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

Cross Asset Strategy

With the output gap closing, and a big US$900 billion fiscal stimulus on the way, the 24% YoY pace of M2 growth is bound to push core PCE inflation above 2% YoY by March 2021. The FOMC will be obliged to cut back on its promise of US$120 billion of monthly asset purchases by April, and to actually raise the Fed Funds rate by mid-2021. We consequently expect a dollar rally in 2021, and a sell-off in risk assets (including equities) by 2Q 2021. US money supply (M2) has plateaued at 23-25% YoY growth in the past half year (far faster than the peak in M2 growth at 10.4% YoY in Jan 2009 during the GFC). Despite a wide output gap (10% of potential GDP in 2Q 2020, and 3.5% in 3Q 2020), core PCE inflation was only slightly lower in July-November 2020 (1.3-1.6% YoY) than in the last two pre-Covid months (1.7-1.8% YoY in Jan-Feb 2020). With the output gap set to close in the current quarter, as indicated by the current strength of ISM's PMIs for both manufacturing and services, the surging pace of M2 growth is likely to begin generating over 2% core PCE inflation by March 2021.The FOMC has repeated that it will allow core PCE inflation to "moderately" exceed 2% for a time (to offset the long periods below 2% YoY) before raising the Fed Funds rate. However, its latest statement also says the FOMC is "prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals". With ISM new orders pointing to a stronger US economy in 1H 2021, Congress has just approved a US$900 billion fiscal stimulus to further turbo-charge the economy (and provide support to individuals' and SMEs' ability to consume and invest). Although the unemployment rate will still be 5.5% in March 2021, employment is unlikely to rise substantially more (given the productivity-enhancing impact of work-from-home, which will permanently reduce resource use across the economy). Consequently, it will be impossible for the FOMC to keep its promise to purchase US$120 billion of assets monthly after March 2021, by which time core PCE inflation will be pushing past 2% YoY.By April 2021, we expect the Fed to be obliged to considerably reduce the size of its monthly purchases of Treasury and mortgage-backed securities, and to raise the Fed Funds rate by June 2021. The failure to do so will cause inflation to rise past 3% YoY amid a closed output gap and surging economy. In the intervening period, the yield curve will steepen further, but equities will sell-off by March 2021 as markets turn increasingly risk-averse amid rising signs of inflation (and higher inflationary expectations). We would recommend taking profits on global equities by end-2020, and switching to a more defensive asset allocation in 1Q 2021. Banks, however, will be an exception worth holding onto amid a steepening yield curve.

With the output gap closing, and a big US$900 billion fiscal stimulus on the way, the 24% YoY pace of M2 growth is bound to push core PCE inflation above 2% YoY by March 2021. The FOMC will be obliged to cut back on its promise of US$120 billion of monthly asset purchases by April, and to actually raise the Fed Funds rate by mid-2021. We consequently expect a dollar rally in 2021, and a sell-off in risk assets (including equities) by 2Q 2021. US money supply (M2) has plateaued at 23-25% YoY growth in the past half year (far faster than the peak in M2 growth at 10.4% YoY in Jan 2009 during the GFC). Despite a wide output gap (10% of potential GDP in 2Q 2020, and 3.5% in 3Q 2020), core PCE inflation was only slightly lower in July-November 2020 (1.3-1.6% YoY) than in the last two pre-Covid months (1.7-1.8% YoY in Jan-Feb 2020). With the output gap set to close in the current quarter, as indicated by the current strength of ISM's PMIs for both manufacturing and services, the surging pace of M2 growth is likely to begin generating over 2% core PCE inflation by March 2021.The FOMC has repeated that it will allow core PCE inflation to "moderately" exceed 2% for a time (to offset the long periods below 2% YoY) before raising the Fed Funds rate. However, its latest statement also says the FOMC is "prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals". With ISM new orders pointing to a stronger US economy in 1H 2021, Congress has just approved a US$900 billion fiscal stimulus to further turbo-charge the economy (and provide support to individuals' and SMEs' ability to consume and invest). Although the unemployment rate will still be 5.5% in March 2021, employment is unlikely to rise substantially more (given the productivity-enhancing impact of work-from-home, which will permanently reduce resource use across the economy). Consequently, it will be impossible for the FOMC to keep its promise to purchase US$120 billion of assets monthly after March 2021, by which time core PCE inflation will be pushing past 2% YoY.By April 2021, we expect the Fed to be obliged to considerably reduce the size of its monthly purchases of Treasury and mortgage-backed securities, and to raise the Fed Funds rate by June 2021. The failure to do so will cause inflation to rise past 3% YoY amid a closed output gap and surging economy. In the intervening period, the yield curve will steepen further, but equities will sell-off by March 2021 as markets turn increasingly risk-averse amid rising signs of inflation (and higher inflationary expectations). We would recommend taking profits on global equities by end-2020, and switching to a more defensive asset allocation in 1Q 2021. Banks, however, will be an exception worth holding onto amid a steepening yield curve. 

