Macro

• The previous high in Japanese equities occurred during a bubble economy, producing  stretched and unjustifiable valuations. Current valuation metrics are not displaying excesses and look relatively cheap versus the US.
• The BoJ is tipped to remove negative interest rates in April. Labour shortages could, however,  delay capital spending, potentially prolonging recession, but interest rates will not be rapidly ramped up. 
• Foreigners remain upbeat about further corporate reforms enhancing shareholder value. Positive interest rates need not be bearish if better capital allocation in labour-stretched economy produces further improvements in structural profitability.  

• We believe the market cycle is in the early phases of an AI-driven boom.
• The current AI-driven frenzy feels more like 1997–1998 than 1999 or 2000 of the dot-com era. The investment thesis is real and valid. Prices are just starting to surge.
• While some early signs of froth are starting to appear, sentiment is inconsistent with excesses seen at major market tops.

• The NVIDIA-inspired rally last week was impressive, but poor market internals are pointing to an exhaustive move.
• The market is in need of a sentiment reset before the next sustainable bull run.
• While we remain long-term bullish on U.S. equities, traders should be cautious about the near-term outlook as the market can pull back at any time.

• The announcement of slowing QT, while still on tap, will be pushed back relative to my earlier expectations
• But the unsettled timing of ceasing QT and reducing the funds rate could still sway asset prices and financial conditions generally
• The fluid debate on the balance sheet and funds rate might also reinforce or dilute the buildup of financial risks

• Exports finally posted an expansion after close to a year of export shrinking. China remains a question mark but shipments to other markets are on the mend. 
• In a further sign of input demand recovering, intermediate imports surged from a year ago, affirming other indicators such as PMI purchasing activity and business confidence.
• Inflation remained at a position where the central bank will likely be satisfied with, but do not expect rate cuts just yet. 

• Thailand’s economy ended 2023 on a weak note, with the services sector barely holding up even as manufacturing continues to be buffeted by external headwinds. 
• Given the low base from 2023, and the likely recovery in exports and tourism, growth in 2024 should improve- but the timing and strength of the rebound remains uncertain.  
• Looking beyond 2024, growth prospects will remain uneven unless government policies move beyond short-term populism to tackle underlying challenges to labour productivity. 

• The EUR HICP report for February needs to be very soft to tempt the ECB into spring action.
• The über-hawk of the committee Holzmann said the following on Bloomberg earlier:“But typically the Fed always in the last few years has always gone first by about half a year so I would assume, ceteris paribus, as things are, that we would also follow with delay,” which rhymes with market fears that the ECB, despite the outlook warranting a softer stance than the Fed, remains caught between a rock and a hard place when discussing the timing of the first cut.
• We see Euro area HICP coming in around 0.3% MoM and most importantly German HICP coming in around 0.43% MoM in our nowcasts, which is probably around 0.2%-points below early consensus.

• US commercial crude inventory buildup slows down and comes below analyst estimates.
• US oil rig count is anticipated to remain flat in 2024 and crude production is expected to slightly pick up due to better productivity.
• Demand is expected to rise in the near term as US refineries may start increasing utilisation rates given forecasts of warmer weather.

• First, Japan entered a recession, and a week later, the Nikkei hit an all-time high after 34 years. Any idea why this is?
• The Institute of International Finance (IIF) has updated its global debt chart. Be aware that it does NOT show the true underlying trend.
• You are only allowed to trade Chinese equities if you are going to buy them. China will have a serious long-term issue in attracting fresh capital.

• The opposition INDIA coalition is facing severe setbacks in their efforts to form a united front against prime minister Modi and the ruling BJP. 
• While the BJP was always the favourite to win the next elections, the fragmentation of opposition forces opened a wider path for a landslide majority win. 
• How Modi uses his political capital in such an event will be pivotal to whether India can take advantage of its current position in the world. 

• Singapore’s CPI inflation rate in January 2024 dropped to 2.9% year-on-year from 3.7%, which is significantly lower than the predicted slight increase to 3.8%.
• The current inflation rate is 1.62 percentage points below the one-year average, suggesting a period of reduced price pressures.
• Most of the decrease was observed in the core inflation rate.

• PE /In Depth: Caught between Beijing and Washington, PE majors split China-U.S. teams
• China-India /: China, India militaries to ‘turn the page’ on border issues
• HSBC /: HSBC takes $3 billion charge on BoCom holdings

• The record-sized 25 bps cut to the Chinese 5-year prime lending rate signifies the importance of the nation’s property sector, and it goes to show the returning support from authorities.
• Capital flows have been one-way traffic out of Chinese markets since early 2022, but returning FDIs, early cyclical momentum, still exponentially growing demand for chips and tech and rising global trade, does speak in favor of China as an investment case once again.
• Despite the tumultuous circumstances, China is still the 2nd largest economy and a driving force in global macro.

• The final EA HICP inflation print confirmed the flash’s slight slowing to 2.8% for Jan-24. Housing energy price base effects offset most of the negatives in food and transport.
• Underlying inflation measures are slowing y-o-y, but the monthly impulse moved sharply higher in some cases, including the median for Germany and Spain.
• Split signals on underlying pressures confuse the optimal policy response. Sustaining higher numbers should delay cuts, but a sub-2% convergence would mean the opposite.

• We have been banging the drum on a cyclical rotation due to improving Manufacturing dynamics, and the PMIs released today mostly underpinned our view.
• French and US Manufacturing PMIs surprised on the topside, while German Manufacturing remained stuck in the abyss, but the anecdotal evidence supported the rise in the orders book relative to inventories that we have noted lately.
• From the US PMI release:“Goods producers signaled the steepest rise in new orders since May 2022, as customer demand improved for a second month running”From the French PMI release:“That said, there were reports of demand conditions improving, with production at some manufacturers being boosted by restocking efforts”Both conventional (orders to inventories) and unconventional leading indicators (Semi Exports) rhyme with an improving Manufacturing cycle short-term.

• The Bank of Korea’s decision to maintain the Policy Rate at 3.5% reflects a careful balancing act between controlling inflation and fostering economic growth amidst significant domestic and global economic uncertainties.
• Future interest rate decisions will be significantly influenced by the trajectory of inflation, the state of the global economy, including major economies’ monetary policies, commodity price movements, and geopolitical developments.
• The bank’s policy formulation will continue to prioritize financial stability, closely monitoring domestic economic indicators, financial and foreign exchange market dynamics, and household debt trends to guide its approach to achieving medium-term inflation targets.

• Prabowo looks to have scored a resounding victory in Indonesia’s Presidential election, according to quick count results, with around 58% of the vote, which is positive from a visibility perspective.
• Initial reaction suggests continuity from Jokowi’s legacy, with concerns centred around potentially nationalistic policies and increased government borrowing in the future, which may pressurise Indonesia’s budgetary position. 
• We remain positive on the outlook for Indonesia, with increased government spending to fast-track Jokowi’s legacy projects. Prabowo also looks set on driving higher GDP growth next year.

• The possibility of a comeback for both the manufacturing sector and inflationary pressures have reached the desks of macro enthusiasts, but markets have yet to fully acknowledge and factor in such possibilities, with initial bearish price action after both price releases being traded back within days, signaling that markets are still all about the direction of travel towards rate cuts.
• Let’s dive right into this week’s 5 themes, and how to trade them!
• This week we are watching out for the following 5 topics within global macro:
  • Meeting Minutes
  • Cyclical Momentum
  • Natural Gas
  • Excess Retirements
  • China

• “The labor market remains tight, but supply and demand conditions continue to come into better balance,” We have heard Powell using this phrase continuously since last autumn and it has been a key ingredient in the dovish pivot in Q4.
• But is the labour market truly coming into better balance, or is the post-pandemic equilibrium of higher wages and tighter labour market conditions of a more permanent character?
• “Excess retirements” have grown sharply through 2023 again on improving wealth effects due to the rebound in equities, housing and crypto.

• Bank Indonesia’s decision to hold the BI-Rate at 6.00% balances persistent financial market uncertainties against strong domestic economic growth and the need for Rupiah stabilization.
• Anticipated pressures from the global financial environment and domestic economic activities will dictate the future direction of interest rate policies, with a continued emphasis on ensuring Rupiah stability and controlling inflation within the set targets.
• The central bank’s commitment to leveraging pro-market monetary tools and enhancing financial system digitalization underscores a forward-looking approach to monetary policy aimed at bolstering economic resilience and inclusion.

• Some recent US data has been stronger than expected especially on the inflation front.
• Japanese domestic economy confirmed to be  in recession as we expected
• Both markets remain buoyant – the question is for how long?

• There are 92 stocks in KOSPI 200 that are trading at less than 1x PBR. These 92 stocks are up on average 6% YTD. 
• Among these 92 stocks, 40 of them are trading at below 0.5x PBR. These 40 stocks are up on average 8.2%. 
• In this insight, we argue that the “easy money” of making money by increasing capital allocation to low PBR stocks in Korea is nearly over in the near term. 

• Ex-General Prabowo Subianto got third-time lucky in his bid for the presidency. We caution, however, that things will not be “business as usual” under the erratic strongman. 
• Contrary to his campaign rhetoric of providing “continuity Jokowi”, we argue that Prabowo will not pursue several positive aspects of the Widodo agenda with the same vigour. 
• Short-Term political intrigue and long-run degradation in governance are material risks given the election results and preceding developments, These are due cause for worry.

• Welcome to this week’s rundown of international events and the impact on your portfolio.
• There is still some time to go on my cease-fire prediction from last week, so let’s focus on some other topics that we’re talking about right now.
• As a new addition to our offering, we’re experimenting with video editions of certain articles as many of you have requested.

• Hello everyone, and welcome back to our weekly Positioning Watch.
• Markets were caught on the wrong side of expectations last week with PPI coming in substantially hotter than expected, but equity sentiment has remained decent outside of some profit taking in Tech, as the cocktail of better liquidity conditions and a brightening economic outlook is likely to prevail – and positioning provides very decent opportunities to trade the potential comeback for cyclical assets.
• As this week’s chart of the week we present to you what looks to be the theme of Q1 2024, and the reason why right now is not a good time to be contrarian: momentum is king, and “go with the flow” currently performs WAY better than cherry-picking the good old value stocks.

• U.S. interest rates have been climbing since early January 2024 after reaching their lowest points between December 27th and January 11th.
• For example, the yield on 2-year Treasury bonds has increased by 52 basis points (bps), and the yield on 10-year bonds has risen by 49 bps since their respective lows.
• Similarly, the Dollar Index (DXY), which measures the value of the U.S. dollar against a basket of other currencies, experienced its weakest point on December 28th, 2023.

• UK CPI inflation is slowing, but low 6-month and 3m-o-3m growth rates don’t provide any helpful signal at the 2yr horizon. Relevant measures remain above the 2% target.
• Falling energy prices are depressing spot inflation closer to target this summer. Without sustainable reasons, proximity to 2% is not a sufficient condition for rate cuts.
• The BoE could clarify its reaction function with threshold guidance of what would be necessary to consider cuts. It probably won’t do this, despite the benefits.

• Summers /: Cover Story: Summers on secular stagnation and lessons for China
• China-U.S. /: China’s Foreign Minister meets U.S. counterpart for ‘constructive’ talks
• Tourism /Analysis: Property slump, weak confidence loom over stellar China Lunar New Year travel data

• Canada’s CPI inflation increased by 2.86% year-on-year in January 2024, which was lower than the anticipated 3.3%.
• This is the lowest growth rate recorded since June 2023.
• Core inflation rates were also below expectations by approximately 0.2pp, with half of the downside news being non-core.

• Kuwait’s CPI inflation remained stable at 0.2% month-on-month in January 2024.
• The current inflation rate is only 0.08 percentage points below the 1-year average.
• The data indicates a steady economic situation in Kuwait.

