Macro

• The main driver of asset prices looks set to stall, albeit temporarily. Global Liquidity is at a new all-time peak, but it is flat-lining
• Global Liquidity compromised by a stumbling US Fed as it copes with the errant RRP and TGA, and by an erratic People’s Bank of China. Q2 could prove tricky
• Look to diversify elsewhere. Commodity markets are on the move. But strong economies do not always have strong financial markets

• Well-Known value investor Jeremy Grantham recently sounded warnings about an AI bubble.
• While we respect Grantham’s views, he suffers from the value investor problem of being too early and overly reliant on valuation for his views.
• The market is starting to blow a bubble in AI-related plays, but we think it’s far too early to declare that a top is near.

• Market regulator intervenes to curb excess leverage in equity markets. IVs recover from last week’s selloff but bound by 12-16% range. 
• Vol Regime Model clearly signals “High & Down” state, projecting a slow grind lower for IVs
• Shape of the vol surface is indicative of a market well positioned to handle corrections 

• US data remains resilient, with CPI and PPI inflation surpassing expectations, while UK activity data, although excessive, meets or falls below expectations. Rate cut pricing continues to be postponed by markets.
• Upcoming monetary policy decisions are expected to officially confirm the delay in dovish actions. The Federal Reserve is not expected to cut rates, and the median rate dots may increase.
• The Bank of England is also expected to maintain its current stance, with February’s disinflation not likely to affect this.

• US retail sales are off to a lousy start in 2024. Excess savings are gone, and the regular savings rate is low. The end of extraordinary US GDP growth?
• The higher-than-expected producer price data robbed investors of the ‘Fed must cut rates soon’ narrative. Interestingly, the PPI suggests lower inflation from here.
• Will the Bank of Japan finally remove its long-lasting negative interest rate policy? Wage growth says ‘yes.’

• Trump secures Republican nomination. Trump v/s Biden again. Volatility will the biggest winner. Gold will thrive on rising geopolitical tensions.
• Equities will face headwinds during Trump 2.0. European stocks and EM equities will underperform with anticipated trade restrictions and protectionism.
• USD will weaken. Oil prices will fall. Defense sector will benefit from rising tensions and reduced US role in NATO and the world at large.

• Recent CPI data in the US suggests no imminent interest rate cuts, with inflation running above 3%.
• Exploration in Shenzhen revealed ongoing deflationary trends and significant spending from older individuals, posing challenges for Hong Kong’s property market.
• China’s electric vehicle revolution is evident in Shenzhen, with widespread adoption and rapid advancements in charging infrastructure and technology.

• Tuberculosis / In Depth: Behind China’s struggle to bring down drug-resistant TB
• TikTok /: U.S. House passes bill that will ban TikTok if not sold
• Explosion /: Death toll of North China restaurant blast rises to seven

• Net exports returned to growth for South Korea in 4Q23’s GDP, contributing to continued momentum towards an economic recovery. 
• Conditions for the manufacturing industry are also positive, with the pivotal semiconductors industry exhibiting a strong rebound. Firm sentiment also remained positive. 
• Inflation, however, remains sticky with even core inflation remaining flat from the previous month. We do not expect rate cuts given the growth-inflation balance. 

• The National People’s Congress this month did not significantly improve China’s current economic situation.
• The Congress confirmed Xi Jinping’s intent to prioritize his power over long-term economic strategies.
• Xi Jinping’s actions suggest a focus more on personal power than on the economic health of the nation.

• Welcome to the Emerging Market Series, this week covering the rotating capital flows away from Japan and its significance for China and Emerging AsiaWatch a condensed version of the key findings from this article on video.
• Recovering from the ‘lost decades’ Japanese equities have been out of favor and continuously underperforming global benchmarks.
• For 2023 however, the Nikkei 225 actually outperformed the S&P 500, returning 28% vs. 24% respectively, and the euphoria around Japan returning to normalcy in terms of structural inflation, growth and its feasibility as an investment has continued into 2024 (Nikkei vs. SPX ≈ 15% vs. 8.5%). 

