The productivity cycle has changed. Before the mid-1980s, productivity and output had a strong positive cyclical correlation, consistent with RBC-style technology shocks. Today, TFP is largely acyclical and labor productivity is often countercyclical. Econometrically, the output-productivity covariance has collapsed, suggesting business cycles are driven less by technology shocks and more by labor market and utilization dynamics.
TRY’s headline yield remains elevated, but the compression in carry-to-vol suggests that FX volatility is increasingly offsetting the carry. In a regime of managed depreciation, the trade depends on a smooth adjustment path.
As volatility rises relative to yield, the risk of nonlinear FX moves increases, reducing the effectiveness of carry and making returns more fragile. Given this, think carry looks attractive elsewhere.
Higher energy have helped boost Norways terms of trade, and the strength in the currency has followed.
NOK has been a preferred long for a few months now.
Stronger NOK has also traditionally weakened Norwegian energy companies as well (also a favorite short) for a while.
Egypt’s balance of payments has improved modestly, with exports rising and imports easing.
But the key vulnerability remains: structural dependence on food imports.
As Middle East tensions threaten external inflows, pressure on the balance of payments is resurfacing helping explain the recent weakness in EGP.
1y tenor swaptions, implied vol on high strike payers now higher than low strike receivers.
Richer payer skew suggests the market is assigning greater value to right tails than left tail.
EM sovereign spreads are no longer trading as a single beta dispersion is doing the work.
The edge is in relative value long policy-credible, low-dispersion Asia versus high-beta, wide-dispersion sovereigns exposed to global rate volatility
USD dominance isn’t going anywhere.
The negative relationship between USD volatility and the global pricing transmission index suggests that invoicing behavior is partially endogenous to exchange-rate stability.
As volatility falls, the elasticity of pass-through appears to rise, consistent with dominant currency pricing models where lower uncertainty increases the persistence of dollar invoicing across global trade contracts.