Macro

• 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 prospects and dynamics for e-commerce in Indonesia after a down-year by value in 2023, with a heating of the competitive landscape a likely feature.
• We also look at the IPO market for 2024, after 2023 saw several delayed listings, some of which may return to market but likely in 2H due to impending elections. 

• We look at the key annual macro-property data for 2011-2023 and review the past ‘group forecasts’ for new home sales in China in 2023 and 2022
• The views in 2023 proved more in line with the actual than in 2022 but NBS revisions to 2022 new home sales data (Mar-Dec) add some complications
• You can join this year’s ‘draw the line’ for new home sales, part of Real Estate Foresight’s 12th Annual China Property Outlook

• Welcome to our PMI Watch where we look at the odds of betting on a rebound in the most followed growth gauge.
• Before addressing the S&P PMI numbers released for January on Wednesday (and the ISMs later this month), we’d like to point you in the direction of the seasonality adjustment issues still facing the statistical bureaus.
• January 2023 was a month of records in seasonal adjustments due to the outlier filter of 2021/2022 wreaking havoc with typical X13-ARIMA-SEATS models.

• Like we mentioned in the first positioning watch of the year, holders of risk-assets have entered a slightly more cautious stance, and the classic risk aversion dynamics seem to be back as inflation expectations have been on the rise yet again since December.
• The Fed now find themselves at an interesting crossroads as the inflation battle may turn out more difficult than anticipated, but the gifts have already been handed out, and markets are again pricing the Fed to be the most dovish central bank in 2024 (mispricing of central banks are apparently a market speciality).
• The chart below is also a clear proof of the market’s inability to be forward-looking.

• Markets raced to 52-week highs across US equity benchmarks with rally in tech stocks contributing to much of these gains. Nikkei raced to print another 34-year high.
• Oil & Copper ticked higher while other major commodities trended downwards last week. Beans and Corn marked their lowest price prints over the last 52-weeks.
• Life is too short to be spent writing for an echo chamber and rewriting to meet the often arbitrary demands of a reviewer, writes Dr Damodaran.

• The Past Week saw insights on Lendlease Global Commercial REIT, Berli Jucker (BJC TB), AEM (AEM SP), Airports of Thailand (AOT TB), and the upcoming Citicore Renewable Energy IPO.
• There was also macro insight on the new joint Singapore & Malaysia Special Economic Zone in Johor and an insight on the STTF rebalancing in Singapore. 
• 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.

• The market is pricing in a 25 basis point cut in the June meeting, with additional easing expected to reach a neutral level by the first half of 2025.
• The ECB is expected to remain on hold at the upcoming meeting, with the focus on their updated views on growth, inflation, and any forward guidance.
• The sell-off in recent weeks has been driven by the repricing of monetary easing expectations, but the strategic over duration stance remains comfortable, particularly in the medium term.

This podcast is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only.

• In a soft-landing economic environment, history suggests that commodity indexes stay stable around the first rate cut then trend higher six months after.
• Historically, industrial metals tend to lag energy by several months.
• By contrast, prices of precious metals, especially gold, generally rise six months after the first rate cut then hit a temporary plateau —something we saw even during the extremes of the 2008 financial crisis and the recent pandemic. 

• The market is pricing in aggressive rate cuts by the Fed, but the data does not fully support this expectation.
• The dollar has performed well this week, and further upside is plausible due to low-grade US exceptionalism and underwhelming global economic data.
• The focus on the Fed and US rates is important, but the non-US side should not be overlooked, as there is a stark difference in initial conditions between the US and other G7 rate curves. The rate differentials could lead to a convergence with the US catching up to other rate curves, resulting in a volatile and high-impact dollar trend.

This podcast is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only.

• US Treasury yields have resumed their uptrends and look set to retest 5%
• US Fed Liquidity continues to expand, following a 13% increase in 2023
• This is a ‘normal’ investment cycle for equities, credit and the economy, but it has been abnormal for bonds

• A bottom-up driven scan of stock charts shows over 29 stocks with bullish technical patterns consisting of uptrends or breakouts from multi-month bases with strong potential upsides.
• Bullish patterns are broadly based, primarily concentrated in technology and cyclicals, which argue for a continuation of the AI-related bull and an economic rebound.
• This bottom-up analysis also pointed to bullish macro conclusions about the economy.

