MyStratWeekly – April 18th 2023

Topic of the week: China, lender of last resort of the “Belt and Road Initiative”

• China has put in place a vast cross-border rescue plan for the BRI, to protect its own banks;
• The novelty is the use of PBoC swap lines for crisis management abroad;
• The main beneficiaries are the countries most indebted to China;
• However, the most opaque aspect is how its swap lines are used by beneficiaries;
• This system nevertheless remains nebulous and uncoordinated, which is worrying for the resolution of sovereign debt crises.

Market review: Capitulation to the upside on equities?

• Inflation prints at 5% but core measure still too high;
• Fed staff forecasts mild recession;
• Equities up post CPI amid weaker dollar;
• Tighter credit spreads in wake of strong stocks.

Stéphane Déo's and Zouhoure Bousbih's podcast

• Credit crunch or no credit crunch?
• China, lender of last resort of the "Belt and Road initiative".

Chart of the week

The euro exchange rate passed the symbolic bar of $1.10 for the first time in a year and the invasion of Ukraine by Russia. The ECB's belated response to rising prices and the dizzying terms-of-trade shock from soaring Russian gas prices had weighed heavily on the euro.
The ECB still looks like it has some ground to cover in its tightening cycle as the Fed nears its rate at 5.25%. By reducing the negative carry on the euro, the single currency should appreciate further.