Excellent article that spells out the current “big picture” global financial/economic situation
Fiscal stimulus raises the odds of an inflation overshoot, prompting the Fed to lean more hawkish than they otherwise might. Meanwhile, the deluge of Treasury supply needed to fund that stimulus is colliding with Fed balance sheet rundown to create a dollar liquidity shortage outside of the U.S. debt market. Exactly none of that is good for emerging market assets.
This is only happening cos Trump is president.
For Europe, the trade tension comes at a particularly inopportune time. Eurozone economic activity decelerated notably in Q1 and if that downturn proves to be something other than transitory, well then the trade friction with the U.S. could exacerbate it and derail the ECB’s plans to normalize policy. Throw in a dash of Italian populist seasoning, and you’ve got a particularly tenuous situation across the pond.
Should be an interesting second half.
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