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

Markets cheered a weak non-farm payrolls print for October 2019 (+128K, slower than the +145K average for Feb-Oct 2019, but better than the street consensus forecast of 89K). With the unemployment rate ticking up to 3.6%, and average earnings (wages) up just 3% YoY, the job market reality provides more evidence of an ageing recovery that is running out of steam. The most reliable gauge of the cyclical present and future of the US economy, the ISM manufacturing PMI and new orders, were both below 50 for the third consecutive month, suggesting persisting cyclical weakness (although the mild improvement in new orders suggests rate cuts are helping). The FOMC cut the Fed Funds rate by 25bp for a third time, bringing the effective policy rate to 1.625%, marginally below the core PCE inflation rate of 1.7%. But the FOMC removed language saying it would "act as appropriate to sustain the expansion", instead signalling that its next move could be either up or down (and a pause was likely at its next meeting). That real GDP growth had slowed to 1.9%QoQsa, and business (non-residential fixed) investment had declined for the second consecutive quarter (by -3%QoQsaar in 3Q 2019, the worst decline in 4 years), appears not to be of much concern to the FOMC, as long as PCE continues to hold up.  The rate-sensitive components of aggregate demand -- durable goods consumption (+7.6%QoQ) and residential investment (+5.1%QoQ) -- are indeed the pillars holding up the US economy currently. The absence of further rate cuts (at least for the next 3 months, perhaps longer) will weaken those two components in 4Q 2019 and 1Q 2020. Business investment only regained the pre-GFC level in 2012, edged up slightly in 2013-15, declined in 2016, then had two good years in 2017-18 due to the Trump fiscal stimulus. Stagnation and decline in capex (the normal state since 2008) have now returned, and will likely worsen in 2020. The absence of further rate cuts will ensure a further weakening in aggregate demand in 1H 2020, tipping the US economy toward recession by 4Q 2020, and ending the Trump presidency. Given the cloudy political and policy outlook (especially with a Democrat to the left of George McGovern leading in the polls, see <a href="https://www.smartkarma.com/insights/warren-clearly-the-new-front-runner-as-trump-hurts-biden-with-hunter-controversy" target="_blank" data-smartkarma-citation="insights:33195" rel="noopener">Warren Clearly the New Front-Runner, as Trump Hurts Biden with Hunter Controversy</a>), we expect the US equity market to decline over the next half year.

Markets cheered a weak non-farm payrolls print for October 2019 (+128K, slower than the +145K average for Feb-Oct 2019, but better than the street consensus forecast of 89K). With the unemployment rate ticking up to 3.6%, and average earnings (wages) up just 3% YoY, the job market reality provides more evidence of an ageing recovery that is running out of steam. The most reliable gauge of the cyclical present and future of the US economy, the ISM manufacturing PMI and new orders, were both below 50 for the third consecutive month, suggesting persisting cyclical weakness (although the mild improvement in new orders suggests rate cuts are helping). The FOMC cut the Fed Funds rate by 25bp for a third time, bringing the effective policy rate to 1.625%, marginally below the core PCE inflation rate of 1.7%. But the FOMC removed language saying it would "act as appropriate to sustain the expansion", instead signalling that its next move could be either up or down (and a pause was likely at its next meeting). That real GDP growth had slowed to 1.9%QoQsa, and business (non-residential fixed) investment had declined for the second consecutive quarter (by -3%QoQsaar in 3Q 2019, the worst decline in 4 years), appears not to be of much concern to the FOMC, as long as PCE continues to hold up.  The rate-sensitive components of aggregate demand -- durable goods consumption (+7.6%QoQ) and residential investment (+5.1%QoQ) -- are indeed the pillars holding up the US economy currently. The absence of further rate cuts (at least for the next 3 months, perhaps longer) will weaken those two components in 4Q 2019 and 1Q 2020. Business investment only regained the pre-GFC level in 2012, edged up slightly in 2013-15, declined in 2016, then had two good years in 2017-18 due to the Trump fiscal stimulus. Stagnation and decline in capex (the normal state since 2008) have now returned, and will likely worsen in 2020. The absence of further rate cuts will ensure a further weakening in aggregate demand in 1H 2020, tipping the US economy toward recession by 4Q 2020, and ending the Trump presidency. Given the cloudy political and policy outlook (especially with a Democrat to the left of George McGovern leading in the polls, see Warren Clearly the New Front-Runner, as Trump Hurts Biden with Hunter Controversy), we expect the US equity market to decline over the next half year. 

Recession Watch-III: A 2%-Growth Economy Is Set to Decelerate as the Fed Decides to Pause

United Kingdom

Vanguard S&P 500 ETF is a UCITS compliant, exchange-traded fund, incorporated in Ireland. The fund seeks to track the performance of the S&P 500 Index, a widely recognised benchmark comprised of the stocks of large U.S. companies.

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Vanguard S&P 500 UCITS ETF (VUSA LN)

Recession Watch-III: A 2%-Growth Economy Is Set to Decelerate as the Fed Decides to Pause

Markets cheered a weak non-farm payrolls print for October 2019 (+128K, slower than the +145K average for Feb-Oct 2019, but better than the street...

Prasenjit K. Basu

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