• We believe that short-term outlook for stock prices may be limited, though we are bullish longer term. While the bulls may have temporarily gained the upper hand, many risks remain.
• The recent episode of price weakness was relatively shallow, and we don’t expect any change.
• Traders should continue to adopt a strategy of buying the dips and selling the rips.

• Financial markets had been briefly discounting seven reductions in the federal funds rate in 2024, an outcome historically associated with the onset of recessionary conditions.
• The prospective path of core inflation in 2024 will have a major impact on the timing and speed of Fed interest rate reductions similar to events in 1992 and 2002.
• Investors yearn for the return of easy money and, while the 2024 liquidity backdrop will be supportive for risky assets, the days of beta dominating alpha are numbered. 

• Takeaways: Equities are currently a preferred refuge over bonds.
• US is still the place to be relative to peers– Recession risks have diminished lately, particularly in the US, but remain a concern in Europe
• It’s becoming increasingly clear that the Treasury is going to be front and center in 2024.

• Welcome to our flagship editorial!It is about this time of the year when we conclude that all year-ahead outlooks have already been blown to smithereens, but what is the major surprise this year?
• Back in mid-December, between 5-7% of respondents in the widely renowned fund manager betted on higher interest rates and/or inflation in 2024.
• This is the kind of consensus that only arises once we are leaning towards the mid-to-late innings of the recession, but the problem is that we are probably not even in a recession (in the US) yet.

• Granted, methodology does not have a very sexy ring to it, but a return-making edge may be hidden in the details.
• In this untraditional edition of the ‘US Inflation Watch’ we take a closer look at the dis- and similarities between Powell & Co.’s go-to PCE and the more popularly known CPI.
• Our models do in fact point to a likely surprise to next week’s PCE.

• In fiscal year 2017 (spanning October 2016 to September 2017, the end of the Obama administration and the beginning of the Trump presidency), U.S. Customs and Border Protection encountered 526,901 migrants trying to enter the country without legal authorization.
• Numbers rose during the first three years of Trump’s presidency but then plummeted back to 646,822 in 2020 during the Covid lockdown.
• But during Biden’s presidency, they shot back up higher than ever.

• The Empire State Manufacturing Survey has crashed! Only two months during COVID-19 were worse. So, how bad is it?
• China is a mess. And it just got worse. The Hang Seng Index collapsed. Are Chinese stocks a buy yet?
• UK inflation added to the ‘we must remain hawkish’ narrative of central banks. Yet, many rate cuts are coming.

• Fundamental weakening bias in Yen has returned with BoJ unlikely to exit loose policy as inflation has cooled and sustainable economic growth remains uncertain.
• Dollar also looks stronger as economic data from the US has shown a rebound in inflation as well as an unexpectedly strong economy.
• Yen likely to maintain weakening trend, barring intervention. However, it may face resistance as it approaches November lows.

• Retail sales in December rose by 0.6% MoM, beating analyst expectations. Core retail sales also grew stronger than expected. 
• Automobile, clothing and accessories, and online store sales led growth on a MoM basis, while food services sales growth remained flat.
• Given the buoyant growth in sales, traders pared back their expectations of a Fed interest rate cut in March 2024.

• Reform / In Depth: China financial regulator aims for greater consistency with new departments 
• Davos /Davos attendees weigh China’s strengths and weaknesses at Caixin luncheon
• Corruption /Shanghai state media veteran tried for accepting millions in bribes

• UK retail sales crashed by 3.2% m-o-m in the official estimates for Dec-23, appearing to break the well-established trends of rising values and flat volumes.
• Expenditure for Christmas should be read across November and December, recognising that the sales events are challenging for the ONS to adjust for seasonally.
• Non-Seasonally adjusted sales were consistent with the performance in recent years, suggesting the trend break is a temporary statistical issue, not a fundamental one.

• Takeaway:China serves as the primary deflationary force in the global macroeconomic landscape.
• Despite China’s slowing growth, potential policy responses might paradoxically exacerbate deflationary pressures.
• We anticipate rising inflation risks linked to potential supply shocks resulting from geopolitical developments.

• China’s GDP growth continues to be driven by government spending while domestic demand and consumer confidence remains weak.
• Exports fall in 2023, the first time since 2016 despite industrial production and utilisation rising.
• China’s CPI inflation in December comes in at -0.3 % YoY, falls for three consecutive months.

• Recent US economic data has been mixed on the inflation/growth front. 
• Fed dot plot and messaging at odds with market expectations.
• The extent of rate cuts is correct, but timing is likely not.

• GDP / China’s 2023 GDP growth recovers to 5.2%, beating target

• Davos /: China Premier says humans must control machines in AI development

• Population /: China’s population shrinks for second year with record low birthrate

• Takeaways: Energy freight rates still not reacting to troubles in the Red Sea
• This week saw another increase in container freight rate.
• Seasonality working against higher freight rates. That changes by April. 

• FSC Chairman Kim Joo-hyun mentioned that too many companies in Korea are trading below book value and the FSC plans to implement changes to improve upon this issue. 
• According to Korea Exchange, 1,111 companies out of total listed in KOSPI and KOSDAQ in Korea (2,538) are trading at below 1x book value (PBR) (liquidation value). 
• According to the Capital Group, about 39% of companies in the TOPIX trade below book value, compared to just 5% for companies in the S&P 500 Index. 

• Many economists expect the Bank of Japan, after systematically refusing to adjust its extremely loose monetary policy will be the only country to raise interest rates in 2024.
• If the Bank of Japan decides to raise interest rates, at the same time, global tightening momentum wanes, betting on a stronger yen is a sure thing.
• But with inflation dropping, the Manufacturing PMI below 50, consumer spending and real wages declining, the window for tighter monetary policy is closing rapidly, and hence a long yen position.

• Today’s NBS data for house price growth (new homes and the secondary market) for 70 major cities in December 2023 indicates further declines 
• Aggregate figures and averages may not reflect the ‘on-the-ground’ feel, but the relative performance of cities should give a good indication of city-level dynamics
• Chengdu, Shanghai, Xi’an, and Sanya finished with the relatively strongest growth rates year-on-year for the new home price growth

• Latest WASDE report reaffirmed market’s bearish outlook. Inventories of corn, wheat, and soybean are ample.
• Asset managers are positioned heavily bearish on corn, wheat, and soybean. Wheat positioning is the least bearish.
• Futures for corn, wheat, and soybean fell after WASDE release with corn futures underperforming. 

• The final EA HICP inflation print confirmed the flash rise to 2.9% for Dec-23. Energy price base effects, primarily related to a German subsidy scheme, were responsible.
• Underlying inflation measures continued to slow, although their monthly impulse stayed close to a 2% annualised pace, consistent with converging towards the target.
• Our EA inflation forecast is close to the consensus, but we share the ECB’s concern that wage settlements could stoke a renewed overshoot, which delays rate cuts to Q3.

• This week we’ll cover US recession talks and financial conditions.
• We’ll also hone in on both US and European inflation and finally talk rates expectations.
• This week we are watching out for the following 5 topics within global macro: US recession talks and financial conditions, NFIB vs Core CPI, EURflation, PCE vs CPI, STIR pricing.

• In my start-of-the-year note last week, I promised an updated asset allocation outline for investors with a strong equity focus, i.e. investors who are 100% exposed to equities with no diversification into bonds.
• There’s no great magic to this exercise, as there are reference points you can work off.
• Take the table below, which shows the mix of underlying assets in the All Global MSCI ACWI index (which includes emerging markets) and the Alliance Trust.

• Welcome to this extremely table- and chart-heavy EUR-flation update.
• Based on extensive public demand, we have updated our inflation models for all of the big four in the Euro zone and we reach the conclusion that the ECB is off by >1%-point and potentially more by March-2024.
• After having updated our models, we see March HICP printing at 1.84% versus ECB at 2.9% (Q1-average) and a market pricing of 2.25% (or thereabout), which basically leaves inflation below target before the end of the quarter.

• UK CPI inflation defied expectations by rising to 4% in December. The headline and core rates were 0.2pp above the consensus, while the 0.1pp upside for us was all non-core.
• Measures of underlying inflation broadly recovered after November’s weakness, as we expected, having identified it as a discount-related move using the microdata.
• Wage settlements are far too high to be consistent with a sustainable return to the inflation target. This keeps our inflation and Bank rate forecasts relatively high.

• US Treasury liquidity conditions remain weak and the turmoil in Treasuries during the third quarter of 2023 probably played a major role in the Powell pivot in December in hindsight.
• There are signs of increasing liquidity stress in US Treasury markets again, but how is that possible during a regime of increasing bank reserves (USD liquidity).
• It all has to do with the mechanics of leverage ratios in regulation.

• Geopolitical risk has driven a resurgence in gold with price 1.5% higher following heightened tensions in the middle-east. 
• In a soft-landing scenario in 2024, gold faces downside risk from investor rotation to other assets.  
• Options metrics point to bullish positioning in gold, central bank demand remains a strong driver in H2 2023.

• US inflation rate ticked up to 3.4% in December and came in above analyst expectations. Core inflation remains equally stubborn.
• Similar inflationary pressures as November were observed with shelter costs and service index rising and energy prices continuing to fall. Notably, energy prices slowed their pace of monthly decline.
• Market impact of the CPI report was muted as initial price action upon release of the report was reversed through the day. 

• Welcome to this week’s Great Game! In the midst of Taiwanese elections and US primaries, the focus of investors world-wide is still on the Red Sea Crisis and the expected spill-over into inflation and markets.
• In this piece we will attempt to answer the most obvious question – when will the crisis end and when will international shipping return to the shortest and most economical route through the Red Sea?
• First of all, let’s remember why the attacks are ongoing.

• Key take aways: OPEC losing its impact on the market due to non-OPEC members productionFor how long can Saudi Arabia pull all the weight?
• Europe and China would be the biggest winner in a OPEC breakdownHi and welcome to this year’s first ‘Out of the Box’.
• Readers of our energy coverage will know that we have been very skeptical of the developments around OPEC and the crude oil markets.

• UK unemployment unsurprisingly remained at 4.2% again in November amid ongoing employment growth. However, job vacancies have fallen by more than seasonal norms.
• A potential loss of demand has not prevented wage settlements so far in January from matching last year’s excesses, albeit with a tighter range around the median.
• Stability in wage settlements and unemployment continues to suggest that inflation expectations are too high and policy isn’t too tight, so there is no need to cut rates.

• A shift in composition needed in a Japanese portfolio this year
• A weaker US and Japanese economy together with a stronger Yen will  make sector allocation key.
• Some sectors to avoid or invest in during this next phase.

• The Fed has been running QT for a while and yet there is still abundant liquidity in the financial system.
• Fed’s bond holdings are down $1.3 trillion from their peak (due to QT), yet only half of this supposed tightening has actually impacted bank reserves (aka ‘’liquidity’’) which are down a meagre $0.7 trillion.
• This ongoing ‘’money mystery’’ has caught many off-guard, and it has helped fuel several bullish narratives: the most famous one being that higher ‘’liquidity’’ has supported stock markets in 2023.

• Conditions in the Energy Industry Continue To Worsen The quarterly Dallas Fed Energy Survey highlighted that business uncertainty is worsening again.
• It seems like the past two quarterly reports were only outliers – the trend remains worsening business conditions for gas and oil companies.
• The conflict in the Red Sea started to impact shipping rates. But as we wrote over the past couple of weeks, it is not substantially higher

• Trump is likely to win a substantial victory in the Iowa caucuses, with the real contest being for second place between Haley and DeSantis, with the latter banking on Iowa.
• In the New Hampshire primary, Haley has closed the gap with Trump, to near a dead-heat with Christie’s withdrawal. A post-Iowa withdrawal by DeSantis would mean “Advantage Haley’ in NH. 
• Haley will likely win at home (South Carolina), with that momentum reducing Trump’s huge organizational advantage on Super Tuesday. A 2-horse GOP race is market-positive, promising a less chaotic outcome.  

• Hello everyone, and welcome back to our weekly positioning overview.
• We’ve been working on some new ways to look at positioning data across asset classes, and we’ll share some of the inaugural charts in today’s piece and will extend them, week by week.
• Markets have more or less traded sideways since the start of the year, as the risk-on party has taken a bit of a breather it seems, despite rate cut expectations becoming even more embedded after the hawkish US CPI surprise last Thursday – strange move, and we’ll be surprised if probabilities don’t reverse within the next couple of price data points.

• 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 positive responses to the latest changes to policy in support of EV manufacturing in Indonesia which appears to have won the support of BYD. 
• We also look at Grab‘s upcoming commitments to digibanks but it looks well prepared and has bigger fish to fry and we also look at Home Credit Indonesia and MUFG.

• The past week saw insights on Matahari Department Store (LPPF IJ), Adi Sarana Armada (ASSA IJ), PT Avia Avian (AVIA IJ), Vinfast (VFS US), and Genting Singapore (GENS SP).
• There were also Macro Insights on Singapore and Vietnam plus CrossASEAN Ground Zero, which looked at GoTo‘s sustainability credentials, 2W EVs in Indonesia, and themes for the year ahead.
• 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.

• My Global Activity Barometer shows that the sequential pace of economic activity has decelerated in 2Q and 3Q 2023
• The dispersion of the deceleration across countries is potentially becoming more widespread
• This appears to be consistent with the ongoing shift in monetary policy slant globally

• We have gotten a few questions from readers asking if the Republican primary race will be effectively over after tonight’s Iowa caucus.
• The speculation comes after New Jersey Governor, Chris Christie, was caught on a hot mic on Thursday saying that he believed presidential candidate, Ron DeSantis, would terminate his campaign after the Iowa ballot.
• The short answer is no – the Republican primary will still be competitive after tonight, albeit, Trump will be the clear favorite to win the nomination as he is now.

• Takeaways: Price increases in goods likely to show up in Europe after the Summer
• Watch out for energy prices once we start to fill up for next heating season
• The recent turmoil in freight rates will likely exacerbate the divergence between US and the Eurozone

• Global Liquidity Cycle bottomed in October 2022.  Cycle set to expand further to a peak in late-2025
• Federal Reserve liquidity already rising and driven over medium-term by need to monetize mandatory fiscal spending
• Global Liquidity set to rise by US$12-15 trillion in 2024

• The higher civilian workforce participation rate imparted disinflation in 2023. These influences may now be retreating. Skilled labour shortages in manufacturing have produced higher wages that could undermine inflation trends.
• Bipartisan agreement on government spending enhances depletion prospects for the Treasury’s General Account, boosting financial accommodation.  Fed could exit quantitative tightening due to rapid drawdown on its reverse repo programme.
• Deploying greater pressure, the Biden Administration will seek to avoid a repeat of 1992 when the Fed was accused of easing too slowly to the detriment of the incumbent President.   

• The global disinflation trend is continuing in an uneven manner and both the macro trend and Fed speakers are pointing toward a dovish Fed pivot.
• This argues for a bull steepening of the yield curve and a bullish backdrop for stock prices.
• However, investors should be aware that the lurking risk is the re-emergence of the transitory disinflation narrative, which could derail the bullish scenario.

• The short-term outlook can be characterized as a riptide market. Everything looks good, but risks are lurking beneath the surface,
• Negative technical warnings and several sources of volatility are weighing on the short-term outlook.
• Expect the rest of January to be choppy to down, which argues for a buy the dip and sell the rip posture in trading.

• Financial majors – Goldman, Morgan, HDFC, and Interactive Brokers announce results. Charles Schwab reports on 17/Jan and Schlumberger reports on 19/Jan.
• On economic data, data from USA, China, and Japan will provide strong insight into the health of consumers and businesses there.
• An iPhone that got sucked out of Alaskan Air when the door of a Boeing jet came unstuck fell 5,000m but landed without a single crack on the screen.

• Happy Sunday and welcome to our flagship editorial on the Coronation day of King Frederik in Copenhagen.
• I guess it is somewhat telling for my lack of enthusiasm around the event that I am sitting here spitting out research instead of watching the Crowning.
• The US CPI report printed a tad hotter than expected last week, but smack dab at our expectations of a 3.9% YoY level in core terms.

• Core PCE rose 0.3% on the month and 3.9% over a year ago, showing signs of stickiness since last year.
• The yield curve has steepened and two-year yields have fallen dramatically, indicating market response to the softer implications for core PCE.
• Differences in calculation methods and components of CPI and PCE contribute to the wedge between the two measures, with shelter inflation and medical insurance costs being key factors. Non-market prices, particularly in services, are running below market prices for core PCE.

This podcast is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only.