Macro

In today’s briefing:

Charting Beyond the Near-Term Fed Pause
Commodities Going Into 2024 & Our Biggest Mistakes During 2023
Oil Prices Surge As The Situation In The Red Sea Intensifies
The Week That Was in ASEAN@Smartkarma – Prodia’s Recovery, Grab in 2024, and Kalbe Farma Primed
Part Five: The German Vulnerability

Charting Beyond the Near-Term Fed Pause

By Thomas Lam

The initial phase of Fed easing, from pre-Volcker to post-Greenspan, can differ, particularly on the magnitude
Historical Fed pivots, from hiking to easing, tend to be sensitive to the state of the economy
The extent of initial Fed easing around historical downturns was at least double the size when compared to episodes with no imminent recessions

Commodities Going Into 2024 & Our Biggest Mistakes During 2023

By The Commodity Report

Happy new year guys – another chapter has arrived and it’s time to make the best out of it.
First of all, let’s look at the past, the now and the costly mistakes we made during the past year.
Soft commodities dominated the commodity front during 2023.

Oil Prices Surge As The Situation In The Red Sea Intensifies

By Pranay Yadav

Oil prices surge as tensions in the Red Sea escalate with new and strong provocations from Iran.
Oil oversupply concerns and weak demand persist while ongoing geopolitical tensions support oil prices.
WTI current implied volatilities still well below elevated levels seen in October 2023.

The Week That Was in ASEAN@Smartkarma – Prodia’s Recovery, Grab in 2024, and Kalbe Farma Primed

By Angus Mackintosh

The Past week saw insights of Prodia (PRDA IJ), Grab Holdings (GRAB US), XL Axiata (EXCL IJ), Kalbe Farma (KLBF IJ), Bank Mandiri (BMRI IJ), and Pyridam Farma (PYFA IJ).
The was also an insight on Thonburi Healthcare Group (THG TB) and a sector piece looking at the beleaguered Vietnamese Real Estate sector.
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.

Part Five: The German Vulnerability

German nominal yields have fallen less than those in the UK and the US.
There are two possible outcomes: either Germany’s yields will catch up with those of its peers, or in the event of a correction or reversal, Germany may experience the most significant upside in yields and equity underperformance.
The German yield curve has remained flat compared to the US and has outperformed the UK’s yield curve.

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Jan 02

Daily Brief Macro: Energy Cable #51: Tensions Increasing Fast in the Red Sea and more

In today’s briefing:

Energy Cable #51: Tensions Increasing Fast in the Red Sea
What the Politics of 2024 Tell Us About 2025
A Bull Market With Election Year Characteristics
US: Increase Weight in Bonds Vs Equities in the Early Part of 2024
Comment on Exchange Rate EUR/USD – December 15, 2023
Quarterly Macro Note – EUROZONE ECONOMY – 21 Dec 2023

Energy Cable #51: Tensions Increasing Fast in the Red Sea

By VRS (Valuation & Research Specialists)

Happy New Year everybody and welcome to this year’s first edition of the Energy Cable.
Crude oil prices started rallying into and over the Christmas holiday period with focus on the Houthis’ attacks on vessels in the Red Sea which prompted us to have a look at the numbers.
The developments over the weekend have increased tensions, and we are eagerly awaiting the initial price action of the year to see how nervous the market is.

What the Politics of 2024 Tell Us About 2025

By Cam Hui

What does the political and economic landscape of 2024 mean for investors in 2025 under a Biden oe a Trump administration?
A Biden White House is more predictable using conventional economic analysis. Much depends on whether the Fed can achieve a soft landing of the economy.
The effects of a Trump White House will be more difficult to predict. The only certain investment bet under a Trump administration may be to buy volatility.

A Bull Market With Election Year Characteristics

By Cam Hui

Long-Term models are signaling the revival of a long-term equity bull.
But the market may be vulnerable to some choppiness in the next few months.
The intermediate-term outlook for stocks continues to be bullish and we expect a positive year for the S&P 500 in 2024.

