Inflation- Persistent or Transitory? Doesn't matter?

1. Euro @ 1.166 is at a 9 month low. This is in part due to the rising inflation in the US and ever low interest rates in Europe. The EUR can further fall if the inflationary pressures were to reduce in Europe. This would mean later and lesser tapering and thus flight of capital to relatively higher interest rate regimes.

2. NeoBanks turn to profit: Neobanks cashed stimulus cheques swiftly probably also helped. According to Apptopia, a data provider, the number of monthly active users of neobank apps doubled between July 2019 and June 2021, while those of traditional banking apps shrank a little. Top neobanks boasted nearly 20m downloads in the first half of this year alone.

3. The rationale people give for the massive success of these neobanks is that they serve the marginal sections, underserved, and offer flexibility in payments and other services. But the question remains, 'Did the traditional banks not start with the same intention?' , and 'What if even these neobanks arent able to honour their commitments when the user base increases?'.

4. Emerging markets are facing a tough time struggling with inflation, low vaccine rates, and capital outflows. Fiscal deficits are expanding on the premise of record high government spending to fend off covid. They are also at the mercy of US tapering, if the rates in US are increased Ems would have to follow suit, and that might again create a dent in the economic recovery.

5. Now since there is a general notion that the current inflation numbers aren't transitory and in fact may take longer than expected to settle back to normal, Fed plans to taper sooner than was planned. Inflation is the elephant in the room.

6. Purchasing power of the dollar as measured by the CPI inflation index, has been shrinking ever since the GFC recovery. We see the steepest fall in the purchasing power so far. We await a quick recovery in the index values or else the dollar might lose its global currency status.

7. This monetary policy by the Fed includes interest rate suppression to near zero for short-term interest rates, and asset purchases to the tune of $120 billion a month, in terms of mortgage-backed securities, the Fed is adding about $40 billion a month, has bought $3 trillion in Treasury securities on net overall since March 2020. These numbers suggest the size of importance the Fed has on market dynamics. And thus what they do now has become extremely important. So will we see the yields chasing the inflation numbers once the tapering sets off?

8. Interesting Charts: