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

The US consumer price index (both headline and core) rose at an annualized pace of 10.8% MoM in June 2021. For 2Q (April-June) 2021, the core CPI increased at an annualized pace of 10%, while the headline CPI increased 9.2% (annualized) in 2Q 2021. We had predicted precisely this outcome on 12 June 2020 (13 months ago) in <a href="https://www.smartkarma.com/insights/labour-market-slack-remains-but-fomc-will-need-to-tighten-by-mid-2021" target="_blank" data-smartkarma-citation="insights:40185" rel="noopener">Labour Market Slack Remains but FOMC Will Need to Tighten by Mid-2021</a> because inflation would rise markedly. While the FOMC has insisted that inflation is transitory, it actually began a stealth tightening in May 2021, engineering a month-on-month decline in the monetary base that month. CPI inflation is currently being under-estimated, because the Housing component is properly updated only half-yearly after a complete national survey of rentals and owners' equivalent rents (OER, the implicit rent that would be paid by homeowners were they to rent rather than own their home). The Case-Shiller 20-city housing price index was up 14.9% YoY in April 2021 (the latest data, released at end-June 2021), and this is bound to enter the CPI and PCE price index in 2H 2021. (Housing is considered an investment, not consumption, so rents and OER are the consumption portion; housing prices are not directly relevant to CPI, the cost of using housing -- rents -- are). Having risen just 2.6% YoY in June 2021, Housing is likely to rise much more sharply in 2H 2021, pushing up headline and core CPI (and also PCE, but less because of its lower weight). The labour market retains some sectoral slack in the hospitality and tourism-related sectors, but appropriately skilled labour is increasingly in short supply elsewhere in the economy.  Despite a high base from June 2020 (5% YoY), average weekly earnings (wages) were up 3.6% YoY in June 2021. Wage inflation will likely exceed 4% YoY in 3Q 2021, contributing additionally to inflationary pressure. St. Louis Fed President James Bullard (a non-voting member of the FOMC this year) has already called for tapering to begin (as "substantial progress" has already been made on the Fed's inflation and unemployment goals). While Fed Chair Powell insisted in his House testimony this week that tapering remains "a ways off", he told the Senate on the following day, "...of course we're not comfortable with" the fact that the reopening of the economy had "driven inflation well above 2%". The 27-28 July FOMC meeting will likely see more intense discussion of tapering, and we think formal (not merely stealth) tapering will be begin no later than the September meeting. We remain cautious about equities, although the strong recovery makes cyclicals and consumer cyclicals attractive.

The US consumer price index (both headline and core) rose at an annualized pace of 10.8% MoM in June 2021. For 2Q (April-June) 2021, the core CPI increased at an annualized pace of 10%, while the headline CPI increased 9.2% (annualized) in 2Q 2021. We had predicted precisely this outcome on 12 June 2020 (13 months ago) in Labour Market Slack Remains but FOMC Will Need to Tighten by Mid-2021 because inflation would rise markedly. While the FOMC has insisted that inflation is transitory, it actually began a stealth tightening in May 2021, engineering a month-on-month decline in the monetary base that month. CPI inflation is currently being under-estimated, because the Housing component is properly updated only half-yearly after a complete national survey of rentals and owners' equivalent rents (OER, the implicit rent that would be paid by homeowners were they to rent rather than own their home). The Case-Shiller 20-city housing price index was up 14.9% YoY in April 2021 (the latest data, released at end-June 2021), and this is bound to enter the CPI and PCE price index in 2H 2021. (Housing is considered an investment, not consumption, so rents and OER are the consumption portion; housing prices are not directly relevant to CPI, the cost of using housing -- rents -- are). Having risen just 2.6% YoY in June 2021, Housing is likely to rise much more sharply in 2H 2021, pushing up headline and core CPI (and also PCE, but less because of its lower weight). The labour market retains some sectoral slack in the hospitality and tourism-related sectors, but appropriately skilled labour is increasingly in short supply elsewhere in the economy.  Despite a high base from June 2020 (5% YoY), average weekly earnings (wages) were up 3.6% YoY in June 2021. Wage inflation will likely exceed 4% YoY in 3Q 2021, contributing additionally to inflationary pressure. St. Louis Fed President James Bullard (a non-voting member of the FOMC this year) has already called for tapering to begin (as "substantial progress" has already been made on the Fed's inflation and unemployment goals). While Fed Chair Powell insisted in his House testimony this week that tapering remains "a ways off", he told the Senate on the following day, "...of course we're not comfortable with" the fact that the reopening of the economy had "driven inflation well above 2%". The 27-28 July FOMC meeting will likely see more intense discussion of tapering, and we think formal (not merely stealth) tapering will be begin no later than the September meeting. We remain cautious about equities, although the strong recovery makes cyclicals and consumer cyclicals attractive. 

US Wages Are Resurgent, Even if Markets Haven't Noticed; Keep Your Eye on Inflation

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

Shanghai Stock Exchange Composite Index / Technical Analysis

Chinese indices have started to stabilise and bounce from the identified buy zones. The setups emerging are looking very encouraging for a decent rally ahead.When combined with the recent economic data and rhetoric/position of policy makers, the relative charts against the S&amp;P 500 are once again looking very interesting both from historical and short term perspectives.

