Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

Chicago Board Options Exchange Volatility Index / Technical Analysis

Chicago Board Options Exchange Volatility Index

The VIX Index has made three lower lows while momentum has made three higher lowsThis divergence is a short term warning sign that the days ahead may well see a “pop” on the IndexSuch a development, if it unfolds, would almost inevitably be seen with a fall on the S&amp;P 500, even if briefly.

The VIX Index has made three lower lows while momentum has made three higher lowsThis divergence is a short term warning sign that the days ahead may well see a “pop” on the IndexSuch a development, if it unfolds, would almost inevitably be seen with a fall on the S&amp;P 500, even if briefly.

Cross Asset Strategy

A discussion at the end of this week on Singapore’s Money FM rounds up some thoughts on FX and other financial markets.Below is an elaboration of some points made on the US, Europe, China, Commodities, Bonds, and India as well as a link to the radio interview.

A discussion at the end of this week on Singapore’s Money FM rounds up some thoughts on FX and other financial markets.Below is an elaboration of some points made on the US, Europe, China, Commodities, Bonds, and India as well as a link to the radio interview.

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.

The steepening US Treasury yield curve reflects expectations of a normalisation of economic activity, boosted by fiscal and monetary stimulus, as well as doubts that the Fed's current forward guidance can be maintained. Media concerns about the impact of rising Treasury bond yields on risky assets appear to overlook the fact that the yield curve typically steepens at this stage of the economic cycle.
The relationship between the yield curve slope and equities is complex: expectations of stronger growth should produce higher corporate profit estimates that can offset the impact of rising yields if the interest rate term structure steepens. Increases in secular corporate profit growth estimates can also help to support higher valuations in the wake of higher bond yields, as testified by events in the late-1990s. Current profit forecasts for the next year remain in firm uptrend and should support equity prices.
This early stage of the current economic expansion makes comparisons of Fed policy concerns with the late-1990s inappropriate, whereas the events of 1994 demonstrate the damage that a sudden change in Fed policy can inflict on financial markets. Prior to February 1994, the Fed had not commenced a tightening cycle for six years and, consequently, investors were complacent about the risks of a change in policy course. There are, however, some notable differences between the current environment and 1994, notably less dogmatic adherence by the Fed to the predictions of the Phillips Curve and greater awareness of the pitfalls of tighter financial conditions on the real economy due to the rapid growth of the capital markets.
<div>History and current forward guidance by the Fed suggest further steepening of the yield curve, an outcome still consistent with positive equity returns. Since 2001, rising yields commencing below 3% have not prevented higher equity prices, whereas starting points above this level have presented headwinds.  </div>

The steepening US Treasury yield curve reflects expectations of a normalisation of economic activity, boosted by fiscal and monetary stimulus, as well as doubts that the Fed's current forward guidance can be maintained. Media concerns about the impact of rising Treasury bond yields on risky assets appear to overlook the fact that the yield curve typically steepens at this stage of the economic cycle.
The relationship between the yield curve slope and equities is complex: expectations of stronger growth should produce higher corporate profit estimates that can offset the impact of rising yields if the interest rate term structure steepens. Increases in secular corporate profit growth estimates can also help to support higher valuations in the wake of higher bond yields, as testified by events in the late-1990s. Current profit forecasts for the next year remain in firm uptrend and should support equity prices.
This early stage of the current economic expansion makes comparisons of Fed policy concerns with the late-1990s inappropriate, whereas the events of 1994 demonstrate the damage that a sudden change in Fed policy can inflict on financial markets. Prior to February 1994, the Fed had not commenced a tightening cycle for six years and, consequently, investors were complacent about the risks of a change in policy course. There are, however, some notable differences between the current environment and 1994, notably less dogmatic adherence by the Fed to the predictions of the Phillips Curve and greater awareness of the pitfalls of tighter financial conditions on the real economy due to the rapid growth of the capital markets.
History and current forward guidance by the Fed suggest further steepening of the yield curve, an outcome still consistent with positive equity returns. Since 2001, rising yields commencing below 3% have not prevented higher equity prices, whereas starting points above this level have presented headwinds.  

Steeper US Yield Curve: Equity Prices To Be Supported by Corporate Profits Unless Yields Breach 3%

The past few weeks have raised many questions about what is driving what. As yields have risen aggressively due to higher inflation expectations, there have been some concerns about the potential knock-on impact on financial markets generally, including some corners of the stock markets and emerging markets. However recent developments in Oil and stocks suggest we may go back to a more basic relationship between the different financial markets and that Bonds may even outperforming in the short term.

The past few weeks have raised many questions about what is driving what. As yields have risen aggressively due to higher inflation expectations, there have been some concerns about the potential knock-on impact on financial markets generally, including some corners of the stock markets and emerging markets. However recent developments in Oil and stocks suggest we may go back to a more basic relationship between the different financial markets and that Bonds may even outperforming in the short term.

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

Dividend yields for the S&amp;P 500 are 1.5%; the only time they were lower in the past 150 years was in 2000 (1% before the "dot-com crash" of 2000). We expect the S&amp;P 500 earnings yield to rebound from its low of 2.5% through a combination of stronger EPS growth and falling stock prices. The 14% of GDP fiscal stimulus will strengthen the recovery; already the end of the SLR-relaxation amounts to a slight tightening of monetary conditions from April 2021. The pledge of US$120 billion of monthly bond purchases will need to be relaxed after May 2021, and further tightening is likely at the FOMC meeting at the end of June, via either a 12.5bp rise in Fed Funds rate or an increase in the 0.1% interest rate paid on banks' reserves. The US$ will strengthen.Over the past 3 months (starting 27 December 2020), the US has legislated an aggregate fiscal stimulus of US$2.8 trillion (14% of GDP), of which the first part (US$0.9 trillion) has been almost entirely disbursed in the current quarter. Unsurprisingly, FOMC members expect US real GDP to rebound to a spectacular 6.5% growth in 2021. The unemployment rate has already declined to 6.2% in February 2021 (from 6.7% in Nov-Dec 2020, and 10.2% in July 2020); although much higher than February 2020 (3.5%), the current unemployment rate is not far above the traditional 5-6% rate considered the non-accelerating-inflation rate of unemployment (NAIRU), which is estimated to have fallen to 4-5% for the 2005-30 period. Given that jobs in the pandemic-hit hospitality sector are unlikely to come back for awhile, we estimate that NAIRU this year is close to 5%, a level of unemployment that is likely to be reached before 4Q 2021. Manufacturing is leading the US recovery: the ISM's manufacturing PMI was equal to a 3-year high (last exceeded 17 years ago) in February 2021 despite inclement weather. The Philadelphia Fed's manufacturing outlook reached a 48-year high this month. Inflation is likely to edge up as unemployment declines toward the NAIRU, making it untenable for the Fed to keep to its pledge of buying US$120 billion of bonds monthly without countervailing actions to reduce the money-multiplier. The first such step removes the SLR relaxations from the beginning of next month. The second is likely to be an increase in the interest rate paid on banks' reserves (from their 0.1% current level) or an outright increase in the Fed Funds rate (to 0.25%) at the June FOMC meeting. We are bearish on risk assets (equities and EMs) over the next half year, and would recommend continuing to rotate away from technology stocks to cyclicals, consumer cyclicals and banks.

Dividend yields for the S&amp;P 500 are 1.5%; the only time they were lower in the past 150 years was in 2000 (1% before the "dot-com crash" of 2000). We expect the S&amp;P 500 earnings yield to rebound from its low of 2.5% through a combination of stronger EPS growth and falling stock prices. The 14% of GDP fiscal stimulus will strengthen the recovery; already the end of the SLR-relaxation amounts to a slight tightening of monetary conditions from April 2021. The pledge of US$120 billion of monthly bond purchases will need to be relaxed after May 2021, and further tightening is likely at the FOMC meeting at the end of June, via either a 12.5bp rise in Fed Funds rate or an increase in the 0.1% interest rate paid on banks' reserves. The US$ will strengthen.Over the past 3 months (starting 27 December 2020), the US has legislated an aggregate fiscal stimulus of US$2.8 trillion (14% of GDP), of which the first part (US$0.9 trillion) has been almost entirely disbursed in the current quarter. Unsurprisingly, FOMC members expect US real GDP to rebound to a spectacular 6.5% growth in 2021. The unemployment rate has already declined to 6.2% in February 2021 (from 6.7% in Nov-Dec 2020, and 10.2% in July 2020); although much higher than February 2020 (3.5%), the current unemployment rate is not far above the traditional 5-6% rate considered the non-accelerating-inflation rate of unemployment (NAIRU), which is estimated to have fallen to 4-5% for the 2005-30 period. Given that jobs in the pandemic-hit hospitality sector are unlikely to come back for awhile, we estimate that NAIRU this year is close to 5%, a level of unemployment that is likely to be reached before 4Q 2021. Manufacturing is leading the US recovery: the ISM's manufacturing PMI was equal to a 3-year high (last exceeded 17 years ago) in February 2021 despite inclement weather. The Philadelphia Fed's manufacturing outlook reached a 48-year high this month. Inflation is likely to edge up as unemployment declines toward the NAIRU, making it untenable for the Fed to keep to its pledge of buying US$120 billion of bonds monthly without countervailing actions to reduce the money-multiplier. The first such step removes the SLR relaxations from the beginning of next month. The second is likely to be an increase in the interest rate paid on banks' reserves (from their 0.1% current level) or an outright increase in the Fed Funds rate (to 0.25%) at the June FOMC meeting. We are bearish on risk assets (equities and EMs) over the next half year, and would recommend continuing to rotate away from technology stocks to cyclicals, consumer cyclicals and banks. 

Biden's Huge Stimulus Is Obliging the Fed to Edge Away from Unlimited QE

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)

Top of The "Pops"

Fresh signs warn of a "pop" on the VIX Index which in turn suggest a decline on the S&P 500, even if briefly, as we approach Q2, 2021.

Shyam Devani

FX Summary Discussion at End of Q1

A summary radio discussion on foreign exchange and other financial markets as we approach Q2. Topics include the US, Europe, China, Oil, Bonds, and...

Shyam Devani

Steeper US Yield Curve: Equity Prices To Be Supported by Corporate Profits Unless Yields Breach 3%

A steeper yield curve due to rising bond yields is not always disastrous for US equities. Rising corporate profit estimates and bond yields staying...

DeSaque Macro Research

Oil, Stocks, Bonds - Back to Basics

The recent weakness in Oil coupled with the bearish indication in equities may create a near term bid for Bonds as a more 'traditional'...

Shyam Devani

Biden's Huge Stimulus Is Obliging the Fed to Edge Away from Unlimited QE

The 14% of GDP stimulus will oblige the Fed to tighten policy by mid-year, strengthening the US$.S&P500 dividend yield (1.5%) has been lower only...

Prasenjit K. Basu