The Inflation Gap Between Developed And Emerging Markets Is Widening.

In December 10th,

The US core inflation rate reached a record low last month, and the core consumer spending deflator index grew for the first time in the past year, down from -1%, the report said.

This shows that inflation in the United States has fallen below acceptable levels, and that there is a serious overcapacity in the economies of the developed world, indicating that the overall core inflation rate will remain low.

On the other hand, emerging market economies are facing more serious inflation problems.

Morgan Bruce, head of global asset allocation and trading strategy at J.P. chase and Bruce Kasman, chief economist of JP Morgan chase, said in a report that although the market is most concerned about inflation in China, Brazil is the most urgent one. Jan,

The downturn in Brazil's economy may be temporary. It is expected that its new central bank governor will take coercive measures to prevent the economy from overheating, and will soon announce the increase in the bank reserve ratio. After that, Brazil's benchmark interest rate will be raised in April 2011, and the deterioration of inflation expectations will raise the benchmark interest rate further.

In contrast, the US housing vacancy rate is still near historical highs, with wage growth slowing and core service prices falling to 1.6% from 2009 to just half of the 2002-07 expansion.

The decline in core commodity prices reflects a still sluggish demand for durable goods.

In terms of economic growth, JP Morgan predicts that the recovery of the developed market will have an optimistic trend in the future, but it will not be realized in a few months, and the economy of the newly emerging Asian countries will accelerate again.

Domestic demand in this region will recover steadily with the support of extreme easing policy stance, strong capital inflow and asset price rise.

The reports indicate that these differences make policy different from one another.

If the US Federal Reserve is buying at least US $600 billion of US Treasury bonds, it will probably exceed US $1 trillion in the future.

The overall economic performance of emerging market countries is close to the level of production capacity, so the policy normalization is basically maintained.

But overall, the world's attention to economic growth exceeds inflation.

Based on the above differences, the report suggests that investors buy emerging market currencies and sell currencies in developed markets.

"This year's foreign exchange investment has a good return. However, the real income of the emerging market local bonds with a low investment allocation actually exceeds 2% of the developed market government bonds after the exchange rate hedging, partly due to the sovereign debt crisis of the European Monetary Union, followed by a large amount of proceeds seeking funds into the emerging market bond market.

We will maintain our preference for emerging markets and avoid foreign exchange pactions in developed markets. "