Macro

In today’s briefing:

Steno Signals #106 – The cycle is improving. Not weakening.
Berkshire’s Bullish Bet on Occidental Fails to Sway Market Sentiments
The Week That Was in ASEAN@Smartkarma – Grab’s Lead, Bank Rakyat Indonesia, and CLEO’s Pure Water
Energy Cable: Increases in freight rates not transferring into goods inflation (for now)
HEM: Doves Stay the Course

Steno Signals #106 – The cycle is improving. Not weakening.

We spent most of last week examining cycle leads and lags as we continue to observe solid signs of re-acceleration in economies with low duration profiles and high sensitivities to interest rates and exports.
The Riksbank in Sweden, the BoC in Canada, and partially the ECB in Europe have all cut interest rates amidst an already improving cyclical environment.
We are already starting to see the positive ripple effects.

Berkshire’s Bullish Bet on Occidental Fails to Sway Market Sentiments

Occidental trades at higher PE and PB valuations than Exxon Mobil, Chevron, Shell, TotalEnergies, and BP. European oil majors are cheaper than American peers.
Occidental has been the Permian Basin’s leading oil and gas producer for the past five years.
Occidental expects to close the USD 12 billion CrownRock acquisition by August. The deal is anticipated to boost its oil output by 170k bpd.

The Week That Was in ASEAN@Smartkarma – Grab’s Lead, Bank Rakyat Indonesia, and CLEO’s Pure Water

By Angus Mackintosh

The past week saw insights on Grab Holdings (GRAB US), Bank Rakyat Indonesia (BBRI IJ), Sariguna Primatirta (CLEO IJ), PT Metrodata Electronics (MTDL IJ), and Selamat Sempurna (SMSM IJ).
There were also macro insights on inflation in the Philippines and Malaysia and further insights On Best World International (BEST SP), Ecocare Indo Pasifik (HYGN IJ) and Malaysia Airports Holdings.
The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

Energy Cable: Increases in freight rates not transferring into goods inflation (for now)

By Ulrik Simmelholt

Greetings from Copenhagen! We’ll take a look at freight rates, copper, and crude from an inflation angle.
But before we do that, let’s have a quick look at Henry Hub.
The front-month Henry Hub natural gas prices continue to face downward pressure, primarily influenced by an abundance in gas stock levels.

HEM: Doves Stay the Course

The Bank of England appears eager to implement a rate cut in August, which some view as overly dovish.
The European Central Bank’s potential rate cut in September is contingent on the Federal Reserve initiating their cut at the same time.
There is a risk of inflating economic bubbles due to premature stimulus, similar to the situation in 1998. Additionally, the excessive growth in labour costs is being underestimated.

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Jul 01

Daily Brief Macro: Union Budget 2024- What to Expect? and more

In today’s briefing:

Union Budget 2024- What to Expect?
PBoC Examines Overhaul of Monetary Policy Framework, but Quantitative Easing Appears Unlikely
How Much Is Left in the Bulls’ Gas Tank?
Q2 Earnings Season Preview

Union Budget 2024- What to Expect?

By Nitin Mangal

All eyes will be on the upcoming Union Budget 2024 in July, marking the first of Modi Government 3.0.
Job creation, tackling agriculture woes including farmers income and sustaining expenditure on infra are expected to be the core deliverables.
Moreover, fiscal deficit is expected to continue its improvement run. Capital gains tax would not be touched but GST network could broaden.

PBoC Examines Overhaul of Monetary Policy Framework, but Quantitative Easing Appears Unlikely

By Said Desaque

The People’s Bank of China (PBoC) is studying the efficacy of buying and selling government bonds in the secondary market for liquidity management as opposed to introducing quantitative easing (QE).
China’s government bond market has increased significantly in size since 2008, but the PBoC has not, unlike the Fed, bought sovereign debt in over two decades.
Monetary policy conduct could be streamlined as the number of policy benchmark lending rates is reduced. Hopes of aggressive QE by the PBoC are far-fetched given its balance sheet structure.

How Much Is Left in the Bulls’ Gas Tank?

