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.

Technical Analysis

<div>The action we are seeing in broad indexes, Sectors, and in market dynamics continues to support our overall bullish outlook. Additionally, the mild deterioration in market dynamics that we discussed the past two weeks is now much less of a concern. Continue to buy dips. In today’s report we highlight attractive Groups and stocks within Consumer Discretionary, Energy, and Health Care.</div>

The action we are seeing in broad indexes, Sectors, and in market dynamics continues to support our overall bullish outlook. Additionally, the mild deterioration in market dynamics that we discussed the past two weeks is now much less of a concern. Continue to buy dips. In today’s report we highlight attractive Groups and stocks within Consumer Discretionary, Energy, and Health Care.

U.S. Equity Strategy: Bullish Outlook Intact

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.

Cross Asset Strategy

<p>US corporations are already planning for the arrival of a new business environment after COVID-19, but the timing and its exact structure will depend heavily on the success of vaccine rollouts. The pandemic has imparted deep wounds in some sectors of the economy that will impact companies for many years, thereby additionally forcing them to address lingering secular challenges.</p>
<p>Any additional short-term fiscal boost by the Biden Administration should be supportive for aggregate demand, but the overall impact will depend on being able to abolish social restrictions. Economic uncertainty still lingers due the unknown size of additional stimulus as well as the timing of its implementation due to the budget reconciliation process.</p>
<p>President Biden's economic agenda goes beyond short-term stimulus to embrace infrastructure programmes, corporate tax changes, and a potential resetting of trade relations with China. Companies with high foreign-sourced profits will experience the largest increase in their effective tax rate if corporation tax is raised to 28% from 21%.</p>
<div>Tougher regulations in the realm of climate change under the Biden Administration and the continued rise of environmental, social and governance (ESG) factors in asset allocation spell tougher times ahead for the oil and gas sectors, as well as automotive. Reducing US technology companies' reliance on China in their supply-chains cannot be remedied quickly, along with issues about intellectual property, thereby making a resetting of trade relations more complex. The health care sector does not face risks of regulatory reforms in the near-term, but the outlook could change if the number of uninsured Americans continues to rise as the economy recovers. </div>
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<p>The influence of ESG factors in asset allocation during the Biden Administration will continue to rise, given their importance in providing the plans to build a sustainable economic recovery. Mergers and acquisitions will feature prominently as companies respond to the challenges of new legislation, ESG-driven asset allocation affecting the cost of capital and secular changes to the business environment.</p>
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US corporations are already planning for the arrival of a new business environment after COVID-19, but the timing and its exact structure will depend heavily on the success of vaccine rollouts. The pandemic has imparted deep wounds in some sectors of the economy that will impact companies for many years, thereby additionally forcing them to address lingering secular challenges.
Any additional short-term fiscal boost by the Biden Administration should be supportive for aggregate demand, but the overall impact will depend on being able to abolish social restrictions. Economic uncertainty still lingers due the unknown size of additional stimulus as well as the timing of its implementation due to the budget reconciliation process.
President Biden's economic agenda goes beyond short-term stimulus to embrace infrastructure programmes, corporate tax changes, and a potential resetting of trade relations with China. Companies with high foreign-sourced profits will experience the largest increase in their effective tax rate if corporation tax is raised to 28% from 21%.
Tougher regulations in the realm of climate change under the Biden Administration and the continued rise of environmental, social and governance (ESG) factors in asset allocation spell tougher times ahead for the oil and gas sectors, as well as automotive. Reducing US technology companies' reliance on China in their supply-chains cannot be remedied quickly, along with issues about intellectual property, thereby making a resetting of trade relations more complex. The health care sector does not face risks of regulatory reforms in the near-term, but the outlook could change if the number of uninsured Americans continues to rise as the economy recovers. 


The influence of ESG factors in asset allocation during the Biden Administration will continue to rise, given their importance in providing the plans to build a sustainable economic recovery. Mergers and acquisitions will feature prominently as companies respond to the challenges of new legislation, ESG-driven asset allocation affecting the cost of capital and secular changes to the business environment.





Outlook for US Corporations: Greener Pastures Not Guaranteed Under Biden Administration Agenda

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

<p><strong><em>December economic pause was followed by a US$900 billion stimulus that will largely be spent in 1Q 2021. The output gap (still 2.8% of potential GDP in 4Q 2020) will narrow sharply this quarter, making it impossible for the Fed to sustain US$120 billion of monthly QE. Whether Biden pushes through a US$1.9 trillion stimulus (without GOP votes) or a more modest US$1.5 trillion one with some GOP votes, it will prove inflationary by 3Q 2021. With the public debt soaring toward 120% of GDP, Biden's corporate tax hike from 21% to 28% will likely be announced (even if conditionally) at his 23 February 2021 speech to a joint session of Congress. We recommend being underweight equities, and long US$ on a 6-month view. </em></strong></p><p>The renewed surge in Coronavirus infections in the last two months, and related restrictions on economic activity, contributed both to the December decline in non-farm payrolls and a relatively weak print for real GDP growth in 4Q 2020 (+4%QoQsaar, -2.5% YoY). The output gap, which was 3.5% of potential GDP in 3Q 2020, only improved to 2.8% of potential GDP in 4Q 2020, delaying the onset of inflation risks, keeping both core inflation gauges at 1.5-1.6% YoY at end-2020. </p><p>However, the US$900 billion fiscal stimulus was only enacted on 27 December 2020, and hence began to boost the economy only in 1Q 2021. If the full Biden stimulus of a further US$1.9 trillion is passed via a reconciliation process (without GOP support), the total of US$2.8 trillion will add 13.3% of GDP to the deficit for FY2021 (already estimated by the CBO at 9% of GDP before the two stimulus packages). That would be more than sufficient to close the output gap by mid-2021. Even a more modest stimulus (US$1.5 trillion) passed with some Republican support, would suffice to close the output gap by July 2021, pushing core CPI inflation above 2% YoY by 3Q 2021. M2 growth (which has plateaued around the 24% YoY handle over the past 8 months) will likely need to be reined-in by 2Q 2021, even if the FOMC is not immediately obliged to raise rates.</p><p>Biden has already tightened environmental regulations, as promised, by rejoining the Paris Climate accord, imposing a moratorium on oil/gas drilling on federal land and water and revoking the Keystone XL pipeline permit. The two stimulus packages will boost EPS and economic growth. But with the public debt already above 100% of GDP, Biden will likely announce his promised hike in corporate taxes (to 28% from 21%) at his speech to the joint session of Congress on 23 February 2021. That too will slash EPS growth in FY2022 (Oct 2021 to Sep 2022). We recommend staying Underweight Equities, and de-risking portfolios. On a six-month view, we would be long US$.    </p>

December economic pause was followed by a US$900 billion stimulus that will largely be spent in 1Q 2021. The output gap (still 2.8% of potential GDP in 4Q 2020) will narrow sharply this quarter, making it impossible for the Fed to sustain US$120 billion of monthly QE. Whether Biden pushes through a US$1.9 trillion stimulus (without GOP votes) or a more modest US$1.5 trillion one with some GOP votes, it will prove inflationary by 3Q 2021. With the public debt soaring toward 120% of GDP, Biden's corporate tax hike from 21% to 28% will likely be announced (even if conditionally) at his 23 February 2021 speech to a joint session of Congress. We recommend being underweight equities, and long US$ on a 6-month view. The renewed surge in Coronavirus infections in the last two months, and related restrictions on economic activity, contributed both to the December decline in non-farm payrolls and a relatively weak print for real GDP growth in 4Q 2020 (+4%QoQsaar, -2.5% YoY). The output gap, which was 3.5% of potential GDP in 3Q 2020, only improved to 2.8% of potential GDP in 4Q 2020, delaying the onset of inflation risks, keeping both core inflation gauges at 1.5-1.6% YoY at end-2020. However, the US$900 billion fiscal stimulus was only enacted on 27 December 2020, and hence began to boost the economy only in 1Q 2021. If the full Biden stimulus of a further US$1.9 trillion is passed via a reconciliation process (without GOP support), the total of US$2.8 trillion will add 13.3% of GDP to the deficit for FY2021 (already estimated by the CBO at 9% of GDP before the two stimulus packages). That would be more than sufficient to close the output gap by mid-2021. Even a more modest stimulus (US$1.5 trillion) passed with some Republican support, would suffice to close the output gap by July 2021, pushing core CPI inflation above 2% YoY by 3Q 2021. M2 growth (which has plateaued around the 24% YoY handle over the past 8 months) will likely need to be reined-in by 2Q 2021, even if the FOMC is not immediately obliged to raise rates.Biden has already tightened environmental regulations, as promised, by rejoining the Paris Climate accord, imposing a moratorium on oil/gas drilling on federal land and water and revoking the Keystone XL pipeline permit. The two stimulus packages will boost EPS and economic growth. But with the public debt already above 100% of GDP, Biden will likely announce his promised hike in corporate taxes (to 28% from 21%) at his speech to the joint session of Congress on 23 February 2021. That too will slash EPS growth in FY2022 (Oct 2021 to Sep 2022). We recommend staying Underweight Equities, and de-risking portfolios. On a six-month view, we would be long US$.    

