Letters from Bangkok
Last week, we attended the IMF/World Bank meetings in Bangkok. Over the week, we attended more than 60 meetings with policymakers, central bankers, political and macro analysts, and the global investor community. The consensus is constructive on growth and not too negative on inflation risks. Carry trades and tech equities remain the most popular longs, though the enthusiasm for the AI trade is fading. There’s broad pessimism about global duration given AI capex and fiscal challenges. France is now a consensus short, and Eurozone fears are mounting ahead of the 2027 elections. We maintain a cautious bias on risk and spreads, and a more constructive approach to duration.
Small uptick
In the US, September inflation data surprised on the upside. Core CPI rose by 0.3% m/m, 10 bp above expectations. Core PPI printed at 0.7% m/m, 40bp above expectations. The impact on monthly core PCE, the inflation measure most relevant to the Fed, is expected to be around 12bp, putting the projection for this measure at 0.32% m/m. A few volatile components contributed to the print, but shelter inflation accelerated too, which is more relevant for policies. We believe the numbers are not strong enough prompt a Fed hike in October, especially as equity markets remain volatile. The meeting remains priced at around 15%. The meeting remains priced at around 15%. We continue to favour duration over spreads in fixed income markets.
Algebris Investments’ Global Credit Team
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