The stock market advance in 2024 has been impressive, but prices can continue to rise.
Market internals have become frothy and overbought in the AI-related leadership, but the rest of the market is showing signs of recovery that’s indicative of a leadership rotation.
Our base-case scenario calls for some near-term choppiness, followed by further gains into year-end.

Q2 Earnings Season Preview

Investors are facing a number of challenges as they approach Q2 earnings season.
Bottom-Up EPS estimate revisions are strong, top-down economic releases have been weak. As well, forward P/E valuations are elevated
We interpret these conditions as the characteristics of a mid-cycle expansion.

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Jun 30

Daily Brief Macro: Copper Tracker June 2024: Physical/Equity Screens And Trades For July and more

In today’s briefing:

Copper Tracker June 2024: Physical/Equity Screens And Trades For July

Copper Tracker June 2024: Physical/Equity Screens And Trades For July

Copper continued its slide on concerns about inventory and the commencement of new projects and delivered a -9% return for the month.
Check out our initiation, Copper Primer: What We Like About Copper And What to Play, and equity initiation Southern Copper: In a League of Its Own
We like the long copper-short gold trade and explore iron condors in the copper Freeport Mcmoran (FCX US) .

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Jun 29

Daily Brief Macro: Southern Copper: In a League of Its Own and more

In today’s briefing:

Southern Copper: In a League of Its Own
Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 28 Jun 2024
Does Modest Increase in Debt Level of France and Japan Create Problem for Their Economies?
HEW: Holding Patterns
Biden’s Catastrophic Debate Likely to Lead to 1968-Repeat; Can It End Differently?
The Heat Is On: News Flow and Sentiment in HONG KONG
CX Daily: China’s Popular Plastic Bag Replacement Is Less Green Than It Seems

Southern Copper: In a League of Its Own

Southern Copper (SCCO US) in the equity space is the best way to play bullish copper long-term with its long-term (10-year) ROCE of >22%
With low-cost production assets in Peru and Mexico, the company has managed EBITDA margins of> 39% across the cycle (last 15 years) and averaging 50%.
A 100% payout results in a dividend yield of 3.5%. We believe there is a price for everything, and in the event of a 20% correction, it would be attractive.

Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 28 Jun 2024

By Dr. Jim Walker

Japanese Yen: The yen has significantly weakened, leading the US to label Japan as a potential currency manipulator; interest rate differentials and potential sales of US Treasuries are key factors.
Singapore Inflation: Inflation remains high at 3.1%, with historical parallels suggesting potential appreciation of the Singapore dollar by 4-5% if inflation doesn’t fall below 2%.
US Economic Indicators: Despite perceptions of a strong economy, recent US activity indicators, including manufacturing and services, show persistent weaknesses.

Does Modest Increase in Debt Level of France and Japan Create Problem for Their Economies?

By Alex Ng

France and Japan have seen a large increase in total non-financial sector debt/GDP since 2007, though these have been exceeded by China. What are the consequences of this build up?
Most of the surge in debt/GDP in Japan and 40% in France is due to higher government debt.
The adverse impact of higher debt and debt servicing on France’s and Japan’s economies should be small given a property crash or anti Euro government are avoided.

HEW: Holding Patterns

Central banks in Sweden, Mexico, and the Philippines have maintained their rates this week, with EA activity remaining stable according to ESI survey data, and political campaigns nearing their end.
The upcoming week is expected to be quieter with no significant central bank decisions on the horizon.
EA inflation data on Tuesday and US payrolls on Friday are the key events to watch, with the latter potentially having a larger impact on global markets.

Biden’s Catastrophic Debate Likely to Lead to 1968-Repeat; Can It End Differently?

By Prasenjit K. Basu

Pres. Biden’s disastrous debate performance (in which he looked senile and cognitively incapacitated) has led Democrats to call on him to step aside in favour of an alternate Democrat nominee.
In 1968, LBJ stepped aside before most primaries, and VP Humphrey won nomination at the convention. He lost the general mainly because third party candidate Wallace ate into Democrat votes.
Trump landslide would be inflationary (because of 10% tariffs on all imports, more on China), plus the embarrassment of having a convicted felon as president. Near-term negative for US.