Delayed Inflation Risks to Be Re-Ignited by Biden Stimulus as Output Gap Closes

<p>Prior to the arrival of COVID-19, support for aggregate demand from fiscal policy had been extremely unreliable, thereby making it virtually impossible for the Fed to restore pre-Great Recession policy settings. Recent fiscal stimulus and the likelihood of further measures have, however, raised the spectre of the Fed having to respond to economic overheating risks sooner-than-expected.</p>
<p>Fed Chair Powell rules out the possibility of economic overheating in 2021 due to the absence of any semblance of broad-based economic strength currently embedded in data. In contrast to previous cycles, inflation will have to overshoot the 2% target before the federal funds rate is increased, but the Federal Open Market Committee (FOMC) is reluctant to embrace a rule-based approach in this particular realm due to their desire to retain flexibility.</p>
<p>Treasury Secretary Yellen respects the Fed's legal independence, but she may face political pressure from her new paymasters to ensure quantitative easing is not tapered too aggressively in order to facilitate further fiscal expansion. She will allow the FOMC to pursue their policy goals and she has pledged to allow market forces to determine the exchange rate. </p>
<p>Fed Chair Powell is not worried about elevated equity valuations as a threat to  economic stability. Other monitored sources of financial stress are currently not indicating signs of strain, thereby allowing the FOMC to focus on their economic goals.     </p>

Prior to the arrival of COVID-19, support for aggregate demand from fiscal policy had been extremely unreliable, thereby making it virtually impossible for the Fed to restore pre-Great Recession policy settings. Recent fiscal stimulus and the likelihood of further measures have, however, raised the spectre of the Fed having to respond to economic overheating risks sooner-than-expected.
Fed Chair Powell rules out the possibility of economic overheating in 2021 due to the absence of any semblance of broad-based economic strength currently embedded in data. In contrast to previous cycles, inflation will have to overshoot the 2% target before the federal funds rate is increased, but the Federal Open Market Committee (FOMC) is reluctant to embrace a rule-based approach in this particular realm due to their desire to retain flexibility.
Treasury Secretary Yellen respects the Fed's legal independence, but she may face political pressure from her new paymasters to ensure quantitative easing is not tapered too aggressively in order to facilitate further fiscal expansion. She will allow the FOMC to pursue their policy goals and she has pledged to allow market forces to determine the exchange rate. 
Fed Chair Powell is not worried about elevated equity valuations as a threat to  economic stability. Other monitored sources of financial stress are currently not indicating signs of strain, thereby allowing the FOMC to focus on their economic goals.     

Fed Downplays Economic Overheating and Equity Market Risks: Focus on Unemployment and Low Inflation

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

<p>Earlier this month a note titled <a href="https://www.smartkarma.com/insights/the-pain-and-the-gain-in-equities-and-fx" target="_blank" data-smartkarma-citation="insights:47142" rel="noopener">The Pain and the Gain in Equities and FX</a> was shared on SmartKarma trying to highlight the short term risks in these markets. In that note it was concluded that one should <em>“look out for opportunities to re-engage in equity markets anywhere between 5%-10% below current levels. Similarly expect signals to short the USD again over the weeks ahead.</em>”</p>
<p>As we now appear to be in the middle of this correction down in many equity indices, the following note attempts to highlight key support zones for major indices around the world in preparation for re-engaging in markets for a longer lasting and more underlying bull trend. </p>

Earlier this month a note titled The Pain and the Gain in Equities and FX was shared on SmartKarma trying to highlight the short term risks in these markets. In that note it was concluded that one should “look out for opportunities to re-engage in equity markets anywhere between 5%-10% below current levels. Similarly expect signals to short the USD again over the weeks ahead.”
As we now appear to be in the middle of this correction down in many equity indices, the following note attempts to highlight key support zones for major indices around the world in preparation for re-engaging in markets for a longer lasting and more underlying bull trend. 

Where to Prepare for the 'Gain' in Equities

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)

U.S. Equity Strategy: Bullish Outlook Intact

The action we are seeing in broad indexes, Sectors, and in market dynamics continues to support our overall bullish outlook. Continue to buy dips.

Vermilion Research

Outlook for US Corporations: Greener Pastures Not Guaranteed Under Biden Administration Agenda

Greener pastures for corporations under the Biden Administration's agenda are not guaranteed. Measures to support aggregate demand will be bullish,...

DeSaque Macro Research

Delayed Inflation Risks to Be Re-Ignited by Biden Stimulus as Output Gap Closes

Covid hurt in Dec20, but the $900bn stimulus kicked in this month and will be concentrated in 1Q21. Biden stimulus will close output gap by mid...

Prasenjit K. Basu

Fed Downplays Economic Overheating and Equity Market Risks: Focus on Unemployment and Low Inflation

Fed Chair Powell is downplaying the risks of overheating due to looser fiscal policy, as well as the systemic threat from high US equity prices....

DeSaque Macro Research

Where to Prepare for the 'Gain' in Equities

As we correct down in many equity indices, this note attempts to identify levels where markets are likely to be supported

Shyam Devani