US: Increase Weight in Bonds Vs Equities in the Early Part of 2024

By Prasenjit K. Basu

We expect the Fed Funds rate to decline a minimum of 50bp this year, starting with a 25bp cut in Jun’24. Consequently, bonds are likely to generate solidly positive returns.
Despite M2 contracting YoY for 12 months, core inflation still remains too deeply entrenched, and will consequently not allow any earlier easing. But a slower economy will help rein-in inflation.
The S&P500’s CAPE ratio is 32.27x, nearly double its mean of 17.07x, so equities are likely to struggle in Q1CY24. We recommend being Overweight Bonds and Underweight Equities this quarter.

Comment on Exchange Rate EUR/USD – December 15, 2023

During the period under consideration, i.e. November 15th to December 15th, 2023, the EUR/USD exchange rate fluctuated between 1,084 and 1,095 in the initial period until November 27th, 2023.
After reaching 1,099 on November 28th, the exchange rate followed an immediate downtrend until the 11th of December (except for one session), although it remained higher than the levels seen at the beginning of November.
Conversely on December 12th, the pair recorded an ascent, finally settling at 1.0894.

Quarterly Macro Note – EUROZONE ECONOMY – 21 Dec 2023

By VRS (Valuation & Research Specialists)

The economic outlook for the Euro Area in 2024 anticipates a soft landing, as declining prices and rising real wages are expected to boost balances and confidence of households and businesses.
The main factors behind this relief are the reduction in commodity prices as well as the normalization of supply constraints.
However, the enduring impacts of geopolitical tensions, weak external demand, steep interest rate hikes, and strong energy shocks have contributed to a weakening economy with manufacturing and construction sectors affected significantly and experiencing declining growth rates.

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Jan 01

Daily Brief Macro: China Property And The Demand For Commodities Puzzle and more

In today’s briefing:

China Property And The Demand For Commodities Puzzle
Saudi Arabia Special Report: A Tipping Point in EM Equity Allocations
Riding High: The Magnificent 7 Surge in Global Equity Funds

China Property And The Demand For Commodities Puzzle

By Robert Ciemniak

China’s crude steel production data behaved differently in the 2021-2023 downturn relative to new home sales and new starts, compared to the prior cycles.
The 40% drop (12M vs prior 12M) at the low point for new starts compares with around 10% for the crude steel.
In this note, we outline a few possible explanations, with some twists.

Saudi Arabia Special Report: A Tipping Point in EM Equity Allocations

By Steven Holden

2023 Marks a Pivotal Year with EM Investors Significantly Increasing Holdings in the Saudi Market.
Despite Growing Interest, the Saudi Market Still Presents Ample Room for Broader Investor Engagement.
Saudi Arabia Remains Comparatively ‘under-Owned’ in Relation to Its Asian and LATAM Peers.

Riding High: The Magnificent 7 Surge in Global Equity Funds

By Steven Holden

The Magnificent 7, comprising Microsoft, Apple, Alphabet, Amazon, Meta, NVIDIA and Tesla hit record high allocations among active Global equity funds this year.
Thought of as a standalone allocation, they represent the 2nd largest country weight, but also stand as a sizeable underweight versus the benchmark.
Microsoft’s dominates the group, NVIDIA has attracted a new investors this year, whilst Tesla has struggled to gain the same level of trust from active Global investors.

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Dec 31

Daily Brief Macro: Part Four: The Sharply Slowing UK Economy and more

In today’s briefing:

Part Four: The Sharply Slowing UK Economy
China Property: 2023 In Word Frequency Charts
Part Three: Australian Dollar and AGB Yields

Part Four: The Sharply Slowing UK Economy

The UK economy has been facing a series of challenges in recent weeks.
Economic data has been disappointing, with weak unemployment, earnings, GDP, industrial production, manufacturing, services, and trade balance.
As I write this report, 10-year UK government bond yields have fallen by 20 basis points (bps) in the past two days.

China Property: 2023 In Word Frequency Charts

By Robert Ciemniak

We gauge the intensity of certain topics and narratives concerning China’s property sector via the analysis of the mainstream Chinese media headlines.
Overall, 2023 was marked by the initial market recovery ‘talk’ which then faded, followed by the spike in policy support for the sector, though less so towards the year-end.
Certain topics have jumped in prominence in H2 on policy directives: affordable housing and renovating urban villages.

Part Three: Australian Dollar and AGB Yields

The Aussie Dollar is acting as a delta one to the Chinese Economic data, as the People’s Bank of China (PBOC) remains committed to maintaining the stability of the CNY.
The AUDJPY has formed an intermediate double-top pattern.
While it is likely to rebound, it could also be influenced by the difference in export growth between ROW with China and Japan.