• The cancellation of the Chinese premier’s annual press conference is a tell-tale sign that economic policymaking is increasingly centralized around President Xi’s pet priorities.
• This comes as the cyclical position remains vulnerable; the boosts from Lunar New Year activity will make February’s data look good but this is far from a well-grounded recovery.
• The government’s work report prioritizes what it calls “quality growth”, but the policy confusion and damaged economic sentiment will inhibit a well-grounded recovery. 

• Take aways: Low vol in commodities leading to no directional bets. Chinese smelters cut striking fear in the market. Chinese copper stock levels about to be drawn. The broad commodity complex looks increasingly bullish accordingly. The technical picture suddenly looks very bullish in the commodity landscape as Oil, Copper and Silver have broken higher over the past 24 hours with the broad BCOM index also breaking out of the bearish channel.
• Is the sudden bullish price action a sign that the procyclical Chinese activity is back?
• Chart 1: Oil is breaking HIGHERAs macro volatility has been grinding lower and lower and equites have gone higher and higher, being short volatility in commodities has been the only game in town.

• Penny stocks trading surge reminiscent of meme stock mania in 2021
• Increase in trading volume and number of penny stock companies listed on public exchanges
• Retail investors driving boom in trading penny stocks, companies may have potential but are not profitable yet

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• US economic data while surprising on the upside fails to buoy the USD vs the JPY
• BOJ awaiting shunto talks for more evidence of a sustained move out of deflation
• What are the implications for global markets if mass repatriation of Japanese capital

• Gold has realized an equity-like return over the last 20 years.
• Gold has shown zero sensitivity to equity market declines, making it an excellent portfolio diversifier.
• With the long-term outlook for bonds clouded (structurally lower yields and higher volatility), gold will likely become investors’ preferred equity hedge.

• Debt / In Depth: Why China’s efforts to resolve hidden government debt could fall short
• PM 2.5 /: China’s air pollution rose last year amid post-pandemic economic recovery
• Corruption /: Former policy bank executive caught in anti-corruption dragnet

• China’s private fund sector was put through the ringer in 2023, with a shaky economic recovery and relentless stock market volatility testing portfolio managers’ resolve.
• During the third straight year of rout in the Chinese stock market, private bond funds’ returns outperformed their stock-focused peers.
• Another bright spot was quantitative investment funds.

• China has now moved from supporting its economy to directly target its markets.
• Market demand and volume is supported through government buying and company buybacks.
• New regulatory measures will substantially decrease selling pressure going forward.

• Welcome back to our weekly 5 Things We Watch, where we go through 5 things that we keep an eye on in the world of global macro.
• With Japanese wage negotiations and the US CPI report out, there are plenty of things to shed some light on, so let’s get to it!This week we are watching out for the following 5 topics within global macro: US CPI, Japan, China, Germany, Central Banks.
• 1) US CPI Report leaves the Fed in a difficult situation. Yesterday’s CPI report revealed that the inflation outlook is not as benign as the Fed would have hoped, with energy / transportation services dragging the MoM figure higher.

• UK GDP rebounded by 0.2% m-o-m in January 2024, as expected. The retail sector’s seasonal adjustment issue from December was already known to have unwound.
• We currently see GDP growth of 0.3% q-o-q in Q1, restoring the level broadly held since 4Q22. January’s rebound means the recession ended before its February declaration.
• This was never a recessionary regime that could crush inflationary pressures. Its likely end stops that risk from developing, negating that potential need for an early rate cut.

• In our “out of the box” series, we aim at being ahead of the current consensus narrative and think of the next theme that could drive price action before anyone else has given it any noteworthy attention or provide food for thought on topics of relevance that seem neglected by the economic consensus.
• After the change in methodology to the CPI basket in 1983, interest rates aren’t reflected to the same extent as before in the inflation basket.
• But that also means that Americans feel rising costs of living to a larger extent than the CPI basket reflects.