• Welcome to our weekly portfolio watch, which today will be all about the (potential) upcoming rebound in the cyclical momentum.
• As always we share our trade thoughts and ideas and provide you with our current allocation.
• Yesterday’s PPI came in hot as we expected (0.6% MoM in core PPI vs 0.1% expected), which serves as an early sign of a reacceleration in inflationary pressures, which have been our base case since the continuation of the tensions in the Red Sea: It looks like the increase in US freight rates has started to impact producer prices.

• The US CPI inflation rate for January 2024 exceeded expectations, slowing down to 3.09% y-o-y, marking the lowest growth since June 2023.
• The US Core CPI inflation rate stayed at 3.9% y-o-y.
• This rate was 0.2pp above consensus expectations, further supporting the hawkish surprise.

• Greetings from a rainy and cold Copenhagen.
• Since we haven’t talked about natural gas for a while we will start out here before turning to crude.
• Last week saw Henry Hub making lows last seen during the first wave of Covid in the spring of 2020.

• The past week saw insights on Bank Negara Indonesia (BBNI IJ), Bank Mandiri (BMRI IJ), OceanaGold Philippines, Sam Holdings IPO, and the most SET50 Index rebalance. 
• There were also macro insights on Thailand with some optimism, Vietnam as it starts to recover, Malaysia with lingering concerns, and the Philippines, as the BSP keeps rates on hold.
• 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.

• Despite its reputation as a global industrial giant, Germany’s industrial production has been on a seven-year decline.
• Germany’s policies are the root of its industrial woes, with the energy crisis as a prime example.
• Last year, a third of German industrial firms preferred to invest abroad rather than domestically. 

• Reform UK performed strongly in the recent by-elections.
• The upcoming Rochdale by-election on 29th February is expected to increase pressure on Rishi Sunak.
• There is an internal push within Sunak’s party for him to either adopt more right-wing policies or resign.

• Switzerland’s CPI inflation rate for January 2024 was 1.3% year-on-year, significantly lower than the predicted 1.7%.
• The CPI inflation rate for January 2024 was notably less than the consensus forecast.
• This rate is 0.68 percentage points below the one-year average.

• Saudi CPI inflation rose to 1.6% year-on-year in January 2024, the highest growth since November 2023.
• On a month-on-month basis, CPI inflation increased by 0.3% in January 2024.
• This indicates a slight acceleration in price levels.

• Argentina’s CPI inflation in January 2024 increased by 20.6% month-on-month, slightly below the consensus estimate of 21.0%.
• The current inflation rate is slower than the previous month.
• Despite being slower, the current rate is significantly higher than the one-year average, indicating sustained inflationary pressures.

• In his presentation Thursday morning at the Agricultural Outlook Forum USDA Chief Economist Seth Meyer said input prices are not falling with commodity prices, squeezing margins.

• “When commodity prices normalize and readjust, those input prices tend to be sticky, which shrinks producer margins,” Meyer says. “…It was maybe easier to make a little bit of money in ’22, ’23.

• It’s going to be a little bit tougher in the next crop year.”

• China experienced deflation following the Asian and global financial crises. Western commentators fear that China will fight deflation with a weaker currency that undermines trading partners, including the US.
• China’s reliance on a weak currency to promote economic development has been detrimental to households, while currency appreciation will help structural rebalancing by boosting household spending and reduce deflationary pressures.
• Yuan appreciation could increase global economic stability by forcing the US to be less fiscally profligate.  Trade tensions with the US will also be lowered if China accepts yuan appreciation. 

• We are long-term bullish on equities, but the stock market may be vulnerable to a setback in the short run as negative divergences are appearing everywhere.
• These divergences could resolve in a sideways consolidation and rolling correction, or a sudden downdraft marked by a spike in price volatility.
• The NVIDIA earnings report in the coming week could be pivotal to the near-term market outlook.

• The hotter-than-expected January CPI and PPI reports rattled the bond market and expectations of the first quarter-point rate cut have been pushed out from May to June.
• Do the stronger-than-inflation reports mean a pivot to a “higher for longer”?
• We believe it’s too early to panic over one month’s hot inflation report. The Cleveland Fed’s inflation nowcast shows January core PCE is still showing signs of deceleration at 2.8%.

