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 steepening yield curve reinforces our view that the US$900 billion stimulus enacted at end-2020 will largely close the US output gap in the current quarter. The new Biden stimulus of US$1.9 trillion (pushing this year's fiscal deficit to a post-WWII record of 20% of GDP) will render further monetary stimulus superfluous. The Fed will be obliged to rein in QE in 2Q 2021, and actual raise the Fed Funds rate no later than its July 2021 meeting. We are bearish equities on a 6-month view, and bullish the US dollar. We reiterate our view articulated in December 2020 (<a href="https://www.smartkarma.com/insights/2021-to-mark-the-return-of-inflation-fed-hike-by-mid-year-implies-risk-off-by-2q-21" target="_blank" data-smartkarma-citation="insights:46348" rel="noopener">2021 to Mark the Return of Inflation: Fed Hike by Mid-Year Implies Risk-Off by 2Q/21  </a>elaborating on our June 2020 view <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> ) that US core PCE inflation will begin to tick up toward 2% YoY by mid-2021, obliging the Fed to cut back on the size of QE, reducing its monthly purchases from the US$120 billion that it has promised. In January 2021, US base money grew by US$41 billion (much less than the promised figure), but this sufficed to boost M2 by 25.5% YoY: we observe that 24% YoY M2 growth (more than double the peak pace of M2 growth in 2009) has become an implicit target while core inflation is subdued and labour-market slack remains.The US output gap didn't close as much as expected in 4Q 2020 because of the spurt in Covid-19 infections, but the likely passage of Biden's US$1.9 trillion stimulus package (on top of the US$900 billion package enacted at the end of 2020) will cause the fiscal deficit to hit a record 20% of GDP in FY2021. The previous stimulus is likely to largely close the output gap in the current quarter (with real GDP likely to be only about 1% below its potential) based on the December 2020 stimulus. A further massive fiscal stimulus will make the Fed's QE superfluous.Inflationary expectations (as reflected in the 5-year TIPS/Treasury breakeven rate) are already for average inflation of 2.4% over the next 5 years. When a further fiscal stimulus pushes this year's fiscal deficit to a record 20% of GDP, core PCE inflation will quickly print above 2% YoY, obliging the Fed to cut back on its promised monthly QE during 2Q 2021, and to actually raise the Fed Funds rate by its July 2021 FOMC meeting.

The steepening yield curve reinforces our view that the US$900 billion stimulus enacted at end-2020 will largely close the US output gap in the current quarter. The new Biden stimulus of US$1.9 trillion (pushing this year's fiscal deficit to a post-WWII record of 20% of GDP) will render further monetary stimulus superfluous. The Fed will be obliged to rein in QE in 2Q 2021, and actual raise the Fed Funds rate no later than its July 2021 meeting. We are bearish equities on a 6-month view, and bullish the US dollar. We reiterate our view articulated in December 2020 (2021 to Mark the Return of Inflation: Fed Hike by Mid-Year Implies Risk-Off by 2Q/21  elaborating on our June 2020 view Labour Market Slack Remains but FOMC Will Need to Tighten by Mid-2021 ) that US core PCE inflation will begin to tick up toward 2% YoY by mid-2021, obliging the Fed to cut back on the size of QE, reducing its monthly purchases from the US$120 billion that it has promised. In January 2021, US base money grew by US$41 billion (much less than the promised figure), but this sufficed to boost M2 by 25.5% YoY: we observe that 24% YoY M2 growth (more than double the peak pace of M2 growth in 2009) has become an implicit target while core inflation is subdued and labour-market slack remains.The US output gap didn't close as much as expected in 4Q 2020 because of the spurt in Covid-19 infections, but the likely passage of Biden's US$1.9 trillion stimulus package (on top of the US$900 billion package enacted at the end of 2020) will cause the fiscal deficit to hit a record 20% of GDP in FY2021. The previous stimulus is likely to largely close the output gap in the current quarter (with real GDP likely to be only about 1% below its potential) based on the December 2020 stimulus. A further massive fiscal stimulus will make the Fed's QE superfluous.Inflationary expectations (as reflected in the 5-year TIPS/Treasury breakeven rate) are already for average inflation of 2.4% over the next 5 years. When a further fiscal stimulus pushes this year's fiscal deficit to a record 20% of GDP, core PCE inflation will quickly print above 2% YoY, obliging the Fed to cut back on its promised monthly QE during 2Q 2021, and to actually raise the Fed Funds rate by its July 2021 FOMC meeting. 

US: Steepening Yield Curve Is a Harbinger of Inflation That'll Oblige Fed to Tighten

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.

Despite concerns of excessive fiscal stimulus, observers are resigned to the Fed allowing the economy to "run hot" in its aftermath without any monetary offset. Investors need to remember Fed policy is data dependent and that there is still sufficient economic slack to assist the riskier segments of the capital structure before any tightening measures are undertaken.
Structural headwinds have offset cyclical  forces to prevent rising US inflation in recent years, but it is still uncertain whether these restraints can counter sustained Modern Monetary Theory (MMT) by the Fed and US Treasury. Future trends in the velocity of circulation of money will determine whether expansion of monetary aggregates translates into rising prices. Japan provided the Fed with an example where significant and sustained economic stimulus did not produce inflation due to arrival of deflationary psychology. 
The recent behaviour of inflationary expectations has defied predictions, which, in turn, were based on historic perceptions of slow declines and rapid increases. Inflationary expectations failed to rise materially during the two most recent economic expansions, thereby indicating the arrival of stubborn deflationary psychology that also fundamentally altered the relationship between equity prices and bond yields.  The current rise in US Treasury yields does not constitute a full-blown repeat of the 2013 taper tantrum. 
<div>The Federal Open Market Committee (FOMC) announced that socially inclusive metrics will form part of their framework for assessing labour market conditions, raising the prospect of policy being kept looser for longer if inflation remains benign. Incoming economic data in 2021 H2 will crucial for investors in determining whether the Fed will be forced to change their expected dovish policy path in 2022.  </div>

