Yuan dominance in Oil market and MORE.....

1. China has changed its currency management technique from using direct tools to making smaller regular interventions using state owned bank reserves. The idea is to make its next move uncertain so that the markets are unaware about its reserve holdings.

2. The birth of petroyuan - this is about the deal between China and the Middle east nations for oil production and pricing. It's part of China's effort to de- dollarize the oil market. China would not only dramatically increase imports from GCC countries, but work towards “all-dimensional energy co-operation". China is trying to lure foreign businesses by offering cheaper energy. The rise of this oil trade in Yuan should push the US and Europe towards a renewable energy transition.

3. Asia as a whole is entering a phase of rapid disinflation. Asia’s inflation is running at a pace that is roughly half of what the rest of the world is facing.

4. The demand for high yield junk grade has been increasing with the fresh issuance from oil and gas industries. Investors believe that the Fed can tame inflation without hitting recession. This can further be seen by the large inflow in the Ishare Iboxx HY Corp ETF, the biggest inflow from Nov 2020.

5. The rental market is showing signs of weakness and now after years of rent hikes, the tenants can breathe some air of respite as the last quarter showed rents decline. This comes from the fact that the new lease demand was negative YoY for the first time since 2009.

6. The Japanese central bank eased the YCC control policy implying that now the 10Yr yield could potentially go up to .5% from the previous .25% cap. This led to a 4% jump in the Yen, but this reduces Japan's purchasing power and hence interest in the dollar bind market. Japan is the largest foreign holder of US Agency MBS.

7. 3 main themes in the Global Fixed Income market:

   1. Currency risk remains the overarching risk for bond investors. Higher carry cushion leaves diversified fixed income investors less exposed to the active factors (duration, spread, currency)

   2. Funding currency diversification improves the returns across emerging markets

   3. Rising geopolitical risk has led to higher vols. Higher vol levels across high beta asset classes is leading to disparate demand for option protection which in turn is leading to broad dislocations across equity, commodity, currency, and Interest rate markets.

8. In the UK, the economy has started slowing down and the labor market is showing signs of recession. Unemployment is forecasted to almost double by 2025.

9. Passive funds hold more than 40% of 23 US listed stocks, but it is interesting to see how passive funds just act on what the active funds believe, as the major price movements come from active funds. Passive funds mainly target Real Estate and Utilities.

10. Interesting Charts: