Macro

In today’s briefing:

Japan: The End of Japanification as Rising Nominal GDP Spurs Virtuous Circles
CX Daily: China Q3 GDP Beats Market Estimates Amid Pickup in Consumption
State-Owned Companies Buy Back Shares to Boost Investor Confidence

Japan: The End of Japanification as Rising Nominal GDP Spurs Virtuous Circles

By Prasenjit K. Basu

Ending a quarter-century of stagnation, Japan’s nominal GDP rose 3.04% in the year to Jun’23, with per capita nominal GDP up 3.51% and per capita real GDP 1.91%.
With the decisive defeat of deflation, core CPI inflation was 2.8%YoY in Aug’23, enabling 21 consecutive months of YoY wage growth. The fiscal deficit likely declines to 3.5% of GDP.
Rebounding exports will restore a trade surplus this quarter, bolstering the current account surplus to 2.7% of GDP this year and 3.3% next. Stay overweight Japan.

CX Daily: China Q3 GDP Beats Market Estimates Amid Pickup in Consumption

GDP /: China Q3 GDP beats market estimates amid pickup in consumption
Belt and Road Initiative /: Xi vows to further open up China at Belt and Road Forum
Buybacks /: State-owned companies buy back shares to boost investor confidence

State-Owned Companies Buy Back Shares to Boost Investor Confidence

About 50 Chinese state-owned companies are trying to bolster investor confidence by rolling out share buybacks or plans by big stockholders to expand their holdings after a series of other measures to prop up the stock market fell short.
China’s benchmark CSI 300 Index has dropped more than 6% this year, despite supportive government policies that included halving the stamp duty on stock trades and lowering the minimum ratio for stock purchases through margin financing in August.
The index gained 0.35% Tuesday.

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Oct 19

Daily Brief Macro: EA: Inflation Nearing Local Trough and more

In today’s briefing:

EA: Inflation Nearing Local Trough
UK: Hawkish Service Resumes
5 Things We Watch: BoJ, JPY & CNY, Monetary trends, UST selloff & Biden’s visit in Israel
CX Daily: Putin and U.N. Chief to Speak at Belt and Road Forum
Japan Watch: Time to care about the BoJ again!

EA: Inflation Nearing Local Trough

The final EA HICP inflation print confirmed the flash of 4.34% despite upward revisions in France, Spain and (marginally) Germany. Italy provided some offsetting downside.
Base effects are set to allow another disinflationary drop in October, with Italy’s energy utility prices driving this move. Unfortunately, inflation should rise again in the winter.
Underlying inflation measures should continue slowing in a relatively stable trend. The median impulse remains above target but is reassuringly in the right ballpark.

UK: Hawkish Service Resumes

UK inflation surprised again in September, this time on the upside, as the CPI rate stayed at 6.7%. It reverses the previous downside news, renewing hawkish pressures.
A resurgence in the underlying inflationary impulse is consistent with inflation settling at about double the target amid broad-based excesses, including among services.
The BoE MPC decision was finely balanced in September. Hawkish news since then supports our call for a Nov hike. A potential UR fall would help firm the balance.

5 Things We Watch: BoJ, JPY & CNY, Monetary trends, UST selloff & Biden’s visit in Israel

Loads of moves to address but we’ve condensed our scope for you to catch up on the handful we dedicate marked attention
BoJ inflation forecast and presumed policy-change. Mounting pressure on the CNY (and CNY).
Monetary trends in USD and EUR. The continued selloff in US Treasuries. Biden’s trip to Israel.

CX Daily: Putin and U.N. Chief to Speak at Belt and Road Forum

Belt and Road Initiative /: Putin and U.N. chief to speak at Belt and Road Forum
Esports /Analysis: What it will take for esports to go mainstream in China
Funds /Chart of the Day: China’s mutual fund liquidations set to hit five-year high

Japan Watch: Time to care about the BoJ again!

Yesterday, Reuters wrote an article with a few sources hinting at another increase in the inflation forecast profile of the BoJ at the meeting concluding Oct 31.
If this was not a deliberate trial balloon to try and push USDJPY lower from the 150 mark (we doubt that), then we ought to take this message seriously.
The decision to increase the inflation forecast again is essentially a no-brainer conclusion given how firm inflation has been relative to forecasts, but the big question is whether it matters for the policy decision?

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Oct 18

Daily Brief Macro: Yield Curve Steepening: Positioning Across the Curve and more

In today’s briefing:

Yield Curve Steepening: Positioning Across the Curve
Make or Break? A Close Examination of Company Earnings as We Head into Q3 Earnings Season
The Great Game – Polish Election Shocker
The Energy Cable #42 – Quiet Self-Gratulation and Then onto Natural Gas and Crude Oil
CX Daily: Hamas Attack on Israel Reignites Region’s Cycle of Violence
UK: Delayed Jobless Data May Shock
Money Watch: Monetary trends scream >2% inflation still (in the US)

Yield Curve Steepening: Positioning Across the Curve

By Pranay Yadav

Treasury yields have surged over the past 3 months and reached their highest level since 2007 amid a historic bond selloff.
Longer-Duration yields have outperformed in the recent rally due to the effects of higher term premiums.
Higher yields contribute to tightening of financial conditions, making further rate hikes by the Fed less important.

Make or Break? A Close Examination of Company Earnings as We Head into Q3 Earnings Season

All our forward-looking EPS indicators have shown improvement over the past few months. Nevertheless, our aggregated bellwether EPS indicator points to negative earnings growth, while investors anticipate the opposite.
Developed Market earnings per share are well above the long-term trend. One must make a compelling case for earnings to structurally grow faster to sustain this trend.
Big Tech’s earnings superiority has vanished. With a significant concentration of expensive stocks in Big Tech, earnings expectations must be exceptionally (perhaps unreasonably) high.

The Great Game – Polish Election Shocker

By Mikkel Rosenvold

Welcome to this week’s Great Game – your weekly geo-political overview.
This time around, we will cover a couple of current issues:Polish Election ShockerEurope was shocked when the first exit polls from the Polish parliamentary election hit the news on Sunday.
Everybody expected the PiS party to be the biggest party and in a position to form a comfortable coalition government, but the Polish electorate wanted differently.

The Energy Cable #42 – Quiet Self-Gratulation and Then onto Natural Gas and Crude Oil

By Ulrik Simmelholt

Horrid scenes and continued unrest in the Middle East with major oil producing nations perhaps getting involved.
What are the probable implications for oil, and how about natural gas given the winter ahead and Europe’s dependence?
Take aways: Things are setting up for explosiveness in European gas marketsMBS plays a key role with regards to the direction of oilBefore we dig in to our analysis, we would like to turn the reader’s attention to our energy cable from last week, where we questioned the drop in implied gasoline demand in the US and provocatively asked ourselves what the New Yorkers were using as fuel if not gasoline.

CX Daily: Hamas Attack on Israel Reignites Region’s Cycle of Violence

Israel-Palestine /Cover Story: Hamas attack on Israel reignites region’s cycle of violence
Fraud /: Hong Kong takes aim at banking fraud as complaints surge
Securities /: China tightens rules for short selling to prop up stocks

UK: Delayed Jobless Data May Shock

The ONS postponed its UK labour market data by a week to provide time for better estimates amid low response rates, although the response trend is not a surprise.
Residual seasonality may have caused the unemployment rate to round down in August, encouraging the ONS to wait for more confirmation before dropping that bombshell.
Wage growth slowed slightly while bonuses dropped to a normalised share. The BoE discounted their height in September, so CPI and postponed UR releases matter more.

Money Watch: Monetary trends scream >2% inflation still (in the US)

Being away from the desk for a few days allows me to take a step back and ponder about some of the biggies in global macro.
I have spent the first few evenings in Spain investigating the intriguing differences between Europe and the US in monetary terms.
Conclusions up front:USD monetary trends keep outpacing EUR peers, leaving a stickier inflation picture ahead in the US.

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Oct 17

Daily Brief Macro: Steno Signals #69 – The recession playbook and more

In today’s briefing:

Steno Signals #69 – The recession playbook
Positioning Watch: Seeking Shelter in the Fog of War
The Week That Was in ASEAN@Smartkarma – GoTo Initiatives, Ramayana Lestari, and Indonesia Strategy.
Macro Nugget: Is the UK Prepared for the Winter?
Labor Watch – Running through the anomalies in the labor market

Steno Signals #69 – The recession playbook

We have now formalized our recession call for Q1-2024 (in the US) as we have patiently waited all year and called for better than feared performance in the US economy.
Interestingly, we see a diverging path for Manufacturing and Services ahead short-term, which will likely wrongfoot many economists and traders.
Manufacturing is currently restocking, while services are on the decline.