2021 to Mark the Return of Inflation: Fed Hike by Mid-Year Implies Risk-Off by 2Q/21

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

Market dynamics remain positive and there continues to be an absence of breakdowns across the broad indexes and Sectors. As a result we remain bullish and we view any weakness as a buying opportunity. In today’s report we highlight attractive Groups and stocks within Materials and Technology.

Market dynamics remain positive and there continues to be an absence of breakdowns across the broad indexes and Sectors. As a result we remain bullish and we view any weakness as a buying opportunity. In today’s report we highlight attractive Groups and stocks within Materials and Technology.

U.S. Equity Strategy: Bullish Outlook Intact; Growth Vs. Value Stalemate Continues

Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. We see global equities as being in a goldilocks scenario where market dynamics and technicals are arguably 100% bullish. Of course, at some point this almost too good to be true scenario is likely to result in a pullback, but for now we see no signs of this rally letting up.  In our December International Strategy, we highlight areas of the market where we see actionable opportunities in Technology, Consumer Discretionary, Materials and Manufacturing.

Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. We see global equities as being in a goldilocks scenario where market dynamics and technicals are arguably 100% bullish. Of course, at some point this almost too good to be true scenario is likely to result in a pullback, but for now we see no signs of this rally letting up.  In our December International Strategy, we highlight areas of the market where we see actionable opportunities in Technology, Consumer Discretionary, Materials and Manufacturing.

Global Equity Strategy: Bullish Outlook Intact

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. 

Equity rally cycle very extended in Asia and Europe with the US equity cycle staging a final push out above NDX 12,500 and the DJI bull triangle at 30k. SPX rally energy beginning to struggle near 3,720 projection.USD near a cycle low expected to front run the equity cycle peak due next week. Low in USD, peak in the equity cycle and low in gold.Our ideal cycle peak comes in around December 15 with the next cycle date on December 21 that will trigger profit taking into year-end that will most likely snowball ahead of a fresh bull drive in January/February.We outlined NDX and DJI key levels as the rally drivers this week and where a rally would fail given a number of mounting risks into year-end.

Equity rally cycle very extended in Asia and Europe with the US equity cycle staging a final push out above NDX 12,500 and the DJI bull triangle at 30k. SPX rally energy beginning to struggle near 3,720 projection.USD near a cycle low expected to front run the equity cycle peak due next week. Low in USD, peak in the equity cycle and low in gold.Our ideal cycle peak comes in around December 15 with the next cycle date on December 21 that will trigger profit taking into year-end that will most likely snowball ahead of a fresh bull drive in January/February.We outlined NDX and DJI key levels as the rally drivers this week and where a rally would fail given a number of mounting risks into year-end.

USD is moving into more extreme oversold readings as the DXY meets our downside target of 90.50/sub 90 that sets the stage for a USD tactical low at a time when we find the equity rally in Asia frothy and overbought. Pinpointing a USD low is our focus that will front run an equity peak and commence a pullback cycle in Asia.

USD is moving into more extreme oversold readings as the DXY meets our downside target of 90.50/sub 90 that sets the stage for a USD tactical low at a time when we find the equity rally in Asia frothy and overbought. Pinpointing a USD low is our focus that will front run an equity peak and commence a pullback cycle in Asia.

Dollar Asia Oversold with Turn Risk Signals

United States

The U.S. Dollar Index(USDX) indicates the general int'l value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. The ICE US computes this by using the rates supplied by some 500 banks. FOR REAL TIME SEE EIS ICEA<GO>.

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Dollar Index (DXY CURNCY)

2021 to Mark the Return of Inflation: Fed Hike by Mid-Year Implies Risk-Off by 2Q/21

A closing output gap coupled with $900bn fiscal stimulus will make 2%+ inflation inevitable if M2 keeps growing 24%YoY. US monetary tightening will...

Prasenjit K. Basu

U.S. Equity Strategy: Bullish Outlook Intact; Growth Vs. Value Stalemate Continues

Market dynamics remain positive and there continues to be an absence of breakdowns across the broad indexes and Sectors. As a result we remain...

Vermilion Research

Global Equity Strategy: Bullish Outlook Intact

Our outlook remains bullish and we continue to believe that the path of least resistance is higher for global equities. In this report, we...

Vermilion Research

Mid December Equity Peak

Equity rally cycle very extended in Asia and Europe with some tailwinds for the US into the next key cycle timeline. USD near a cycle low expected...

Thomas Schroeder

Dollar Asia Oversold with Turn Risk Signals

USD in Asia is moving into extreme oversold readings as the DXY meets our downside target that sets the stage for a USD tactical low to front run...

Thomas Schroeder

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