• US commercial crude oil inventory build-up slows while refined products’ withdrawal accelerates.
• OPEC+ members announced the extension of their voluntary supply cut of 2.2 million barrels per day to end of June (from end of March as previously announced).
• US refinery utilisation rates show signs of a speedy recovery, rises for the second consecutive week and jumps to 84.9%.

• Powell’s testimony to Congress and the non farm payrolls report suggest global central bank easing may occur in the second half of the year
• Labor market showing signs of moderating, leading to declining yields and high policy uncertainty
• Options markets imply a wide range of scenarios, indicating high policy uncertainty and declining volatility trend

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• Inflation in Japan rebounds in February as energy subsidies are lifted.
• Economic performance was better than expected, pointing to a resilient economy.
• With a view on the Shunto negotiations, the BoJ is expected to issue rate hikes over the next two policy meetings, supporting the strengthening of the Yen.

• The February CPI release, while less of a surprise compared to the January print, was directionally favorable
• My proprietary CPI indicators on inflation momentum and the most persistent inflation cluster offer additional clues    
• Although market-based expectations compressed further, the near-distant odds of potential Fed action remain fluid and unsettled   

• In November 2023, Germany’s constitutional court made a landmark ruling that had significant implications for the country’s budget and investment in green initiatives.
• The court ruled against the government’s plan to reallocate €60 billion in unused pandemic emergency funds to its Climate and Transformation Fund (KTF), deeming this move unconstitutional.
• This decision came at a critical time when Germany, Europe’s largest economy, was already facing an economic slow down.

• Tesla / Analysis: Mounting competition in China comes at a bad time for Tesla 
• Corruption /Exclusive: China probes another central bank official linked to fallen businessman
• Regulator /NFRA seeks to accelerate new energy vehicle sales by cutting loan down payments

• For the second consecutive month, inflation has exceeded expectations, raising questions about the ‘stickiness’ of core inflation.
• The real shocker was the Core Services, excluding Housing CPI, which increased to an eye-popping 6.8% on a three-month annualized basis.
• Most likely, the latest CPI numbers aren’t the catalyst that ends the stock market rally.

• Hello everyone, and welcome back to our weekly positioning watch, which today will start at the growing number of BoJ officials who are now supporting an exit from NIRP possibly already in March, sending Nikkei 225 down >2% in Asia hours yesterday, while China and China-proxies were bid – quite a surprising dynamic in Asian equities, which we won’t rule out to continue over the next weeks, as markets are likely shifting away from Japanese equities if a hike actually comes through.
• Our 250-day prediction from our PCA-tool (the blue line) has also been flagging the rally in Japanese equities, and now see a major divergence in the trend relative to the macro fundamentals, which has left a >2 standard deviations fair value gap, which seems likely to be closed via a retracement lower in Nikkei.
• Chart of the week: Our models have been bearish Japan since early 2024It looks like some parts of the markets had already sniffed out the slight overpricing of Japanese equities given risks of substantial moves in JPY-rates, and inflows into US-traded Japan ETFs have decreased since early February, while China ETFs began to see modest inflows, but has now went back into negative territory.

• The security token market, though, has slowly developed mainly due to declining risk appetites sparked by COVID-19 in 2020 and the Russian invasion of Ukraine on 24-February 2022.
• What has changed that led us to update readers on tokenization is the approval of Bitcoin ETFs
• The Bitcoin ETFs will be the first step to allow institutional investors to invest in cryptocurrencies. Next, we expect more ETFs of other well-known cryptocurrencies such as Ethereum (ETH).

• Welcome to this week’s Great Game! We are still in waiting mode on a Gaza truce, which to be honest is baffling me.
• But in the meantime, let’s cover some current events and the potential effect on markets.
• Watch this article on video:Cannibals taking over Haiti?

