e-Forex-Nov-23

RECENT EVENT
give a few more takeaways from the
discussions around the event.
The conference was opened with a
panel on tackling inflation, shifting
central bank policies and FX, with
panellists, Altaf Kassam (State
Street), Brian Mangwiro (Baring Asset
Management) and Laura Cooper
(BlackRock), alongside Peter Kinsella
(UBP) as moderator. Kassam made
the point that during QE, things were
broadly simpler, with buy the dip and
selling vol, as broad themes. Volatility
was now back. Cooper, noted how we
are seeing a new macro regime. The
pandemic has sparked a significant
shock. We were now in a higher
inflation regime, and with other
factors like net zero and demographic
changes, yields were going to be
higher for longer. Mangwiro suggested
we are close to peak Fed rates, and
leading indicators turning lower. There
was broad consensus amongst the
panellists of curve steepening.
MACROECONOMIC FORECASTS
A panel more focused on
macroeconomic forecasts, was also
moderated by Peter Kinsella (UBP),
with panellists, Christophe Morel
(Groupama), Florian Ielpo (Lombard
Odier) and Mabrouk Chetouane
(Natixis). Chetouane recapped how
we got here in inflation, notably a
supply shock and demand shock.
Now there was a negative input from
energy price drops, but core inflation
was still sticky especially in Eurozone.
There was a new era of scarcity in
energy and labour markets. Morel also
reiterated this point about scarcity,
from commodities, human capital
and also financial capital, noting we
are in a new inflation regime. Ielpo
discussed how in the US, you had
fiscal policy effectively pulling up
growth, whilst monetary policy was
attempting to slow it down, and how
inflation pressure was still building.
On a broad basis, there was some
consensus about inflation being an
issue. That is somewhat at odds with
our inflation forecasting models, at
Turnleaf Analytics, which suggests that
inflation is likely to be lower over the
coming year in most markets.
As befits an FX conference, there
always needs to be panel on the
dollar outlook! This was moderated
by Isabel Albarran (Close Brothers),
with panellists Stephen Jen (Eurizon),
Caroline Houdril (Schroders), Stefan
Hofrichter (Allianz), Kiran Kowshik
(Lombard Odier), Samuel Zief (JPM
Private Bank) and Gonzalo Canet
(ATFX). A debate in markets is how
how a soft landing would impact the
USD. Houdril noted that whilst a soft
landing would be likely negative for
the dollar, if the US was doing better
than elsewhere, it could support the
USD. Albarran felt that the USD would
be broader be stronger. In periods
where there had been broader based
depreciation, there had generally
been several factors at play, the USD
had been a lower yielder, there had
been EM interventions and an impact
from terms of trade moves. Currently,
obviously, the USD is a higher yielder.
For Jen, he noted that there have been
two drivers for the USD, notably the
Fed and inflation, a now a focus on
China, which was new. Before, China
had been a high beta play. Whilst
there were structural negatives on the
dollar, the twin deficits, we don’t tend
to play attention to them till there was
a cyclical turn. He suggested the USD
was 10% overvalued.
Kowshik discussed the topic from
the perspective of his clients, who
were generally EUR and CHF based. If
equities fall, EUR tended to weaken.
NOVEMBER 2023 e-FOREX 15