Morning folks Smoking hot CPI report out of Australia. Good news for our AUD longs and a cementation of a too dovish pricing of RBA currently peaking at 3.75% in Q3. If the RBA were to copy/paste the playbook of the Fed or the ECB and aim for positive real rates… Oh boy a repricing that would prompt. We wouldn’t rule out such a repricing since we find that the APAC inflation cycle lags Europe and the US. Europe’s energy woes increased price pressures on Natural Gas in the APAC region with a time-lag, and this is one of the reasons why this region is now under inflation scrutiny. This is of relevance for Bank of Japan as well. Australian CPI empirically leads Japanese CPI by 3 months, which leads us to the conclusion that Japanese inflation is headed for 5-5.5% in the next 3-4 months. Quite a backdrop for a new Governor in BoJ and a HISTORICAL chance to at least partly scrap the YCC. Bring on speculation about a change of policy via the JPY release valve again. Chart 1. Australian CPI leads Japanese CPI We saw a decent bounce in both US and European S&P PMIs, but no one really cares about them, since the Leading Economic Indicator (LEI) out earlier this week points to ISM Services clearly below 50… Yesterday’s market reaction was also telling with no positive reaction to the rebound in PMIs, since the crowd was CLEARLY leaning that way ahead of the PMIs. […]