September Global Macro Monthly - Supply constraints add to inflation angst

Key points

• The EU’s “Fit for 55” programme is a suite of measures to deliver a 55% reduction in GHG emissions by 2030. It includes the Emissions Trading Scheme (ETS) and Carbon Border Adjustment Mechanism (CBAM).
• Supply shortages crimp output in the US and Japan. Chinese growth has been impacted by COVID outbreaks. Eurozone momentum remains intact for now.
• The US attempts to finalise a government spending package. We expect a more forceful policy shift in China. Meanwhile, the Fed heads towards a taper; the ECB has reduced PEPP purchases, but this is not a taper.
• German elections will set the fiscal tone at home and for the Euro area. Japan’s vote will follow the leadership race.
• A mix of negative developments have driven a risk negative tone. Credit spreads remain tight while broader government yields look set to rise gently.