I go into purdah for Wednesday’s FOMC D-Day secure in the knowledge, based on CME futures probability that the most important central bank in the world will cut its overnight borrowing policy rate by at least 25 basis points on Wednesday. Yet there are also “known unknowns” with the Fed’s decision that will haunt and reshape the financial markets as well as America’s toxic politics for the next year.
Will Stephen Miran’s confirmation add a Trumpian poodle vote to the FOMC and thus risk an inflation risk premium in the 10 year US Treasury note yield at a time when the bull flattener trade has taken is yield down to 4.076% So every bond trader in the Milky Way will be scanning the nuances of the Fed statement for clues to the next twist in US monetary policy and Powell’s presser for the merest hints of anti-MAGA sedition if he expresses any hawkish linkage between Tariffmania and higher inflation. Shakespeare’s words alone predicted political life in the Age of Trump four centuries ago in the twilight of the 1st Elizabethan England – “life is a tale told by an idiot, full of sound and fury, signifying nothing”. Another Bard classic would be – “uneasy lies the head, that wears the FOMC crown, under King Donald. Where nobody dares tell the Big Guy that the emperor wears no clothes!
Whatever happens on Wednesday, the prospect of easy money from the Fed is a no brainer buy on the Chinese yuan as the smoke signals from the PBOC make it clear that Beijing wants its currency to trade upto 6.95 against the greenback. I am neurologically programmed to buy the Malaysian ringgit and the Singapore dollar when I sense the dawn of a new yuan appreciation cycle in the Dragon Empire.
I will not touch the Indonesian rupiah since General Prabowo fired Finance Minister Indrawati as I fear this could well be another year of living dangerously in the Jakarta dollar bond market.
I also have metals on my mind, not the gold and silver that have provided such a windfall since last autumn to me but the red metal, Dr. Copper. I could write poetry to the fabulous opportunity copper has given us and will continue to give us next year. The Rock Ballad’s lyrics resonate in my mind. There is a house in New Orleans/They call it the rising sun/And its been the ruin of many a poor boy/Dear God, I know I am one.
Past yuan cross correlations tell me that the Mexican peso is now a buy after its 10% hit against the dollar as President Sheinbaum is eager to play ball with the king of El Norte now. My views on copper and Santiago stocks tell me that the Chilean peso will also be a winner in the post-Powell brave new world of a see no evil Fed.
The most profitable Dr. Copper proxy trade has unquestionably been to go long Zambia via Lusaka born Arjun Mittal. Zambian Eurobonds are up almost 18% in USD terms now that the IMF has greenlighted one of the most complex debt restructuring plans in African sovereign bond default history.
No question that the kwacha is up 20% against the dollar and the AED, making it the second best performing currency in Africa after Ghana’s cedi. The good lord blessed Zambia with three unique assets, the majestic Victoria Falls, Xi’s Belt and Road Initiative (BRI) and copper mines that now generate 60% of export earnings. The drought and 2020 default gutted Zambia’s economy and asset market. Yet it is always darkest before dawn in EM investing and the rains plus 25% copper price rise plus now the Fed rate cut pivot makes Zambia’s 8-year maturity Eurobond a finger lickin good buy.
The floods in Pakistan are absolutely heartbreaking and only increase my conviction that the country is on the verge of yet another geopolitical and financial volcano that makes its Eurobonds uninvestable no matter what your friendly, neighborhood Swiss Gujju private banker tells you over kirschwasser at Zuma. If he intones the corporate propaganda (houseview), respond with the Gujarati classic put down when someone gives you lip, su che, saru che, danda leke maru che!
Honoured to be invited to dinner with two VIP gentlemen who know the pinnacles of power in Uganda and Zambia, which I predict will be two of the best performing economies in Africa in 2026.
Also published on Medium.
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