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Dec 30

Daily Brief Macro: EM by EM #36: What Goldman got wrong about China in 2023 and more

In today’s briefing:

EM by EM #36: What Goldman got wrong about China in 2023
[Counting Beans #3]: Soybean Price Remains Solid But Headwinds On The Horizon
Is Coinbase Rally Running Out of Steam?
Oil Watch: Why is demand RECORD high, when we are told the opposite?
EUR-flation Watch: Consensus is OFF (again)
CX Daily: Why China Wants Brokerages to Merge and Why It Won’t Be Easy

EM by EM #36: What Goldman got wrong about China in 2023

By Emil Moller

Main conclusions up-front:It’s getting harder to disentangle politics from price movements in China, with the government becoming more involved in the equity market.
In stark contrast to their U.S. counterparts, Chinese banks are grappling with the weight of growing savings from consumers and businesses.
This surge is impacting their profitability, while the real estate sector’s challenges continue to linger.

[Counting Beans #3]: Soybean Price Remains Solid But Headwinds On The Horizon

By Pranay Yadav

Brazil’s weather forecast remains mixed on showers with heavy rains to arrive only in January. Rainfall in Brazil’s key agricultural region.
U.S. soybean net sales show a significant uptick, but recent lack of large export sales could signal a slowdown in demand.
Asset managers reduce long positions in soybean futures and options, showing a shift towards a bearish market outlook but prices remain resilient above USc 1,300.

Is Coinbase Rally Running Out of Steam?

By Pranay Yadav

Outperformance during rallies is usually followed by sharper corrections during downturns. Buy the rumour and sell the news is common in crypto markets.
Coinbase is a top ranking performer. The crypto exchange stock is up a whopping 454% YTD outperforming BTC by almost 3x.
While Coinbase may do well in a continued cryptocurrency bull market, it is worth considering whether the rally has already played out.

Oil Watch: Why is demand RECORD high, when we are told the opposite?

By Ulrik Simmelholt

Oil has been one of the few movers during the quiet days of Christmas and therefore we thought we would run down the news driving crude oil markets and deliver our takes.
We start with crude oil exports where the latest m/m numbers reveal that the US has seen a 4.65% drop in export numbers in line with seasonal effects.
The fewer seaborne barrels paired with tensions in the Red Sea have added to the momentum for oil prices, but we also note that the EIA has started to ramp up SPR buying again with contracts signed for the purchase of 3 million barrels.

EUR-flation Watch: Consensus is OFF (again)

We interestingly see a pattern where Germany is used to predict MoM consensus elsewhere in December.
German consensus numbers look relatively sensible, while Spanish numbers are off.
Net/net, the ECB will likely get another dovish surprise relative to their base case, and we see more of such upcoming surprises in Q1-2024.

CX Daily: Why China Wants Brokerages to Merge and Why It Won’t Be Easy

By Caixin Global

Mergers / In Depth: Why China wants brokerages to merge and why it won’t be easy
Jobs / Year In Review: China’s downsized post-pandemic job market feels the strain
Personnel /: China boots three arms executives from top political advisory body

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Dec 29

Daily Brief Macro: 5 Things That Could Wrongfoot Consensus in 2024 and more

In today’s briefing:

5 Things That Could Wrongfoot Consensus in 2024
Mint Macro Roundup: Inflation Cools in US, UK, & Japan Accentuating Central Bank Policy Divergence
CX Daily: China’s Cloud Giants Seek Profits Abroad as Domestic Margins Dwindle

5 Things That Could Wrongfoot Consensus in 2024

The overwhelming consensus for 2024 continues to be a soft landing in the US with interest rates coming firmly down while growth continues on autopilot, which leaves a very decent, almost goldilocksy, outlook for risk assets.
But what if we don’t end in a soft landing, but rather one of the tail-end scenarios of either 1) a boom driven by easier financial conditions, which would force the Fed to push back a bit on rate cuts or 2) a recession, which would imply rates much lower than what consensus currently is.
We have chosen 5 “likely unlikely” scenarios for 2024, which are not as unlikely as current market pricing indicates.

Mint Macro Roundup: Inflation Cools in US, UK, & Japan Accentuating Central Bank Policy Divergence

By Suhas Reddy

Inflation across the US, UK and Japan slowed sharply on the back of declining goods prices.
Rapidly cooling inflation brings into focus the diverging central bank policies – BoJ remains ultra-loose, Fed has turned dovish, while BoE continues to remain hawkish.
Personal spending in the US remains strong, providing upside to economic growth in Q4, but also risk of higher inflation.

CX Daily: China’s Cloud Giants Seek Profits Abroad as Domestic Margins Dwindle

By Caixin Global

Cloud / In Depth: China’s cloud giants seek profits abroad as domestic margins dwindle
Central bank /Chart of the Day: PBOC gets major leadership reshuffle in 2023
Outbound /Year in Review: China’s outbound businesses pivot to Latam, Middle East

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Dec 28

Daily Brief Macro: Steno Signals #79 – A Christmas present full of USD Liquidity from Powell and Yellen! and more

In today’s briefing:

Steno Signals #79 – A Christmas present full of USD Liquidity from Powell and Yellen!
Credit Watch: Nothing in the credit impulse speaks in favour of a 2024 comeback
Hamas Rejects Ceasefire – Here’s Why It’s Actually Great News
2024: Bold Predictions
Positioning Watch – How are markets positioned ahead of a turbulent 2024?
Bond Market Monitor: Time to Invest in EM Bonds
Part Two: JGB Yields Spike Cause Yen Mayhem
CX Daily: Year in Review: China’s AI Race Turns to Drumming Up Adoption

Steno Signals #79 – A Christmas present full of USD Liquidity from Powell and Yellen!

Happy Sunday and welcome to a short and sweet version of our flagship editorial!
Liquidity conditions have improved markedly over the past couple of months, and we are about to enter a QE-like liquidity environment unless trends reverse soon, which they are unlikely to.
Liquidity has been improving at a $200bn a month pace since early November due to a pamphlet of tricks from BOTH the Fed and the US Treasury, and through the past weeks another sneaky “liquidity adding” factor has popped up! This is of major relevance to the overall risk sentiment.

Credit Watch: Nothing in the credit impulse speaks in favour of a 2024 comeback

The equity market has been celebrating over the past couple of months and it seems like the economic consensus is moving towards a soft landing or even a no landing / re-acceleration at lightning speed.
Equities tend to trade closely connected to the cyclical components of the US economy with a strong correlation between ISM Manufacturing and annual returns in the S&P 500.
Most recent trends partially represent a bet on a rebound in the economic cycle in 2024, which looks unlikely in most of our medium-term forward looking models.

Hamas Rejects Ceasefire – Here’s Why It’s Actually Great News

By Mikkel Rosenvold

Welcome to a quick Holidays edition of Great Game – your weekly geopolitical update!
Yesterday, reports emerged that Hamas and Islamic Jihad had rejected an offer of a permanent cease-fire brokered by the Egyptians with the aid of Saudi Arabia and Qatar.
Reportedly, the deal would have involved a mass release of hostages, a permanent ceasefire and the formation of a transitional government in Gaza without the direct persecution or condemnation of Hamas and Islamic Jihad.

2024: Bold Predictions

By Jeroen Blokland

We may see a US recession, followed by eight or more Fed rate cuts, a boost in liquidity, and hence another blockbuster year for risky assets.
In addition, we may see some credit rating downgrades of some major economies, emphasizing the question of how attractive (government) bonds are in a long-term multi-asset portfolio.
2024 may accelerate the Great Portfolio Rebalancing, seeing investors move out of traditional asset classes (bonds) into scarce and under-owned asset classes (gold, bitcoin.)

Positioning Watch – How are markets positioned ahead of a turbulent 2024?

The year has generally speaking been a forecasting challenge for most to say the least, and not a lot of people forecasted the ending that we’re left with, but how does the current price action and massive inflows into both equities and bonds leave us for 2024?
Sentiment has been EXTREMELY bullish in Q3 and Q4 based on our z-score sentiment model but almost solely built on equity momentum, which is rarely a good sign.
Both option ratios, credit-spreads and market breadth have turned bearish in Q4, which should leave markets vulnerable after the boost from positive liquidity trends dwindles during Q1 2024.

Bond Market Monitor: Time to Invest in EM Bonds

By Warut Promboon

Here we are checking our thesis on the bond markets we reconfirmed as bullish back in September.
Declining inflation, as indicated by the November US Personal Consumption Expenditure (PCE) deflator, could lead to the 2% inflation target in 2024
A rate cut and a peak of a rate hike cycle plots a scenario where fixed rate bonds will be the asset class of choice in 2024.

Part Two: JGB Yields Spike Cause Yen Mayhem

On December 6, 2023, Deputy Gov. Ryozo Himino and other policy board members signalled increasing optimism on price and wage increases.
Himino said at a press conference following a meeting on Wednesday that exiting the negative rate policy would have relatively little impact on Japan’s economy.
“We will carefully assess the situation and consider the timing and procedure of how to exit” negative rates.

CX Daily: Year in Review: China’s AI Race Turns to Drumming Up Adoption

By Caixin Global

AI / Year in Review: China’s AI race turns to drumming up adoption
Economy /:Year in Review: China’s economy struggles to regain early momentum
Trust /: Troubled Sichuan Trust offers 40% to 80% compensation to investors

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Dec 27

Daily Brief Macro: The Christmas Week That Was in ASEAN@Smartkarma – Malaysian Reshuffle and more

In today’s briefing:

The Christmas Week That Was in ASEAN@Smartkarma – Malaysian Reshuffle, GoTo Plays Safe, and Alfamart

The Christmas Week That Was in ASEAN@Smartkarma – Malaysian Reshuffle, GoTo Plays Safe, and Alfamart

By Angus Mackintosh

The Past Week saw insights on GoTo Gojek Tokopedia (GOTO IJ), Sumber Alfaria Trijaya (AMRT IJ), Airports of Thailand (AOT TB) and the Philippine Stock Exchange (PSE PM).
There was also a macro insight on Malaysia and further insights on Vietnam International Bank (VIB VN), Victoria Care Indonesia Tbk (VICI IJ), and a SET50 Index Rebalance.
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.

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Dec 24

Daily Brief Macro: FTC Under Lina Khan Is Armed with Shrewd Regulatory Arsenal Against Anti-Competitive M&A Deals and more

In today’s briefing:

FTC Under Lina Khan Is Armed with Shrewd Regulatory Arsenal Against Anti-Competitive M&A Deals
Thinking About, Thinking About Central Banks … And Liquidity
Fed Policy Pivot: Forerunner to Further Capitulation in the Great Game of Chicken?

FTC Under Lina Khan Is Armed with Shrewd Regulatory Arsenal Against Anti-Competitive M&A Deals

By Suhas Reddy

The Federal Trust Commission (FTC) and Department of Justice (DoJ) issued new guidelines for mergers and acquisitions addressing modern market realities.
Guidelines are aimed at preventing large corporations in highly concentrated markets from acquiring current and/or potential competitors with a view to monopolising their industries.
The new guidelines give regulators better ammunition to scrutinise vertical and cross mergers, giving them much needed “teeth” to challenge “clever” M&A transactions.

Thinking About, Thinking About Central Banks … And Liquidity

By Michael J. Howell

Global Liquidity cycle is rising and set to hit a peak sometime around late-2025. This is bullish for risk assets
The timing of the recovery from October 2022 aligns with past cycles, but its scale is far less. Things need to speed up.
The US Fed has been a key culprit in keeping liquidity conditions too tight for too long. 2024 will see a significant ease from US policy-makers

Fed Policy Pivot: Forerunner to Further Capitulation in the Great Game of Chicken?

By Said Desaque

The faster-than-expected decline in inflation in 2023 has forced the Fed to lower real interest rates next year, partly due its assessment of the neutral level remaining unchanged at 0.5%.
History suggests that Fed policy pivots followed by a rapid succession of interest rate reductions have not prevented recessions. US equity and bond investors are still embracing a soft-landing outcome.
By capitulating to the demands of financial markets to pivot its policy stance, the Fed faces the risk of encountering more pressure to ease further at a later juncture.

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Dec 23

Daily Brief Macro: Portfolio Watch – 2023 in hindsight and more

In today’s briefing:

Portfolio Watch – 2023 in hindsight
NEW EU FISCAL RULES – Victory for the Expansionists or the Prudentials?

Portfolio Watch – 2023 in hindsight