16 Jan 2014
Flash: Ominous commodities - BAML
FXstreet.com (Barcelona) - David Hauner CFA, FX Strategist at BAML notes that commodities may be soft in USD terms, but for anyone living in South Africa or Turkey they are back to the record highs of the ominous summer of 2008.
Key Quotes
“In contrast, in PLN and RUB they are as low as they have not been since 2010. This divergence will have a significant impact on growth and inflation in 2014: weak pricing power means that higher commodity prices act as a tax on demand, slowing down growth and thus ultimately reigning in current account deficits and inflation.”
“For now, markets focus primarily on the short-term inflation uplift, but we believe FX pass-through will prove self-deflating, and rebalancing will materialize.”
“China's rebalancing is a closely connected disinflationary factor. CPIs in EEMEA are highly correlated with China's with a lag of a few months. In fact, the betas to China and to commodities are themselves highly correlated, likely as demand in China is the key factor driving both.”
“Thus, the sharp drop in China's headline inflation from 3.2% to 2.5% is likely to have a dampening effect on CPIs in EEMEA in the coming months.”
Key Quotes
“In contrast, in PLN and RUB they are as low as they have not been since 2010. This divergence will have a significant impact on growth and inflation in 2014: weak pricing power means that higher commodity prices act as a tax on demand, slowing down growth and thus ultimately reigning in current account deficits and inflation.”
“For now, markets focus primarily on the short-term inflation uplift, but we believe FX pass-through will prove self-deflating, and rebalancing will materialize.”
“China's rebalancing is a closely connected disinflationary factor. CPIs in EEMEA are highly correlated with China's with a lag of a few months. In fact, the betas to China and to commodities are themselves highly correlated, likely as demand in China is the key factor driving both.”
“Thus, the sharp drop in China's headline inflation from 3.2% to 2.5% is likely to have a dampening effect on CPIs in EEMEA in the coming months.”