The Heat Is On: News Flow and Sentiment in HONG KONG

By David Mudd

China ETF flows in June continued to show positive momentum while other categories remained flat. Southbound Connect Flows were positive while Northbound Connect recorded a Net Sell.
Midea Real Estate Holdings jumped on plans to privatize its property development business
Shanghai Microport fell after launching a share placement at a 15% discount. The share price is hitting all time lows.

CX Daily: China’s Popular Plastic Bag Replacement Is Less Green Than It Seems

Bags / In Depth: China’s popular plastic bag replacement is less green than it seems Li Jingjing is a firm believer in making use of whatever’s around her.
Corruption /: Two of China’s former defense ministers expelled from Communist Party
Personnel /: ‘Big Six’ bank executive looks set to become Everbright Bank’s new president

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Jun 28

Daily Brief Macro: EM Watch: Western investors are tired of China and Japan “crying wolf” and more

In today’s briefing:

EM Watch: Western investors are tired of China and Japan “crying wolf”
Positioning Watch – Markets are buying into US Fixed Income, but fast money don’t agree
United Kingdom: Record Overweights in Run Up to Election
CHINA: How China’s Household Savings Are Bailing Out the Property Sector
Copper Primer: What We Like About Copper And What to Play
[ETP 26/2024] Oil Prices Drop on Surprise Inventory Build; Oil Majors Slide but Retain Gains
France: Global Funds Overweight Ahead of Snap Election
Philippines Policy Rate 6.5% (consensus 6.5%) in Jun-24
EA Stalled Without Crashing
EUR Inflation Watch: Food for pause’istas

EM Watch: Western investors are tired of China and Japan “crying wolf”

Welcome to our weekly EM Watch, with a particular focus on China and metals.
Allow me to reflect on how the Chinese and Japanese investment cases look from the outside and how Western investors perceive the current rhetoric around the suffering local currencies in the region.
The CNY once again “slow burns” versus the USD this week and we are approaching the 7.30 handle, which has typically been the line in the sand for the PBoC in China.

Positioning Watch – Markets are buying into US Fixed Income, but fast money don’t agree

Welcome back to our weekly positioning watch, brought to you today from a sunny Copenhagen.
The standings at the Euros almost perfectly mirror the current cross-regional uncertainties in equity markets.
The European election has increased the option-implied volatility premium of European equities compared to US equities, while the FTSE 100 continues to stay “less volatile” in IV terms.

United Kingdom: Record Overweights in Run Up to Election

Global equity funds are heavily overweight in UK stock heading in to the election on July 4th.
Compared to the SPDRs MSCI ACWI ETF benchmark, UK allocations are at a record overweight of +2.64%, with 69% of investors positioned ahead of the benchmark.
All sectors in the UK are held net overweight, led by Industrials and Consumer Staples. Key stocks like AstraZeneca, Linde, and Unilever are among the most widely held.

CHINA: How China’s Household Savings Are Bailing Out the Property Sector

By David Mudd

The PBOC has launched a home purchase program providing a 300 billion yuan re-lending facility which will fund local government SOE’s purchases of unsold homes.
With government bond rates at record low yields the PBOC has started to issue long term debt to finance its property support plan.
Households with total savings of Rmb 140T and seeking alternatives to low bank deposit rates are enthusiastic buyers of new government issues offering higher returns.

Copper Primer: What We Like About Copper And What to Play

Top miners like BHP Group Ltd (BHP AU) and Teck Resources (TECK US) are signaling their long-term bullish copper intent through their recent corporate actions.
Copper may experience short periods of oversupply, but its long-term outlook makes it one of the best commodities we cover in terms of return potential.
Our best plays in the copper space are Southern Copper (SCCO US), Teck Resources (TECK US) and Freeport Mcmoran (FCX US)

[ETP 26/2024] Oil Prices Drop on Surprise Inventory Build; Oil Majors Slide but Retain Gains

An unexpected increase in US crude oil and gasoline inventories pushed oil prices down but the ongoing conflicts capped the downside.
Growing natural gas output dampens Henry Hub’s uptrend. Europe will ban transshipments of Russian LNG in its ports from March 2025.
Chevron’s Wheatstone LNG facility in Australia resumed full production. Wells Fargo lowered its target price on Shell but raised it on Occidental.