• Today’s US CPI report was clearly hawkish on the surface, but looking closely, it is not all too demoralizing for those betting on continued risk-rallies and a path back to target.
• Clear path and further downside to OER according to Zillow and repeat rent.
• Though a modest surprise, components are not alarming albeit not helping Fed’s intentions.

• Pandas / Cover Story: Survival of the fittest — China’s captive-bred pandas get new life in the wild
• Private /China’s private quant, bond funds outperform peers as stock market falters
• Payment /China pushes banks, Alipay and WeChat Pay to be more foreigner-friendly

• New ATHs again in NIFTY50! But IVs move significantly lower! Holiday shortened week ahead.
• Vol Regime Model shifts clearly to “High & Down” state. Wait-and-see approach warranted on account of 3-day weekend. 
• As of 01-Mar-2024 Weekly & Monthly BankNifty options will expire on Wednesdays.  

• Throughout 2024, we’ve witnessed tight trading ranges across various markets: oil, FX, and Credit spreads.
• Notably, Semiconductors (light blue), Gold (depicted in blue), High-Yield OAS (in red), and Bitcoin (represented in black) exhibit remarkably similar chart patterns.
• In essence, these assets no longer offer diversification benefits; they have effectively become indistinguishable trades.

• CrossASEAN Ground Zero is a new thematic weekly product that focuses on key Southeast Asian digital themes and technology trends with a core focus on Indonesia.
• This week we look at the changing fortunes of Fintech, as BNPL continues to show promise and P2P sinks deeper into difficult territory, exemplified by Investree’s troubles. 
• We also examine PropertyGuru’s results, which reveal its vulnerability to markets and we look at Indonesia’s increasingly competitive logistics space, with a return to offline activity changing market focus. 

• US CPI inflation for February 2024 slightly exceeded expectations, recording a year-on-year rate of 3.15% and maintaining this pace for five months.
• Core inflation, which excludes volatile components, slowed to 3.8% year-on-year.
• This slowdown in core inflation surprisingly exceeded expectations by 0.1 percentage points, indicating a resilient underlying trend.

• Welcome to our flagship editorial! Is it the year 2021, 2007 or 1995?
• These historical analogies are often used in sell-side reports, and we are going to jump the bandwagon with a few semi-fishy analogies today.
• I do get some vibes that are reminiscent of melt-up years ahead of crisis years.

• Gold Prices Surge: Gold reaches all-time highs against the US dollar and fiat currencies worldwide, signaling skepticism towards central bank policies.
• Economic Indicators: India maintains strong economic activity despite political uncertainties, while China’s export performance exceeds expectations.
• Corporate Profits and Currency Impact: Japan’s corporate profits fall short of expectations, highlighting vulnerabilities to external factors like currency values.

• Gold price has rallied to new highs, but market cap of US’s biggest gold ETF has shrunk
• Push higher driven by quick money inflows, fundamental/ETF inflows, safe haven bid, technical drivers, FOMO
• Physical demand from central banks and Chinese retail buyers has been strong, but recent rally seems driven by financial quick money inflows

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• The yen has been the worst performing currency this year, but has been trading in a tight range around 150 against the dollar.
• Recent developments suggest the Bank of Japan may make policy changes in March or April, possibly exiting negative rates.
• Market may be getting ahead of itself with expectations for a hawkish shift from the BOJ, potentially leading to short-lived movements in the dollar-yen pair.

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

• The past week saw insights on Sea Ltd (SE US), Grab Holdings (GRAB US), Cisarua Mountain Dairy (CMRY IJ), AMMB Holdings (AMM MK), and Sheng Siong (SSG SP).
• There were also macro insights on Malaysia, Thailand, and the Philippines, a sector insight on Malaysian Banks, and a credit insight on Delta Dunia Makmur (DOID IJ).
• 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.