Despite concerns of excessive fiscal stimulus, observers are resigned to the Fed allowing the economy to "run hot" in its aftermath without any monetary offset. Investors need to remember Fed policy is data dependent and that there is still sufficient economic slack to assist the riskier segments of the capital structure before any tightening measures are undertaken.
Structural headwinds have offset cyclical  forces to prevent rising US inflation in recent years, but it is still uncertain whether these restraints can counter sustained Modern Monetary Theory (MMT) by the Fed and US Treasury. Future trends in the velocity of circulation of money will determine whether expansion of monetary aggregates translates into rising prices. Japan provided the Fed with an example where significant and sustained economic stimulus did not produce inflation due to arrival of deflationary psychology. 
The recent behaviour of inflationary expectations has defied predictions, which, in turn, were based on historic perceptions of slow declines and rapid increases. Inflationary expectations failed to rise materially during the two most recent economic expansions, thereby indicating the arrival of stubborn deflationary psychology that also fundamentally altered the relationship between equity prices and bond yields.  The current rise in US Treasury yields does not constitute a full-blown repeat of the 2013 taper tantrum. 
The Federal Open Market Committee (FOMC) announced that socially inclusive metrics will form part of their framework for assessing labour market conditions, raising the prospect of policy being kept looser for longer if inflation remains benign. Incoming economic data in 2021 H2 will crucial for investors in determining whether the Fed will be forced to change their expected dovish policy path in 2022.  

Outlook for US Treasuries and Fed Policy: Beware the Lingering Legacies of Deflationary Psychology

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

We called for covering short exposure and putting on risk in our bull group near SPX 3,800 support (hit 3,804.75) and did see a nice bull reversal in NY to short up the bull case off of SPX wedge support. The risk buckle came within the Feb 21 window. We now need to clear hurdle resistance levels to avert a downside re test.This insight focuses on upside resistances to clear to open the way to a new highs and supports to hold to validate the SPX bull reversal off of primary wedge support. Our bull group is where we added risk and outline where we want to add risk in Asia.

We called for covering short exposure and putting on risk in our bull group near SPX 3,800 support (hit 3,804.75) and did see a nice bull reversal in NY to short up the bull case off of SPX wedge support. The risk buckle came within the Feb 21 window. We now need to clear hurdle resistance levels to avert a downside re test.This insight focuses on upside resistances to clear to open the way to a new highs and supports to hold to validate the SPX bull reversal off of primary wedge support. Our bull group is where we added risk and outline where we want to add risk in Asia.

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.

As the S&amp;P 500 pulls back to logical support at 3870, our weight-of-the-evidence approach continues to support our overall bullish outlook. While the positives heavily outweigh the negatives, the rising 10-year Treasury yield is threatening to become a headwind. In today’s report we highlight attractive Groups and stocks within Materials and Transportation.

As the S&amp;P 500 pulls back to logical support at 3870, our weight-of-the-evidence approach continues to support our overall bullish outlook. While the positives heavily outweigh the negatives, the rising 10-year Treasury yield is threatening to become a headwind. In today’s report we highlight attractive Groups and stocks within Materials and Transportation.

S&P 500 Testing 3870 Support; 10-Year Yield In Focus

SPX 3,950-66 top of wedge call to sell down risk and put on some protection for a test on SPX 3,800 buy support with 3,890 the near trigger support to break, if it holds then adjust for a bounce. SPX 4,000 is our next upside target with upgrade potential (from a low near 3,800). Sub 3,800 would induce a harder pullback.

SPX 3,950-66 top of wedge call to sell down risk and put on some protection for a test on SPX 3,800 buy support with 3,890 the near trigger support to break, if it holds then adjust for a bounce. SPX 4,000 is our next upside target with upgrade potential (from a low near 3,800). Sub 3,800 would induce a harder pullback.

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: Steepening Yield Curve Is a Harbinger of Inflation That'll Oblige Fed to Tighten

The steepening yield curve validates our view that $900bn stimulus will close the US output gap in 1Q2021. Biden's $1.9tn stimulus renders QE...

Prasenjit K. Basu

Outlook for US Treasuries and Fed Policy: Beware the Lingering Legacies of Deflationary Psychology

Prospects of further fiscal stimulus have stoked investors' inflation fears as the Fed exhibits no interest in providing monetary offsets. Recent...

DeSaque Macro Research

SPX Hit 3,800 Long Risk Support

We called for covering short exposure and putting on risk in our bull group near SPX 3,800 support (hit 3,804.75) for the bull case from SPX wedge...

Thomas Schroeder

S&P 500 Testing 3870 Support; 10-Year Yield In Focus

As the S&P 500 pulls back to logical support at 3870. In today’s report we highlight attractive Groups and stocks within Materials and Transportation.

Vermilion Research

SPX 3,800 Long Support

SPX 3,950-66 top of wedge call to sell down risk and put on some protection for a test on SPX 3,800 buy support with 3,890 the near trigger support...

Thomas Schroeder