France: Global Funds Overweight Ahead of Snap Election

68.2% of global equity funds are positioned ahead of the benchmark in France, with an average overweight of 2%, making it the second largest country overweight after the UK.
France is currently the second largest country overweight after the UK, effectively offsetting some of the underweights in the USA, China & Hong Kong, and Australia.
Overweights driven by by Schneider Electric, L’Oreal, and LVMH, whilst Pernod Ricard and Sanofi see investor outflows.

Philippines Policy Rate 6.5% (consensus 6.5%) in Jun-24

By Heteronomics AI

The BSP’s decision to maintain the policy rate at 6.5% aligns with consensus forecasts. It reflects confidence in managing downside inflation risks despite ongoing pressures from higher food, transport, and electricity prices.
Favourable domestic growth prospects, supported by a strong labour market and robust net exports, allow the BSP to hold steady on monetary policy while remaining cautious about potential external spillovers.
Anticipated easing of price pressures in the year’s second half could provide scope for a less restrictive policy stance. Still, the BSP remains vigilant, ready to adjust settings to maintain price stability and support sustainable economic growth.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

EA Stalled Without Crashing

European surveys are sending mixed messages, as the PMIs crash while the ESI is stalled. We see residual seasonality polluting the PMI, making its moves more noise than signal.
Employment growth remains strong amid poor productivity, although the EEI has dipped, and its strength has narrowed, shrinking its gap to the ESI level and breadth.
Services price expectations are also resilient in the Commission’s survey. Extrapolating the noisier weak metrics risks excess stimulus and a policy reversal in 2025.

EUR Inflation Watch: Food for pause’istas

The market consensus for the European June inflation numbers is very soft, both seasonally adjusted and relative to the developments seen in June over the past 5 years.
It seems like the bet on a soft transportation category (car insurance and the likes) is the major reason behind the weak EUR-flation consensus numbers, but there is a statistically solid case to bet on the upside here, even a potentially large surprise to the upside.
We see risks clearly tilted in that direction.

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Jun 27

Daily Brief Macro: CX Daily: China Debates Pros and Cons of Open-Source AI Models and more

In today’s briefing:

CX Daily: China Debates Pros and Cons of Open-Source AI Models

CX Daily: China Debates Pros and Cons of Open-Source AI Models

When discussing the development of large language models (LLMs) Zhou Hongyi, CEO of Chinese cybersecurity firm 360 Security Technology Inc.
, dismissed claims that open-source LLMs are inferior to closed-source ones, calling such assertions “nonsense.
” Zhou’s comments, which were delivered during the 27th Harvard College China Forum in April, were widely seen as a response to Baidu Inc.

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Jun 26

Daily Brief Macro: CHINA: When Will Stocks Catch Up With Surging Debt Markets? and more

In today’s briefing:

CHINA: When Will Stocks Catch Up With Surging Debt Markets?
Great Game – Israel and Hezbollah headed for war?
Navigating Copper’s Contradictions: Short-Term Demand Woes Versus Long-Term Supply Gaps
Actinver – Macro Daily: Inflation 1h-Jun
CrossASEAN Ground Zero – Shopee’s Live Streaming Push, GoTo’s Multi-Pronged Initiatives, and BliBli
CX Daily: China Mulls Tax System Overhaul to Ease Record Local Government Debt
Inflation Watch: What if the Cyclical Prices Are Not Truly Tamed? Lessons from Canada and Sweden
Canada CPI Inflation 2.87% y-o-y (consensus 2.6%) in May-24
UK: The Fiscal Steer for Keir
How To Lose Money Smelting Copper

CHINA: When Will Stocks Catch Up With Surging Debt Markets?

By David Mudd

China’s debt markets are experiencing an historic bull cycle as government and companies take advantage by ramping up issuances this year.
Beijing will use its healthy balance sheet and continued debt issuance to clean up local government debt and simultaneously address the property sector problems.
China’s healthy external position will provide continued support for its currency and debt markets with equity markets to follow in the coming months.