• Global markets experienced a wobble following a stronger than expected US CPI inflation report, causing a spike in bond yields and a dip in equity markets.
• The US CPI report breaks the trend of positive data and has implications for the Fed’s rate cut decisions. While inflation is expected to moderate this year, it will take several data points to confirm this.
• The upcoming minutes from the January FOMC meeting will provide more details on the Fed’s thinking regarding rate cuts and adjustments to the pace of balance sheet rundown.

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

• OPEC bullish on global oil demand growth, while IEA remains negative as it lowers its forecast from the previous report.
• US commercial crude inventories see stronger-than-expected buildup as refinery utilisation levels drop.
• OPEC is optimistic about the world economic growth in 2024 and 2025, increasing growth forecasts compared to the previous report.

• The copper market has experienced significant changes in the past few months, with supply constraints and increased demand from smelters in China.
• Major incidents, such as the suspension of production at First Quantum’s Cobra Panama mine, have contributed to a deficit in the market.
• Treatment and refining charges (TCRCs) have been on a downtrend, reflecting the tight supply and increasing demand, leading to more spot transactions in the market.

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

• The transition to a low carbon economy, also known as the brown to green transition, involves moving from an economy based on fossil fuels with high carbon emissions to one with lower emissions.
• This transition will require a significant mobilization of capital, with estimates in the tens of trillions of dollars. Governments and the private sector are providing support and driving the change due to both funding and economic factors.
• In addition to investing in wind and solar infrastructure, the low carbon transition will require a significant amount of metals and materials. This includes steel, cement, rare earth, aluminum, silver, polysilicon, copper cabling, and more. The transition will create a more materials-intensive global economy.

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

• EM credit spreads are already low, but the possibility of a Fed rate cut is still a key factor in the EM narrative.
• The Fed’s interpretation of inflation data is shifting, but there is not enough evidence to suggest a higher for longer regime.
• The trend of central banks allowing currency weakness has impacted EM FX performance, but FX reserves have not seen significant increases due to low commodities prices and a lack of capital inflows.

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

• The firmer than anticipated January CPI print, including the gap between CPI and PCE inflation, introduces confusion and anxiety to financial markets
• But my Inflation Momentum Indicator and Most Persistent CPI inflation estimate offer an alternative read on the data
• The ongoing debate on the current and future level of underlying inflation is more crucial to policymakers   

• Ironically, the country with the central bank that refuses to tighten extremely loose monetary policy has hit a recession first. Congrats Japan!
• Bitcoin has breached the USD 1 billion threshold again. The reason is that US spot ETFs must buy every bitcoin available to meet demand. Investors are extremely hungry for digital gold!
• And my bellwether global earnings indicator points to positive earnings growth for the first time in a long time.

• UK retail sales fully recovered in Jan-24 from their Dec-23 crash, like we forecast. However, the 3.4% surge was double the consensus expectation.
• We had branded the previous fall as a false trend break and identified it as a seasonal adjustment issue around Black Friday rather than a fundamental problem.
• Trading between October and January was the best since 2015, with NSA and SA data back in agreement. GDP will also enjoy payback from this spurious volatility.

• Red-soled shoes / In Depth: Louboutin’s famous red sole heels tread winding path to trademark protection in China 

• Taiwan /: Beijing condemns Taiwan for deaths of mainland fishermen

• Investment /Private sector is increasingly driving Chinese investments in Africa, veteran banker says

• The BSP’s decision to hold the policy rate at 6.5% is informed by an improved inflation forecast for 2024 and stable expectations for 2025, reflecting a period of cautious optimism and strategic pause in policy adjustments.
• Upside risks to inflation, notably from transport, electricity, and potential food price increases due to El Niño, are balanced by targeted government interventions, emphasizing the synergy between monetary and fiscal measures in managing inflation.
• The Monetary Board’s ongoing assessment of economic growth and inflation dynamics supports a vigilant yet flexible approach to future policy decisions, ensuring readiness to adjust monetary settings in alignment with its price stability mandate.