• China is mobilizing the entire nation to achieve the critical technological advancements it needs as the country faces increasing blockades by the United States and allies. 
• The semiconductor industry is the most glaring example of how the battle for intellectual property rights leads to deglobalization.
• On a macro level, splitting global supply chains into local ones, whether through political intervention or not, will likely lead to higher prices.

• China set a growth target of “around 5%” for 2024, according to the “Government Work Report” released Tuesday as part of the opening of the National People’s Congress annual meeting.

• Last year China’s economy grew by 5.2%, matching the official target of around 5%.

• China set a deficit-to-GDP ratio of 3% for the year, down from a rare upward revision to 3.8% late last year from the original 3%.

• When I first started writing for Money Week, I found myself in a slightly awkward position.
• At the time – this was many years ago – editors Merryn Somerset Webb and John Stepek were notably bearish on the UK housing market.
• I think it fair to say they were the masters of doom and gloom, not for entirely unfair reasons (you can guess all the rational drivers they focused on).

• We see US inflation printing at 0.37% MoM in headline terms and 0.26% MoM in core terms.
• That leaves us in line with consensus, but with a bias/tilt towards an 0.1%-points surprise on the low side of consensus.
• The re-acceleration of owners equivalent of rent to levels close to 0.6% in January looked odd, but on a “good day” we should likely expect a reversal to the trend just above 0.4% MoM in February (see chart 1).

• Take aways: Chinese deflation and high USD rates really putting a damper on copper. Interesting divergence in the USD and crude oil. Russia not sticking to its production cuts pledge. The risk/reward in commodities is getting increasingly compelling across the board, but it is early days. Since the beginning of last year when the world had all its chips on the Chinese reopening copper has been range bound between USD 360 and 390.
• In other words copper has almost been as boring as watching paint dry.
• It hasn’t gotten much help either up until now.

• Since the suspension of the debt ceiling last June, federal debt has been increasing at a very rapid rate, an outcome that could eventually have implications for US financial conditions.
• High issuance of T-bills by the Treasury to the public will drain bank reserves, thereby raising the ante on the Fed to make offsetting open-market purchases to reduce liquidity stress.
• The biggest threat to US risky assets is an undershooting of corporate profit expectations. Fiscal policy conduct is supportive for economic growth and profits, as well as risky asset prices.  

• Does Fed policy matter to stock prices anymore? They do, and the current market advance is consistent with a growing economy and the expectations of rate cuts this summer.
• The market’s focus has pivoted away from interest rates to forecast earnings growth, which is positive. 
• This stock market is tracking market behaviour during a mid-cycle expansion that’s driven by P/E expansion while earnings estimates rise and catch up.

• Market moves for the week have been significant, with European rates showing signs of a sustained rally
• Dollar weakness seen this week, likely due to outperformance of European rates
• Market activity in Japan heating up ahead of Bank of Japan’s meeting, with expectations of a possible policy move in March and anticipation of strong wage growth influencing dollar yen price action

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

• BTC tailwinds remain strong with strong ETF demand driving spot buying. 
• Volatile price action last week caused sharp liquidations and flushed leverage from BTC markets, since then, BTC has traded in a narrowing range
• During periods of consolidation, BTC/ETH spread has favored ETH and during sharp moves, it has favored BTC. 

• Bitcoin AND gold made new all-time highs, which is by no means a coincidence. Gold’s market cap is now over USD 16 trillion, which is important for two reasons.
• The Fed has multiple reasons to cut rates even though GDP growth is resilient, including bank defaults, the commercial real estate crisis, and evaporating liquidity.
• The ECB should cut rates, too; it runs the risk of getting in on the action too late.

• Welcome to our latest edition of Portfolio Watch, our weekly deep-dive into prevailing market trends and our portfolio strategies.
• In this updated iteration of our series, we’ll explore the latest updates in both our Macro Alpha Portfolio and our Digital Assets Portfolio.
• Additionally, we’re excited to announce that we’re just about ready to introduce to you our quantitative portfolio.