Great Game – Israel and Hezbollah headed for war?

By Mikkel Rosenvold

Clashes between Israeli forces and Hezbollah militants intensified along the Israel-Lebanon border.
The conflict escalated after a Hezbollah rocket attack on an Israeli border town killed four civilians.
In response, Israel launched airstrikes targeting Hezbollah positions in southern Lebanon, resulting in significant casualties and infrastructure damage.

Navigating Copper’s Contradictions: Short-Term Demand Woes Versus Long-Term Supply Gaps

By Pranay Yadav

A slowdown in China’s property and manufacturing sectors along with high refining ouput has led to a significant increase in copper inventories, contributing to short-term demand concerns.
Major copper miners face production challenges, risking future supply deficits amid growing demand from the photovoltaic and EV industries.
Asset managers have reduced their long positions in copper due to near-term market conditions, reflecting a cautious outlook on immediate price movements.

Actinver – Macro Daily: Inflation 1h-Jun

By Actinver

Headline inflation increased by 0.21% bw, pressured by agricultural prices, returning to an annual rate of 4.78%.
Core inflation rose by 0.17% bw, returning to an annual rate of 4.17%.
Headline inflation was slightly above our estimate (0.21% vs. 0.19%), because some agricultural products registered higher price increases than estimated.

CrossASEAN Ground Zero – Shopee’s Live Streaming Push, GoTo’s Multi-Pronged Initiatives, and BliBli

By Angus Mackintosh

This week we look at Shopee’s ongoing efforts to turn up the dial on live streaming as TikTok restructures Tokopedia and we look at the product-lead initiatives driving GoTo’s growth.
We also comment on the latest acquisition by Global Digital Niaga Tbk PT (BELI IJ) in the home improvement space as it seeks to increase its omnichannel exposure.
CrossASEAN Ground Zero is a thematic weekly product that focuses on key Southeast Asian themes and technology trends with a core focus on Indonesia.

CX Daily: China Mulls Tax System Overhaul to Ease Record Local Government Debt

China’s Central Economic Work Conference in December proposed the first reforms to the country’s 30-year-old fiscal and taxation system, sparking widespread debate among academics and tax experts.
Tariffs /: ‘Doors are open for discussions’ on EU’s China EV tariffs, German minister says
Landslide /: Landslide in remote part of Central China leaves eight dead

Inflation Watch: What if the Cyclical Prices Are Not Truly Tamed? Lessons from Canada and Sweden

If you know me, you know I have a thing for charts, especially those showing momentum in the macro cycle.
Forget nominal levels; it’s the rate of change that really drives asset markets.
This analysis is chock-full of rate of change charts, just to remind you that we’ve only managed to nudge inflation back to just above target levels—right as the cycle’s rate of change is shifting towards re-acceleration in many places.

Canada CPI Inflation 2.87% y-o-y (consensus 2.6%) in May-24

By Heteronomics AI

Canada’s CPI inflation rate in May 2024 was 2.87% year-on-year, exceeding expectations by 0.3 percentage points and reversing most of the slowdown from April 2024.
The Core CPI for the same period was 1.8% year-on-year, surpassing expectations.
The PPI inflation rate was 1.63% year-on-year, indicating contained cost pressures at the production stage.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

UK: The Fiscal Steer for Keir

Labour still seems set to win the UK’s 4 July general election with a manifesto that avoids its likely response to the fiscal pressures it inherits.
Duty increases will probably start occurring, rather than rolling cancellations, while tax thresholds stay frozen and capital gains are taxed more despite increasing distortions.
The tax burden will continue trending higher, with only slight uncertainty in the extent. This stability may keep encouraging companies and high earners to leave the UK.

How To Lose Money Smelting Copper

By Massif Capital Research

Investing in copper and copper miners represents a significant opportunity for investors over the next ten to fifteen years.
But the market is more complicated than most believe, and success will require not only an understanding of the entire supply chain but also a willingness to be active.
In this post, we look at the role smelters play in the copper value chain.

