Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

<ul>
<li>M2 contracted 1.3%YoY in Dec'22, its first YoY contraction in 80+ years. Since core PCE inflation was still 4.4%YoY that month, more monetary contraction is needed.  </li>
<li>The 10yr-2yr yield spread is -0.76pp (10th Feb'23), while ISM manufacturing new orders have slipped to 42.5, both unequivocally signaling that recession will likely begin next quarter (Q2 2023). </li>
<li>US real GDP decelerated for 4 consecutive quarters (to +1%YoY in 4Q2022), but the labour market appears tight merely because the participation rate is 4pp lower than 2008.</li>
</ul>


M2 contracted 1.3%YoY in Dec'22, its first YoY contraction in 80+ years. Since core PCE inflation was still 4.4%YoY that month, more monetary contraction is needed.  
The 10yr-2yr yield spread is -0.76pp (10th Feb'23), while ISM manufacturing new orders have slipped to 42.5, both unequivocally signaling that recession will likely begin next quarter (Q2 2023). 
US real GDP decelerated for 4 consecutive quarters (to +1%YoY in 4Q2022), but the labour market appears tight merely because the participation rate is 4pp lower than 2008.


US: Recession Imminent, as M2 Needs to Contract Further to Squeeze Out Inflation

<ul>
<li>FOMC hiked the Fed Funds rate 50bp to 4.25-4.5% as expected, and raised the median forecast to 5.1% for end-2023. We still expect a 5% peak in Mar'23.</li>
<li>M2 grew faster in Mar'20-Feb'22 than in any month for a century. But M2 decelerated to 1.25%YoY growth in Oct'22, so core PCE inflation will ease to 3.5% by Mar'23.</li>
<li>The steeply inverted yield curve and ISM new orders (&lt;50 for 3 months) make recession inevitable by Q2/2023. Core Inflation at 2.5%YoY will bring a 25bp rate cut in Jul'23.   </li>
</ul>


FOMC hiked the Fed Funds rate 50bp to 4.25-4.5% as expected, and raised the median forecast to 5.1% for end-2023. We still expect a 5% peak in Mar'23.
M2 grew faster in Mar'20-Feb'22 than in any month for a century. But M2 decelerated to 1.25%YoY growth in Oct'22, so core PCE inflation will ease to 3.5% by Mar'23.
The steeply inverted yield curve and ISM new orders (&lt;50 for 3 months) make recession inevitable by Q2/2023. Core Inflation at 2.5%YoY will bring a 25bp rate cut in Jul'23.   


Belated Fed Hawkishness Makes Recession Inevitable; Rate Cut Likely by Jul'23

Selected Quarterly & Annual Newsletters from Funds, Fund Newsletters

Fund Newsletters

Selected Quarterly & Annual Newsletters from Funds

Equity Bottom-Up

Invesco DB US Dollar Index Bul / Equity Bottom-Up

<ul><li>Equity investors in countries with overvalued currencies have two ways to lose and those with undervalued currencies have two ways to win.</li><li>Today’s strong USD looks, in the end, to be our currency and our problem.</li><li>Keep an eye out for dangerously destructive economic policies, but don’t use that as an excuse to avoid the asset class entirely.</li><li>The yen and euro are at their cheapest levels in decades and hedging emerging market equities would be an expensive proposition even if the currencies weren’t generally cheap versus the USD.</li></ul>

Equity investors in countries with overvalued currencies have two ways to lose and those with undervalued currencies have two ways to win.Today’s strong USD looks, in the end, to be our currency and our problem.Keep an eye out for dangerously destructive economic policies, but don’t use that as an excuse to avoid the asset class entirely.The yen and euro are at their cheapest levels in decades and hedging emerging market equities would be an expensive proposition even if the currencies weren’t generally cheap versus the USD.

<ul>
<li>The FOMC hiked its policy Fed Funds rate by 75bp on 15 Jun'22, the sharpest single hike in 28 years, taking the central rate to 1.625% (official range of 1.5-1.75%).</li>
<li>With headline CPI inflation at 8.6%YoY in May'22, and wage inflation at 5.2%, inflationary expectations needed to be nipped in the bud, and the Fed has finally taken decisive action.</li>
<li>We expect the FF rate to reach 3% by Sep'22, then rise more sedately. This will induce a shallow recession by Mar'24. We are bullish on a 6-month view.</li>
</ul>


The FOMC hiked its policy Fed Funds rate by 75bp on 15 Jun'22, the sharpest single hike in 28 years, taking the central rate to 1.625% (official range of 1.5-1.75%).
With headline CPI inflation at 8.6%YoY in May'22, and wage inflation at 5.2%, inflationary expectations needed to be nipped in the bud, and the Fed has finally taken decisive action.
We expect the FF rate to reach 3% by Sep'22, then rise more sedately. This will induce a shallow recession by Mar'24. We are bullish on a 6-month view.


Tight Labour Market Obliges the Fed to Quickly Reverse Its Policy Error

<ul>
<li>Nominal GDP increased 6.5%QoQsaar, but the GDP deflator was up 8%, so real GDP declined 1.4% in Q1CY22. With core PCE inflation at 5.4%, brace for 50bp hike next week.</li>
<li>With M2 growing faster in Apr'20-Mar'21 than any time in the past 150 years, the recent surge in inflation is precisely as we'd predicted.  The overheating economy needs monetary tightening. </li>
<li>Imports (+17.7% in Q1CY22) subtracted 2.5% from GDP and inventory-destocking subtracted 0.84%. These will be less negative as monetary policy tightens,  with FF rate rising to 2.75% by end-2022. </li>
</ul>


Nominal GDP increased 6.5%QoQsaar, but the GDP deflator was up 8%, so real GDP declined 1.4% in Q1CY22. With core PCE inflation at 5.4%, brace for 50bp hike next week.
With M2 growing faster in Apr'20-Mar'21 than any time in the past 150 years, the recent surge in inflation is precisely as we'd predicted.  The overheating economy needs monetary tightening. 
Imports (+17.7% in Q1CY22) subtracted 2.5% from GDP and inventory-destocking subtracted 0.84%. These will be less negative as monetary policy tightens,  with FF rate rising to 2.75% by end-2022. 


US Continues to Overheat, Reflected in a Seemingly-Weak GDP Print

United States

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US: Recession Imminent, as M2 Needs to Contract Further to Squeeze Out Inflation

Despite the 1st YoY M2 contraction YoY in 80+ years, core PCE inflation is double the Fed target. More M2 contraction will drag the US to recession...

Prasenjit K. Basu

Belated Fed Hawkishness Makes Recession Inevitable; Rate Cut Likely by Jul'23

M2 decelerated to 2.5%YoY growth in Oct'22 & likely contracting now. Core PCE inflation should ease to 3.5%YoY by Mar'23 & (as recession sets in)...

Prasenjit K. Basu

GMO Q2 2022 Quarterly Letter

Equity investors in countries with overvalued currencies have two ways to lose and those with undervalued currencies have two ways to win. Today’s...

Fund Newsletters

Tight Labour Market Obliges the Fed to Quickly Reverse Its Policy Error

75bp hike & Powell's commitment to fight inflationary expectations should take FF rate to 3% by Sep'22. A shallow recession likely by Mar'24, but...

Prasenjit K. Basu

US Continues to Overheat, Reflected in a Seemingly-Weak GDP Print

GDP fell 1.4%QoQ in 1Q2022 because 6.5% nominal GDP growth was overwhelmed by 8% rise in GDP deflator; 17.7% rise in imports signals economic...

Prasenjit K. Basu

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