Macro Briefing: 9 January 2023

* Thousands of protesters storm Brazil’s government buildings
* Biden meets with Mexico president today: focus on migration, supply chains
* Precarious GOP House majority raises risk of debt-ceiling battle
* China stages large-scale military exercises around Taiwan
* This week’s consumer inflation report will influence size of next Fed rate hike
* Tech industry layoffs are accelerating
* Goldman Sachs to start cutting thousands of jobs this week
* Eurozone unemployment rate holds at record low in November: 6.5%
* Gold rises to eight-month high in early Monday trading:

Inflation that fails to fully normalize as expected is a major macro risk, says Jurrien Timmer, director of global macro at Fidelity Investments. “The risk is the Fed wants to contain inflation all the way back to its target — because if it doesn’t do it now, even at the risk of a recession, then it may never be able to do it unless much more severe measures are taken,” he tells Bloomberg. “And imagine we do go into a recession the second half of this year, and inflation goes all the way to 4%, which is, of course, a hell of a lot better than 9% — but that’s then the trough. And let’s say inflation then accelerates in the following expansion off of a base of 3% or 4% instead of what normally would be zero or 1%.” He thinks “that would create the risk that bonds are indeed no longer a port in the storm because if you think about where the term premium is, which is around zero or so, and let’s say that inflation does become more embedded at a higher rate, even if it’s only 3% or 4%, then you could see a period of structurally higher real rates and nominal rates.”