Chinese indices have started to stabilise and bounce from the identified buy zones. The setups emerging are looking very encouraging for a decent rally ahead.When combined with the recent economic data and rhetoric/position of policy makers, the relative charts against the S&amp;P 500 are once again looking very interesting both from historical and short term perspectives.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Our weight of the evidence approach continues to lead us to our view that the market remains mixed-yet-constructive overall. We explain our outlook below. The S&amp;P 500 remains bullish, progressing past our first target of 4350 and now on its way to our next target of 4400-4406. As long as 4257-4275 support holds, we expect to see 4400 followed by 4460. Should 4257 fail to hold, our next support levels to watch would be 4164 followed by 4120; we are constructive as long as 4120 holds.

Our weight of the evidence approach continues to lead us to our view that the market remains mixed-yet-constructive overall. We explain our outlook below. The S&amp;P 500 remains bullish, progressing past our first target of 4350 and now on its way to our next target of 4400-4406. As long as 4257-4275 support holds, we expect to see 4400 followed by 4460. Should 4257 fail to hold, our next support levels to watch would be 4164 followed by 4120; we are constructive as long as 4120 holds.

U.S. Equity Strategy: SPX 4400 Target In Sight

The recent outperformance of the Nasdaq 100 to the S&amp;P 500  is now showing signs of exhaustion. There is a risk that this reverses somewhat and that the S&amp;P 500 will perform better over the short term.

The recent outperformance of the Nasdaq 100 to the S&amp;P 500  is now showing signs of exhaustion. There is a risk that this reverses somewhat and that the S&amp;P 500 will perform better over the short term.

SPX/NDX Ratio: Nasdaq Not as Attractive as It Was

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Aggregate demand is exceeding supply in the US economy, partly due to employment growth lagging behind the recovery in real output. Based on current trends, private sector payrolls will not return to their prior peaks for another 12-months, while there are debates as to whether recent gains are sustainable into 2022. 
Labour supply constraints on output could persist over the summer, but the Federal Open Market Committee (FOMC) is probably discounting an easing of headwinds in September when schools re-open and enhanced unemployment insurance payments expire. Meanwhile, the long-term unemployed form a very large component of the total and the FOMC could face a pressure to resist tapering actions if this backdrop fails to improve quickly. 
Despite the slow recovery of the labour market, consumer spending remain well-underpinned and far less dependent on equity withdrawal compared to the last period of strong house price appreciation. Companies will be keen to bridge the gap between supply and demand by making up for last year's lost capital spending plans, but there are concerns about excess new capacity being brought on stream when the economy is destined to slow.
<div>Long-term US Treasury yields have been declining since March due to investors demanding lower real returns, thereby implying concerns about the economic outlook if the FOMC decides to taper asset purchases. In the aftermath of the taper tantrum, bond investors eventually forced the FOMC to lower their estimate of the neutral policy rate. Valuations for perfectly-priced US equities are vulnerable if the economic slowdown anticipated by US Treasury investors is sufficiently large to negatively impact corporate profit expectations.</div>

Aggregate demand is exceeding supply in the US economy, partly due to employment growth lagging behind the recovery in real output. Based on current trends, private sector payrolls will not return to their prior peaks for another 12-months, while there are debates as to whether recent gains are sustainable into 2022. 
Labour supply constraints on output could persist over the summer, but the Federal Open Market Committee (FOMC) is probably discounting an easing of headwinds in September when schools re-open and enhanced unemployment insurance payments expire. Meanwhile, the long-term unemployed form a very large component of the total and the FOMC could face a pressure to resist tapering actions if this backdrop fails to improve quickly. 
Despite the slow recovery of the labour market, consumer spending remain well-underpinned and far less dependent on equity withdrawal compared to the last period of strong house price appreciation. Companies will be keen to bridge the gap between supply and demand by making up for last year's lost capital spending plans, but there are concerns about excess new capacity being brought on stream when the economy is destined to slow.
Long-term US Treasury yields have been declining since March due to investors demanding lower real returns, thereby implying concerns about the economic outlook if the FOMC decides to taper asset purchases. In the aftermath of the taper tantrum, bond investors eventually forced the FOMC to lower their estimate of the neutral policy rate. Valuations for perfectly-priced US equities are vulnerable if the economic slowdown anticipated by US Treasury investors is sufficiently large to negatively impact corporate profit expectations.

US Growth Held Back by Supply Constraints, but US Treasury Investors Predict Slower Times Ahead

United States

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P 500 INDEX (SPX INDEX)

US Wages Are Resurgent, Even if Markets Haven't Noticed; Keep Your Eye on Inflation

Core CPI rose 10% annualized in 2Q2021; rentals will reflect surging house prices in 2H 2021. Wage inflation in June was 3.6%YoY on a high base....

Prasenjit K. Basu

China Back at the Buy Zone

Chinese indices are turning from great levels. The emerging setups suggest a significant rally ahead and possibly the outperformance against the...

Shyam Devani

U.S. Equity Strategy: SPX 4400 Target In Sight

The S&P 500 remains bullish, progressing past our first target of 4350 and now on its way to our next target of 4400-4406. As long as 4257-4275...

Vermilion Research

SPX/NDX Ratio: Nasdaq Not as Attractive as It Was

The recent outperformance of the Nasdaq 100 to the S&P 500 is now showing signs of exhaustion. The S&P 500 is starting to look better from a...

Shyam Devani

US Growth Held Back by Supply Constraints, but US Treasury Investors Predict Slower Times Ahead

Barring current labour supply constraints, US growth would be even stronger. US Treasury investors are discounting slowing growth, particularly if...

DeSaque Macro Research