Asia biased macro & technical analysis, Untying The Gordian Knot

Untying The Gordian Knot

Asia biased macro & technical analysis

A differentiated process with a primary focus on Asia. Technical Analysis as core and Macro drivers that could bring the view to fruition & changes that could make the idea fall apart. The objective is to be the best in class, hence corner shop.

Technical Analysis

<ul><li>Efforts to identify peak inflation and yields or lows in growth stocks and new investments have not worked in 2022.  </li><li>The assumption has been that prices should revert towards the mean once they have moved 3-5 standard deviations away as they have done in the last decade.</li><li>If we use what has happened to yield in the last 35+ years as a framework. You would continue to look for peak yields as soon as we start approaching the trend channel or key resistance and plotting the next financial crisis to coincide with yield reversals.</li></ul>

Efforts to identify peak inflation and yields or lows in growth stocks and new investments have not worked in 2022.  The assumption has been that prices should revert towards the mean once they have moved 3-5 standard deviations away as they have done in the last decade.If we use what has happened to yield in the last 35+ years as a framework. You would continue to look for peak yields as soon as we start approaching the trend channel or key resistance and plotting the next financial crisis to coincide with yield reversals.

Chief Economist, Heteronomics

Phil Rush

Chief Economist

Heteronomics

Heteronomics represents a different kind of economics. We believe analysis should delve into the details of what is really going on, rather than using overly simplistic assumptions to quick-sell stories. Independence from myopic institutional pressures allows us to focus on the realities underlying your asset allocation decisions, without the conflicts of the old market structures. Heteronomics targets the themes driving UK asset prices, offering the benefits of depth, independence and ultimately price.

UK-centric macro research

Macroeconomics

<ul>
<li>In March, UK retail disappointed to a shocking extent as food and non-store sales plummeted. This profile is not just a healthy rotation back to pre-covid spending habits.</li>
<li>Inflation demands more spending that isn’t affordable, so volumes get directly crushed while consumers get more cautious about the environment for major purchases. </li>
<li>GDP is at risk of declining in March. We expect zero growth and maintain our below-consensus Q2 forecast for 0.3% q-o-q GDP growth. Inflation hurts real activity. </li>
</ul>


In March, UK retail disappointed to a shocking extent as food and non-store sales plummeted. This profile is not just a healthy rotation back to pre-covid spending habits.
Inflation demands more spending that isn’t affordable, so volumes get directly crushed while consumers get more cautious about the environment for major purchases. 
GDP is at risk of declining in March. We expect zero growth and maintain our below-consensus Q2 forecast for 0.3% q-o-q GDP growth. Inflation hurts real activity. 


<ul>
<li>UK GDP growth stalled to 0.05% m-o-m in Feb-22 as temporary covid-related health spending ended. Another 1pp might be subtracted over the next few months.</li>
<li>Broader health spending remains bloated, symptomatic of the strains squeezing private sector activity as taxes increase to the detriment of long-term growth.</li>
<li>Inflation’s erosion of real incomes is a painful headwind, but the annual GDP rate benefits from carry-over effects. We forecast 1% q-o-q in Q1 and 4.1% in 2022.</li>
</ul>


UK GDP growth stalled to 0.05% m-o-m in Feb-22 as temporary covid-related health spending ended. Another 1pp might be subtracted over the next few months.
Broader health spending remains bloated, symptomatic of the strains squeezing private sector activity as taxes increase to the detriment of long-term growth.
Inflation’s erosion of real incomes is a painful headwind, but the annual GDP rate benefits from carry-over effects. We forecast 1% q-o-q in Q1 and 4.1% in 2022.


Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>Financial markets are dominated by uncertainties being created by Russia's invasion of Ukraine and the potential economic impact of the Fed raising rates and unwinding its balance sheet simultaneously.</li>
<li>The volatility and level of rates in EM are rising with the US but with differentiation: Asia and Central Europe are underperforming, while Latin America is outperforming.</li>
<li>The possibility of binary economic scenarios playing out as a result of the current uncertainties makes me pause for more clarity before making new trade recommendations.</li>
</ul>


Financial markets are dominated by uncertainties being created by Russia's invasion of Ukraine and the potential economic impact of the Fed raising rates and unwinding its balance sheet simultaneously.
The volatility and level of rates in EM are rising with the US but with differentiation: Asia and Central Europe are underperforming, while Latin America is outperforming.
The possibility of binary economic scenarios playing out as a result of the current uncertainties makes me pause for more clarity before making new trade recommendations.


Rates in Asia Underperform Following the Fed Hike and Russia’s Invasion

<ul>
<li>Retail sales disappointed by declining again in Feb-22, despite clothing sales surging back towards pre-covid levels. Inflation squeezed out a higher value of spending.</li>
<li>Consumers will need to prioritise essentials while avoiding expensive discretionary commitments. Confidence in the climate for major purchases has already collapsed.</li>
<li>Real incomes face severe erosion in 2022, and we still expect consumers to reflect that hit in volumes again rather than raising nominal consumption growth.</li>
</ul>


Retail sales disappointed by declining again in Feb-22, despite clothing sales surging back towards pre-covid levels. Inflation squeezed out a higher value of spending.
Consumers will need to prioritise essentials while avoiding expensive discretionary commitments. Confidence in the climate for major purchases has already collapsed.
Real incomes face severe erosion in 2022, and we still expect consumers to reflect that hit in volumes again rather than raising nominal consumption growth.


United Kingdom

The British Pound Sterling is the official currency of The United Kingdom. 

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Positioning and Imbalances

Efforts to identify peak inflation and yields or lows in growth stocks and new investments have not worked in 2022. The assumption has been...

Untying The Gordian Knot

UK: Crushed Retail Will Hurt GDP

UK retail disappointed to a shocking extent as inflation bites. GDP is at risk of declining in March. We expect zero growth and maintain our below...

Phil Rush

UK: GDP Losing Its Health Support

UK GDP growth stalled to 0.05% m-o-m in Feb-22 as temporary covid-related health spending ended. Another 1pp might be subtracted over the next few...

Phil Rush

Rates in Asia Underperform Following the Fed Hike and Russia’s Invasion

With financial markets dominated by uncertainties created by Fed tightening and Russia's invasion, rates in Asia and Central Europe are...

Gautam Jain, PhD, CFA

UK: Retail Durables Knocked Out by Costs

Real incomes face severe erosion. Consumers will need to prioritise essentials while avoiding expensive discretionary commitments. Confidence in...

Phil Rush

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