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Jun 25

Daily Brief Macro: India: Record Exposure Gives Rise to Caution and more

In today’s briefing:

India: Record Exposure Gives Rise to Caution
US Crude Oil Output at Risk as Rig Count Plummets
Mexico: GEM Funds Wrong-Footed After Election Results.
The Week That Was in ASEAN@Smartkarma – Prodia’s Cure, Ace Hardware, and Erajaya’s Growing Volumes
Strengthening Risk Management in the Booming Private Credit Market
France: Redefining ‘The Right’
Energy Cable: Bullish Oil, Bearish Nat Gas, and Especially Metals! Here’s Why!
Fund Managers Reduce Commodities Again
China’s Excess Production over Domestic Demand
The Week At A Glance: Time to bet against the USD?

India: Record Exposure Gives Rise to Caution

The average Indian allocation among active GEM funds broke through the 15% barrier at the start of 2024, despite an increasing underweight versus the benchmark index.
Valuation-Driven Underweight: The average weight versus the iShares MSCI EM ETF hit record underweights of -2.44%, with only 27.6% of funds positioned overweight. EM Value funds hit record -8.7% underweight.
HDFC Bank is the most widely held stock, owned by 60.5% of funds, while a majority of Indian names, such as Reliance Industries, are underweighted by active GEM funds.

US Crude Oil Output at Risk as Rig Count Plummets

US oil rig count falls to 485 as of the week ending on 21/June, its lowest since January 2022.
US oil and gas rig count is falling as producers prioritize shareholder returns over increasing output.
Rising labour and equipment costs along with macroeconomic uncertainties further discourage producers from adding rigs.

Mexico: GEM Funds Wrong-Footed After Election Results.

Mexico has seen increased inflows and exposure over the past 3-4 years, with funds invested reaching an all-time high of 94.6% and average holding weights climbing to 3.93%.
The percentage of active EM funds overweight the benchmark rose from 20% in 2011 to over 69% last month, making Mexico the largest overweight compared country peers.
Grupo Financiero Banorte and Wal-Mart de Mexico are key contributors to the net Mexican overweight, with Banorte seeing increased exposure of +4.26% of funds in the last 6 months

The Week That Was in ASEAN@Smartkarma – Prodia’s Cure, Ace Hardware, and Erajaya’s Growing Volumes

By Angus Mackintosh

The past week saw insights on Ace Hardware Indonesia (ACES IJ), Prodia (PRDA IJ), Erajaya Swasembada (ERAA IJ), and Barito Renewables Energy (BREN IJ).
There was also a macro insight on Indonesia macro, as BI elected to keep interest rates on hold, and an insight looking at Saingapore’s biggest movers in 2Q2024.
The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

Strengthening Risk Management in the Booming Private Credit Market

By Albert Maass

Private credit’s rapid growth necessitates enhanced risk management due to increased capital inflows and limited high-quality investment opportunities.
Focus on credit risk, liquidity risk, and interest rate risk, ensuring thorough due diligence and stress testing.
Employ advanced risk models, foster strong risk culture, leverage technology, and stay updated on regulatory changes for sustainable market positioning.

France: Redefining ‘The Right’

By Alastair Newton

The centre maintained its position in the European Parliament elections.
The unexpected general election in France is contributing to the rise of the ‘far right’.
The EPP’s post-election negotiations in Brussels are also strengthening the ‘far right’, which is reshaping conservatism in Europe.

Energy Cable: Bullish Oil, Bearish Nat Gas, and Especially Metals! Here’s Why!

By Ulrik Simmelholt

We start with crude oil, where positions in crude oil futures have returned to Covid-19 pandemic levels, which we believe is overly bearish.
The economy is normalizing with rising travel and growing consumer energy demand.
Despite this, the futures market’s bearish sentiment seems misaligned with these positive economic indicators.

Fund Managers Reduce Commodities Again

By The Commodity Report

Fund managers recently reduced their broad commodity position as well as energy position, compared to last month, according to the latest BofA survey.
Compared to the long-term z-score, fund managers are now heavily under-positioned in energy but close to neutral positioned in broad commodities.
In a recent note, Goldman Sachs explained their views about commodities if inflation would re-accelerate again – or in detail beat the market estimates and lead to an inflation upside surprise.

