Eurozone monetary policy normalization is likely here—with the potential need for a new twist.

After years of very accommodative monetary policy to protect eurozone integrity and to compensate for the lack of fiscal support to counter multiple crises (COVID-19 being the latest), the time has come for the European Central Bank to normalize of its policy. Inflation has risen to very elevated levels, mainly due to energy prices and supply chain bottlenecks exacerbated by the zero-COVID policy in China and by Russia’s invasion of Ukraine.

The Pandemic Emergency Purchase Program (PEPP)...

Our view on Sunac’s default and its implications for the China property sector.

On May 11, Sunac, the fourth largest developer in China, defaulted as it missed a coupon payment on its offshore dollar bonds. In contrast, it extended the maturity of its onshore bond that matured in April. Sunac bond prices were relatively stable at approximately $20 as the default had mostly been priced in. Even with the reduced cash flow needs, the liquidity crunch for Sunac is likely to continue in the near term given its sharp decline in contracted sales and the slow progress of its asset disposals.

The latest CPI print suggests that the Fed could continue on an aggressive tightening path.

The Consumer Price Index (CPI) rose more than forecasted in April on both a headline and core basis. On a headline basis, CPI rose 0.3% month-over-month and 8.3% year-over-year, while Core CPI (which excludes food and energy) rose 0.6% MoM and 6.2% YoY. Wednesday’s strong inflation print highlights persisting inflationary pressures that continue to weigh on households, and are likely to force the Federal Reserve to continue on its path of aggressive rate hikes to quell elevated levels of inflation.