be ‘proactive’ to support credit expansion and economic growth.

Consumer price rises might seem subdued now, with headline inflation running at 0.9 per cent over the past two months to February, but higher prices could start feeding up the chain soon. So, while the rest of the world is grappling with high inflation and either raising interest rates or getting ready to, the People’s Bank of China (PBoC) has no problem with inflation at all and will soon be cutting interest rates. China could therefore emerge as possibly the only economic winner from the Ukraine war, as well as geopolitics depending on how it plays the game from here (that is not actually supporting Russia and attracting sanctions).

On top of this dynamic, capital-flow data are suggesting some level of concern among global investors about the security of investments in China, given its diplomatic friendship with the much-sanctioned Russia. The Institute of International Finance—an association of the world’s biggest financial institutions—on Thursday reported a surge in outflows of money from China starting in late February, when the invasion of Ukraine began. “Outflows from China on the scale and intensity we are seeing are unprecedented,” IIF economists led by Robin Brooks wrote. “We think these outflows are notable enough to at least raise the possibility that Russia’s invasion of Ukraine may be pushing global markets to look at China in a new light.” These capital-account flows offset China’s continuing current-account surplus, which widened during the pandemic as consumers abroad gorged on Chinese imports and Chinese tourist spending overseas evaporated.


Now we face a situation where inflation pressures will be even larger in the near term and economic growth is likely to weaken. Raising interest rates will help dampen inflation to some extent, but it achieves this by reducing demand which puts even more downward pressure on economic growth.  Faced with this difficult situation it is not certain exactly what central bankers will do. Our base case is they still need to put interest rates up in the near term but may not raise rates as far in the medium term.


Commodity producers are well placed, and we have good exposure of Australian resource companies. These resources companies are a great addition to portfolios as their earnings will benefit as higher commodity prices cause all sorts of problems for many other businesses and broader markets. fertiliser prices are soaring, as supply pressures have gripped the market, following Russia’s attack on Ukraine.

The Wall Street journal noted that Russia, as the world’s biggest exporter of fertilizer, “is facing crippling sanctions from the West leading to a global drop in provisions. That issue is compounded with surging prices of natural gas, another Russian export that’s key to the creation of fertiliser. The price of the crucial resource is at a record high since the index started in 2002. It’s now about $1,200 per short ton up from around $600 a year ago. And compared to 2020, fertilizer prices have quadrupled”. Fertiliser is used throughout the global food supply chain


The role of the US dollar in international trade is well established, but the world has been slowly moving towards a more “multicurrency” system, especially with the increasing relevance of China in international trade. While gold is not an official currency, it’s an important part of the monetary system, especially in its role as a high-quality and liquid component to foreign reserves. In addition, contrary to fiat currencies, gold bullion is no one’s liability. And while it’s not often used as a direct means of exchange, it’s often an invaluable source of collateral and a hedge against systemic risk events. This partly explains the increase in demand for gold by central banks over the past decade

The move by the US to push Russia off the global financial grid has exposed the power of the US dollar reserve currency system. Many countries will now see being tied to the US dollar via global trade as a vulnerability that exposes them to the US financial sector, and consequently US political leverage.

Gold surged past US$2,000/oz, nearly reaching the previous 2020 record. This time, though, it was driven by continued concerns about the war in Ukraine, swelling commodity prices, and, more generally, the potential implications for the global economy. And while the gold price has come down its high, it’s still approximately 4% higher month-to-date.


With Brent Crude above $125 a barrel is threatening stoke inflation across Asia, forcing central banks to decide whether to respond to higher prices with tighter policy, or hold off amid the blow to economic growth. If it took five decades for oil’s share in the global energy mix to fall from 45% to 31%, it remains an open question how quickly the world – now with its avowed goal of net-zero carbon economies – can further reduce that share.

Motorists’ switch to electric vehicles is expected to cause a tipping point in global oil demand, sending it into decline. Passenger vehicles are the sector with the largest oil demand use, consuming around one-quarter of the oil used worldwide.

Australia’s position as a net energy exporter means it is partly buffered from the oil shock. The nation is a major exporter of liquefied natural gas, shipments of which hit a record high in 2021 driven by a surge in energy demand and prices. The trade surplus widened to A$12.9 billion in January, the largest windfall since August. Economists expect an ongoing boost to export revenue and national income.

Sector 12 Month Forecast Economic and Political Predictions
AUD 72 -80c The move by the US to push Russia off the global financial grid has exposed the power of the US dollar reserve currency system. Many countries will now see being tied to the US dollar via global trade as a vulnerability that exposes them to the US financial sector, and consequently US political leverage.
Gold $US1920-/oz- $US2200/oz

The $2000 level is of course a large, round, psychologically significant figure, and therefore you need to pay close attention to the fact that we may see a little bit of selling pressure there.

The fallout of the Russia-Ukraine conflict may be that Russia will not only not sell its gold reserves but will also return to being a large gold buyer after the Ruble stabilises. Given Russia’s experience with forex reserves, it is possible that other countries may prefer to hold a larger share of their reserves in gold over the long run as well.
Commodities Stocks in the following sectors have long term tail winds:

Nickel and cobalt hold particular importance to the construction of batteries for electric vehicles (EVs). The most used battery type for EVs is the lithium-ion (Li-ion) battery, the key minerals for which are lithium, cobalt, nickel, graphite, and manganese.

There’s no denying the world’s appetite for critical minerals, a reality being steered by the decarbonisation pursuit and the necessity to replace fossil fuels with batteries.

If you look at the global dynamics of supply and demand, then I would say that Australia does produce most of those critical minerals at this point. It has the most advanced infrastructure; it has the most advanced facilities and projects.

Property BUY

Commercial real estate has historically provided a solid hedge and performed well in periods where inflation increases against the backdrop of economic expansionary periods.

Property prices and rental income tend to rise when inflation rises. A REIT consists of a pool of real estate that pays out dividends to its investors. Moderate inflation poses little risk to commercial property. We focus on strategies that assist in offsetting the potential negative impact of rising inflation, including a focus on long leases with fixed reviews, interest rate hedging and high-quality assets.
Australian Equities ASX All Ords 6800-7900

During times of uncertainty commodities, property and industrials are seen as safe havens for investors. It is not surprising that these sectors have been dominating the market over the last 3 months.

The market remains in a volatile period, with high inflation, rising interest rates and the war in Ukraine continuing to dominate world markets. As such, investor sentiment remains low and price swings remain high.
Bonds BUY

Australian 10yr forecast yield 2.5% -3.5%

Inflation link Bonds as we see inflation as persistent and settling above pre-Covid levels. We prefer these as diversifiers in the inflationary backdrop.

We see long-term yields move up further as investors demand a higher premium for holding governments bonds. We prefer short-maturity bonds instead.




Cash Rates Expecting first rate rise end June 2022 Cash & bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.10%.
Global Markets
America Stand Aside



Covid looks to be past the worst but consumers, the backbone of the US economy, are feeling the pinch from inflation and sentiment is weakening. Rising real yields as a result of a more hawkish Fed are still putting pressure on high multiple growth stocks.
Europe Neutral

Underweight European equities as we expect the energy shock to hit European growth hard.

Neutral UK equities. We see the market as fair valued.

The escalation of the Russia-Ukraine conflict has introduced material risk of war in the rest of Europe. How the situation develops will drive near-term sentiment, but the immediate impact will be higher inflation and lower growth, further complicating the ECB’s upcoming decisions.

The Bank of England, meanwhile, must tread carefully as the negative consequences of overtightening are rising. The market is still expecting inflation to be significantly higher than current BoE targets.

Japan Start buying Japan equities on supportive monetary and fiscal policies – and the prospect of higher dividends and share buybacks. Valuations are cheap, earnings growth is picking up, and monetary policy and fiscal policy should remain accommodative. However, we are monitoring the situation closely because Covid cases are once again accelerating, while rising US yields could negatively impact equity market sentiment.
China BUY

Chinese stocks as we see a shift to easier policies across the board. China’s ties to Russia have created a new geopolitical stigma risk that could pressure some investors to avoid Chinese assets.

Our BUY view is driven by China policy easing. We are watching the Covid situation in China closely for its impact on supply chains and further monetary and fiscal support.

China’s zero-Covid policy threatens further lockdowns and disruption to manufacturing. These forces could drag on GDP and be the impetus for broader, less targeted easing.



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