China’s Excess Production over Domestic Demand

By Alex Ng

Classical economist believes in what is called the “Say’s Law” i.e. supply creates its own demand. But the case of China’s excess production disproves this law.
Industry output far exceeds demand and inventory is piling up over the last decade.
Heavy industries such as steel, aluminium, cement, coal, and shipbuilding, are particularly prone to over-capacity as China has been over-stretching its infrastructure development since 2008.

The Week At A Glance: Time to bet against the USD?

Greetings from Europe! The Week At A Glance replaces our Morning Report each Monday as it allows for a deep dive into the economic releases and major tradeable themes for the week ahead.
We see a couple of major tradeable themes in the week(s) ahead.
First, the Euro area data, which is still improving in forward-looking indicators, while spot data remains relatively soft, probably in part due to a plethora of (potential) election risks.

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Jun 24

Daily Brief Macro: Why the November Election Matters to Gold and more

In today’s briefing:

Why the November Election Matters to Gold
Why the Breadth Divergence May Not Be Bearish
VALE US: Exposure to High-Grade Iron Ore With >8% Dividend Yield
Commodity Analysis – Crude Oil WTI Futures
US Financial Markets Underprice Geopolitical Risks as Equities Flirt With Another Melt-Up
Canadian Economy – June 12, 2024
Greek Economy – May 20, 2024
Comment on Exchange Rate EUR/USD – May 3, 2024

Why the November Election Matters to Gold

The latest CBO fiscal update raises the odds of upside inflation surprises in the coming years, which would be bullish for gold.
The intermediate-term outlook for inflation will largely depend on the outcome of the November election.
We project that a Biden win would be bearish for bond prices and mildly bullish for stock prices. A Trump win would be bond and USD bearish and gold bullish.

Why the Breadth Divergence May Not Be Bearish

Anxiety has been increasing among the technical analysis community over the blatant instances of narrow market leadership and negative breadth divergence.
The bearish consequences of a negative breadth divergence can take over a year to be realized. Instead, they are warnings of bearish conditions than actionable tactical sell signals.
We interpret current market conditions as highly extended that can pull back at any time, but investors should also recognize that the situation could resolve itself in a benign manner.

VALE US: Exposure to High-Grade Iron Ore With >8% Dividend Yield

We like Vale (VALE US) for its exposure to high-grade iron ore (95% of EBITDA) and capital return discipline, with a current dividend yield of 8% and 3.5x EV-EBITDA.
The cash flows from the iron ore business could be used to invest in base metals, such as copper, nickel, etc., to enhance the portfolio.
The key risk remains the overhang from the Mariana Dam disaster being settled for ~25.7 billion USD (vs. the current market cap of 50 billion USD).

Commodity Analysis – Crude Oil WTI Futures

According to Graph 1, during the period February 28th , 2024 – May 31st , 2024, a mixed trend was reflected in the prices of crude oil futures amid fluctuations.
During the period under consideration, there was a notable increase in the price of crude oil until April 8th , 2024, whereas thereafter crude oil prices followed a downward trend returning to the levels seen at end of February 2024.
The MA- 10 was recorded to perform higher than MA-20 from the beginning, whereas on April 23rd the MA-20 took over and started trading above the MA 10 until the end of the period under consideration.

US Financial Markets Underprice Geopolitical Risks as Equities Flirt With Another Melt-Up

By Said Desaque

US equities have discounted the arrival of a lower federal funds rate (FFR). Upbeat corporate profit expectations and a lower FFR could easily produce an H2 equity market melt-up.
Financial markets have largely ignored geopolitical risks. Holding assets in Western financial institutions now has counterparty risks. High budget deficits driven by defence spending are bearish for productivity and profitability.
The appetite of private investors to buy longer-dated Treasuries will be tested by the arrival of persistently large budget deficits. Notably, the outlook for foreign participation is less certain.

