Tuesday, July 05, 2016

Morgan Stanley Explains 
One Big Reason Why Central Planners 
Can't Generate Any Inflation,
It's Like Pushing On A String
Article highlights the challenge of central bank planners - the overcapacity in Asia (something we have discussed often) & a weaker currency will continue to lead to lower export prices, & thus dampen future inflation expectations, which can be seen in the U.S. 5y5y inflation expectations. MS also observes that developed market inflation behavior is led by movements in Chinese prices, & the rally in global bonds will continue to push the USD higher, putting further downward pressure on prices: "Important for the outcome is the evaluation of global deflationary pressures, which may be primarily fed from Asia .. Deflationary pressures are likely to remain in place as overcapacity persists. Take for instance the steel sector, where production capacity has increased by 35 million tons as China progressed through its recent mini-cycle."
LINK HERE to the article

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