Some Bloomberg soundbites say things better than I could:

"The Stoxx 600 benchmark slid 0.8% and US equity futures declined, putting the MSCI All Country World Index, one of the broadest measures of global equities, on track to match its longest losing streak in the past decade.

The yield on 10-year Treasuries rose two basis points after hitting a 16-year high on Monday. The Bloomberg dollar index resumed its advance from the strongest closing level since December.

Jamie Dimon, chairman and chief executive of JPMorgan Chase & Co., floated the idea US interest rates could reach 7%, a worst-case scenario that could catch consumers and businesses off-guard.

Traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon.

Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects US interest rates to increase again this year given the robust economy. Those sentiments echoed comments last week from Boston Fed President Susan Collins, who said further tightening “is certainly not off the table,” while Fed Governor Michelle Bowman signaled that more than one increase will probably be required.

In Asia, property concerns continued to weigh on Chinese markets. Hong Kong’s Hang Seng Index fell to levels last seen in November and mainland benchmarks inched lower, reflecting a dismal mood across the region".

Inflation is still the headline story, the prospect of more interest rate increases is causing USD to get even stronger, equities to fall and the yield on the 10 year bond to increase. The Chinese economy is looking glum on the back of the property market shenanigans and Jamie is floating the idea of a worst case 7%, for which nobody is even remotely prepared. Jamie runs the world biggest bank, people listen to him and more importantly, they trust what he says, even US presidents trust what he says. One of the problems is that the US is a net exporter of oil, they sell more than they buy: "Crude oil exports of about 3.60 million b/d accounted for 38% of total U.S. gross petroleum exports. The resulting total net petroleum imports (imports minus exports) were about -1.19 million b/d, which means that the United States was a net petroleum exporter of 1.19 million b/d in 2022". www.eia.gov/tools/faqs/faq.php?id=727&t=6#:~:text=Crude%20oil%20exports%20of%20about,million%20b%2Fd%20in%202022.

The above means that the US actually benefits from a rising oil price and also a stronger USD whereas most other countries take it up the back passage! Thailand for example imported about 1.6 million barrels of oil per day in 2022, at a cost of about 2 trillion baht. Since that time, the price of oil has climbed unrelentingly but the cost to the consumer has fallen!!! www.statista.com/statistics/1268171/thailand-imports-and-exports-of-energy/#:~:text=From%20January%20to%20November%202022,of%20oil%20equivalent%20per%20day.

But back to Jamie and 7% interest rates, can you imagine what that will do to the US housing market where most mortgages are variable rate loans and the homeless situation is already dire?

If all of this was a board game at Xmas, players would have abandoned it and gone to the pub.

Yes, I agree. The problem is that everyone is seeing lots of different signals but we don't know if anyone is capable of joining up all the dots and understands what it all means. Some people know what parts of the picture look like but nobody seems to understand what the entire picture is, it's all very fragmented. It isn't that people who study these things are stupid, the problem is this is new ground and folks keep trying to use the old rules, people are naturally confused and scared so I find it's helpful to come back to basics:

If you give away lots of money to lots of people, that causes price inflation and burdens the giving party with debt that must be serviced and repaid. 

If you raise interest rates, that will be eventually dampen or halt inflation. Except not all economies experience the same levels of inflation at the same time and not all of them can tolerate the same high levels of interest rates, without inducing deflation.

If you raise interest rates high enough, you will negatively impact consumers, businesses and government borrowings to where people will lose their homes, businesses cannot expand or service their debts and government is forced to increase taxes.

The price of oil impacts transportation and productivity costs, as it rises, the cost of almost everything increases.

In times of economic stress, people buy gold which increases its value.

If you burden the population with too much debt, civil unrest is likely.

Pension funds and social security systems globally are dependent of equity and bond markets, if those markets become unviable, pension and social support payments will cease.



 

This is the Pound side of GBP/THB.

"The Pound has fallen more than 3pc against the dollar so far this month and is now on track for its worst month since the aftermath of the mini-Budget last year. However, the pound’s weakness is also being driven by the strength of the dollar. The euro, which is unperturbed by the actions of the Bank of England, has also fallen to a six-month low against the greenback, indicating the worldwide strength of America’s currency. Analysts at Nomura and at Goldman Sachs have both warned the pound has further to fall, predicting a drop to $1.18. That would be the lowest level since February. If inflation falls more slowly, or even stops falling altogether, it is bad news for the Chancellor: interest payments on one-quarter of the £2.6 trillion national debt are tied to inflation, leading to more strain on the public purse. An extra 1 percentage point on inflation adds roughly £6bn to annual debt interest costs".

While Dollar/Baht will almost certainly see gains, Pound/Baht is likely to remain flat or even fall. 

Pound/baht remaining flat is better than a kick up the arse.

The Baht is sinking further because of fears over planned fiscal measures and the soaring price of oil which will ultimately lead to price inflation. Local economists tried to put a positive spin on things by saying this weakness would help the tourism revival that was already underway along with an uptick in manufacturing next year (latest figures for which were seriously disappointing).

It doesn't help that bond yields have soared, along with bond yields globally. This means that issuers will have to pay a higher coupon rate if they want to issue bonds to finance debt (eg it will cost them more).

Government has already issued THB 19.4 billion of NEW debt for the 2024 budget year and they're not done yet. The new budget should make for an interesting read, when it is published.

You can see the ugly cycle that we're in: the oil price increases, price inflation ensues, government raises interest rates to contain inflation and tries to stimulate the economy with unbudgeted giveaways and price caps, all of which must be financed by issuing bonds that cost the government increasingly more. As consumer prices increase, the ability of poor debtors to service their borrowings causes NPL's to soar and the banking system wobbles. The very positive aspect here is that at least government has almost no foreign currency loans that must be serviced, otherwise we could be on a course for a 1997 moment.

So why are we in this situation. how did we get here? First and foremost must be the covid financial giveaways and the slow pace of economic recovery thereafter. Putin and Ukraine is partially responsible for the oil price and price inflation, as is slow economic recovery and OPEC countries need for income. Higher bond yields are also a function of slow economic recovery along with a wall of existing debt that has to be financed. A one room wooden hut, using solar power, near a stream, in the northern wilds of Montana become more appealing every day!

I'd rather not look.