Canadian Economy – June 12, 2024

In the first quarter of 2024, Canada’s economy managed to grow by 1.6% (QoQ).
This growth is mainly attributed to real private and final consumption expenditures but also to real fixed capital formation as they increased by about 1.2% to 1.6% (QoQ) each.
Net exports slightly fell from 0.17% of GDP in fourth quarter of 2023 to 0.13% in the first quarter of 2024.

Greek Economy – May 20, 2024

The 2024 GDP projections for Greece show a 2.07% growth rate, so that Real GDP would reach €198.512 billion, lower than the previous projections of €199.205 billion.
In 2024, the IMF, OECD, and EU forecast an average growth rate of 2.07% for 2024 and 2.24% for 2025.
The Public Debt is projected to increase from € 356.695 billion to €362.856 billion in 2024 but with a lower Debt-to-GDP ratio than the previous year of 156.3% (161.9% in 2023).

Comment on Exchange Rate EUR/USD – May 3, 2024

During the period under consideration, i.e. April 3rd, 2024 to May 3rd, 2024, the EUR/USD pair posted both downward and upward swings.
In the beginning, it faced a slight increase, while from April 9th until April 18th the pair faced a sharp decrease.
After that, it fluctuated sideways and by the end of the period the pair traded at a higher level but still below the price level of the start of April.

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Jun 22

Daily Brief Macro: Liquidity Watch: The $ liquidity outlook remains solid for Q3 and more

In today’s briefing:

Liquidity Watch: The $ liquidity outlook remains solid for Q3
Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 21 Jun 2024
[ETP 25/2024] Energy Majors Bounce Back; Their Expansion Spree Continues
UK: Retail Seasonally Recovers in Dry May
CX Daily: Rough Market Doomed Syngenta Listing Plans
HEW: Bias Determines Data Dependence

Liquidity Watch: The $ liquidity outlook remains solid for Q3

The liquidity outlook always makes for interesting discussions and after a few minor hiccups in liquidity proxies both in the USD space and the GBP space, we are getting increasingly cautious central bank behavior to see in the liquidity space.
We therefore see generally benign liquidity conditions ahead for H2-2024 in sharp contrast to predictions from the nay-sayers!Let’s have a look at the details.
Liquidity conditions have generally improved since the drawdown during tax season in April/May and we are trending higher now.

Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 21 Jun 2024

By Dr. Jim Walker

China’s Economic Performance: Despite negative media reports, China shows strong year-on-year growth in industrial production and retail sales, outperforming other major economies.
Misreported Inflation: China meets the 2% inflation target better than most, with misconceptions about deflation being clarified in recent reports.
Japan’s Economic Struggles: Japan’s export growth appears positive in yen but declines in USD terms, reflecting weak domestic demand.

[ETP 25/2024] Energy Majors Bounce Back; Their Expansion Spree Continues

The gap between OPEC and IEA’s oil demand forecasts widened: OPEC kept its 2024 forecast at 2.25m bpd, while IEA lowered its forecast to 960k bpd from 1.1m bpd.
Europe’s attempt to cut Russian LNG imports grows stronger, as the French Senate Committee recommends cutting Russian dependence.
Since 17/June, Energy majors began recovering. Berkshire increased its holdings in Occidental, while Shell expanded its LNG market access by acquiring Pavilion Energy.

UK: Retail Seasonally Recovers in Dry May

UK retail sales more than fully recovered from April’s crash in May, although neither move looks like a fundamental signal. The early Easter explains half the volatility.
A return to a seasonably average number of rainy days and warmth explains the other half of May’s resurgence and possibly most of the substantial surprise to the consensus.
Consumer weakness seems asymmetrically relevant to the dovishly biased MPC. The rebound will not prevent it from announcing a premature rate cut in August.

CX Daily: Rough Market Doomed Syngenta Listing Plans

Syngenta / In Depth: Rough market doomed Syngenta listing plans
Boeing / Boeing’s setbacks open the skies for China’s C919 to take off
Russia-North Korea / Russia and North Korea have ‘normal needs’ to develop their relationship, China’s Vice Foreign Minister says

HEW: Bias Determines Data Dependence