Positioning Watch: Seeking Shelter in the Fog of War

Chinese stimulus, US CPI, and Gaza Bombardment now likely turning into a land invasion.
Plenty of events to digest in the scope of one week! Which of course leaves us with the question we attempt to answer every Saturday: How are markets positioned?
But before diving into that, we think it prudent to act with some context to the nature of the situation that markets have to digest

The Week That Was in ASEAN@Smartkarma – GoTo Initiatives, Ramayana Lestari, and Indonesia Strategy.

By Angus Mackintosh

The past week saw insights on GoTo Gojek Tokopedia (GOTO IJ), Ramayana Lestari Sentosa (RALS IJ), Pakuwon Jati (PWON IJ), CP FOODS (CPF TB), and Thai Credit Bank IPO.
The was also a strategy piece on Indonesia as the pre-election jostling heats up and a macro insight on Thailand after the new PM’s maiden policy speech, which was underwhelming.
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.

Macro Nugget: Is the UK Prepared for the Winter?

We have recently witnessed a minor surprise in both Swedish and US inflation rates.
With the UK next in line, it seems appropriate to take a brief look at the state of the UK economy.
To put it bluntly, there’s no easy way to spin it—things are looking rather bleak.

Labor Watch – Running through the anomalies in the labor market

The last NFP report caught markets’ attention with payroll data beating expectations massively on the upside, shuffling Fed pricing and showcasing a labor market that is far from done.
The labor market is not exactly the easiest part of the economy to grasp, as you need to aggregate multiple different surveys and data points from different sources, which sometimes can diverge greatly from each other, leaving us with the job of pointing out the correct data from the other.
We’ll try our best to do that today.

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Oct 16

Daily Brief Macro: Indonesian Strategy – Election Race Hots Up Amidst Profits Recovery and more

In today’s briefing:

Indonesian Strategy – Election Race Hots Up Amidst Profits Recovery
3 Reasons Why Stocks Should Rally Into Year-End
The Term Premium Red Herring
US Financial Markets Face Headwinds Due to Rising Term Premium in US Treasuries
Portfolio Watch: The Art of Resisting Panic
Probing the Evolving Inflation Debate
Rates Watch: Are we all still chasing that cutting cycle too early?

Indonesian Strategy – Election Race Hots Up Amidst Profits Recovery

By Angus Mackintosh

Indonesia’s election race is about to begin with the Presidential candidates announcing running mates on 26th October and with campaigns that could boost consumer demand.
The Indonesian economy should see GDP growth above 5% in 2023 and 2024, with inflation already under control at 2.28% in September. FDI remains positive although may slow before elections.
We explore the prospects for different sectors with a positive view on banks, retail, consumer staples, property, and Astra International as a market proxy, with some opportunities in tech.

3 Reasons Why Stocks Should Rally Into Year-End

By Cam Hui

The financial markets are recovering from a very oversold condition and extreme positioning. The recovery has already sparked a minor risk-on rebound.
The rally should continue owing to supportive market structure, positive risk appetite, and supportive sentiment.
Bullish momentum should continue to spark a FOMO stampede for risk into year-end.

The Term Premium Red Herring

By Cam Hui

The turnaround from the recent bond market tantrum was mainly attributable to excessive bearishness rather than to fundamental factors.
Bearish sentiment was also evident in the equity market. S&P 500 breadth, as measured by the percentage of stocks above their 50 dma, fell below 10% in the recent sell-off.
Recent episodes of similar breadth wipeouts saw the stocks rally until this indicator reached at least 80%, indicating further upside in the coming weeks

US Financial Markets Face Headwinds Due to Rising Term Premium in US Treasuries

By Said Desaque

Strong US labour demand suggests Fed tightening has been insufficient to restore price stability. Uncertainty about the US economic policy outlook has produced a rising term premium for US Treasuries.
The falling term premium on US Treasuries after the global financial crisis boosted liquidity in the riskier segments of the capital structure, while any reversion will have adverse implications.
Fears of profligate fiscal policy conduct can boost the term premium, a fear which has arguably raised longer-term Treasury yields in recent weeks along with Fed policy conduct fears.

Portfolio Watch: The Art of Resisting Panic

The world has seen significant changes since the last release of Portfolio Watch, marked by the tragic events in the Middle East.
To add some context, it is perhaps helpful to refresh the six key takeaways before the Hamas incursion into Israel on Saturday.
1) We are on the sideline on Bonds but it is starting to look juicy 2) Yield curve steepener is good risk reward 3) We’re bearish on equities 4) We don’t wanna bet against the USD 5) Credit spreads are bound to widen 6) We think banks are starting to look detached from fundamentals

Probing the Evolving Inflation Debate

By Thomas Lam

The debate will become increasingly more complicated as actual inflation continues to exceed the Fed’s goal
Hence, it is useful to go beyond the routine analysis of the raw data to extract additional inflation markers and indicators
My longer-term inflation outlook will be informed by my ongoing scrutiny of the incoming data via the lens of the unique markers and indicators

Rates Watch: Are we all still chasing that cutting cycle too early?

In light of the firmer than expected CPI report from the US, we have re-visited our curve views across major currencies.
We find the following to be decent risk/rewards:USD-EUR spreads can widen further due to diverging inflation outlooks.
We see value in March-2024 spreads.

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Oct 15

Daily Brief Macro: Global Liquidity: Looking Towards 2024 and more

In today’s briefing:

Global Liquidity: Looking Towards 2024
The Weekly Market Monitor – Bad Inflation + Bad Sentiment = Bad Bounce?

Global Liquidity: Looking Towards 2024

By Michael J. Howell

Global Liquidity Cycle hit a low in September 2022. It has been rising slowly since and looks set to hit a peak around 2026. Risk assets should get greater support
Yet the large ‘carry’ on government bonds and the recent sell-off persuades us to allocate towards fixed income for the first time in two years
There are risks. With coupon issuance is set to soar, Central Banks will be increasingly asked to finance monetary inflation

The Weekly Market Monitor – Bad Inflation + Bad Sentiment = Bad Bounce?

Contrary to many other Sentiment Indicators – which we don’t really understand – our Fear & Frenzy Sentiment Index has moved into ‘Frenzy.’
China is considering launching a state-backed stabilization fund to boost the Chinese stock market. We show what happened the last time China came up with a similar move.
Even though headline and core inflation were close to expectations, the underlying data signals trouble. Powell’s favorite CPI measure, SuperCore inflation, rose 7.6% on an annualized basis in September.

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Oct 14

Daily Brief Macro: EM by EM #25 Lighting the fuse in the Middle East? and more

In today’s briefing:

EM by EM #25 Lighting the fuse in the Middle East?
Credit Growth Is Screaming Recession, but Equities Think Otherwise

EM by EM #25 Lighting the fuse in the Middle East?

Printing Oil instead of borrowing USD is what separates EM’s right now- and the Saudi’s still have leverage
USDCNY & USDJPY could prove to be the bellwethers on the cycle and US Policy
The Geopolitical mess still rhymes well with higher credit risk premiums

Credit Growth Is Screaming Recession, but Equities Think Otherwise

Eurozone loan growth to businesses and households has evaporated, putting direct pressure on already meager GDP growth.
The Eurozone Credit Impulse has dropped ‘off the charts.’ Only during the Great Financial Crisis did the Eurozone Credit Impulse look worse.
Unfortunately, Eurozone stocks have already priced in a massive improvement in the Credit Impulse.

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Oct 13

Daily Brief Macro: Major Revisions of the Corporate Governance Report Guidelines in Korea: To Reduce “Korea Discount” and more

In today’s briefing:

Major Revisions of the Corporate Governance Report Guidelines in Korea: To Reduce “Korea Discount”
China’s Real Estate Market Gets Some Relief in September on Policy Changes
CPI Reaction Watch: Cementing a hike in November/December?
UK Data Changes Yet Stay The Same
CX Daily: Exclusive Interview: Lou Jiwei on Tackling a Greying China
OPEC & EIA nugget: A day of reckoning ahead for Oil

Major Revisions of the Corporate Governance Report Guidelines in Korea: To Reduce “Korea Discount”

By Douglas Kim

On 12 October, the Financial Services Commission (FSC) announced major Revisions of the Corporate Governance Report Guidelines, including improvement of dividend procedures and revisions of governance principles.
The major revisions of the Corporate Governance Report Guidelines in Korea should be catalysts for reducing “Korea Discount.”
These new Corporate Governance Report will recommend the KOSPI listed companies with assets of more than 500 billion won to comply with the new guidelines effective 2024.

China’s Real Estate Market Gets Some Relief in September on Policy Changes

Real estate sales in China increased in September from the previous month following efforts by some of the country’s biggest cities to spur homebuying.
Last month, new property sales by China’s 100 largest developers grew 17.9% from August to 404.3 billion yuan ($55.4 billion), following two straight month-on-month declines, according to data provided Saturday by consultancy China Real Estate Information Corp. (CRIC).
More than 60% of the developers reported month-on-month sales increases in September, with 29 registering jumps of more than 30%, the data showed.

CPI Reaction Watch: Cementing a hike in November/December?

September’s CPI numbers just dropped with a small surprise in the headline, coming in at 0.4% vs 0.3% expected (3.7% YoY vs 3.6% expected), while core is in line with analysts’ median forecast.
Headline rates stay on their disinflationary paths, and YoY rates are not accelerating due to base effects.
Energy and shelter – the 2 nightmares throughout 21/22 – are taking the headlines again, with shelter re-accelerating and energy inflation staying at levels too far from target despite sluggish demand signals coming from the EIA.

UK Data Changes Yet Stay The Same

Benchmark UK GDP revisions raised the level without changing trends, fiscal space, or public sector performance. Our Q3 GDP forecast rounds down to -0.1% q-o-q.
UK GDP data remain resilient relative to recent labour market data, while the EA is nearer the opposite. Residual seasonality appears to have corrupted both narratives.
The artificial depression in surveys and UK employment is at its seasonal worst. A reversal still underpins our contrarian hawkish November BoE call and Euro optimism.

CX Daily: Exclusive Interview: Lou Jiwei on Tackling a Greying China

Lou Jiwei /: Exclusive Interview: Lou Jiwei on tackling a greying China
Corruption /: Trending in China: ‘Lenient’ punishment of corrupt retired official sparks anger
XPeng /: XPeng suspends supply chain chief in internal graft crackdown

OPEC & EIA nugget: A day of reckoning ahead for Oil

The weekly EIA data is out at 11.00 am ET after last week’s data sparked a massive sell-off in oil markets.
The implied Gasoline demand dropped 12-13% also in seasonally adjusted terms after a cocktail of decreased production and increased inventories of retail gasoline.
The actual road congestion is up >5% since the early parts of October, meaning that demand is likely up (at least) as much before considering the technicalities of the EIA report that could have led to a flawed low number.

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Oct 12

Daily Brief Macro: The Corporate Interest Burden – It’s All About Earnings! and more

In today’s briefing:

The Corporate Interest Burden – It’s All About Earnings!
5 Things We Watch: Recession, Gasoline, Temperatures, Geopolitics and Portfolio
CPI watch: 6 charts on a soft’ish inflation report

The Corporate Interest Burden – It’s All About Earnings!

Although high interest rates may not immediately lead to debt servicing issues for companies, each month that elevated yields prevail will significantly impact the ratio between profits and debt servicing.
The good news is that the maturity wall, the ‘timetable’ for debt refinancing, is unlikely to cause much volatility.
However, companies must continue generating enough income to cover the (higher) interest payments. But our bellwether earnings indicator points to a significant drop in profits in the coming quarters.

5 Things We Watch: Recession, Gasoline, Temperatures, Geopolitics and Portfolio

By Ulrik Simmelholt

This week we are watching out for the following 5 topics within global macro: Recession, Gasoline, Temperatures, Geopolitics, Portfolio
As we start to see recessionary signs pop up in the US economy we’ll outline our recession playbook.
As we have talked about before we see manufacturing continuing its rebound into Q4 due to restocking.

CPI watch: 6 charts on a soft’ish inflation report

The CPI report is like to surprise on the dovish side. Especially used cars and transportation services will surprise on the low side.
The Fed is very uncommitted to hiking rates here. The USD story could take a short-term beating on a weak CPI
The US inflation report in August turned out to be “hot” due to sharp increases in gasoline -and diesel retail prices, as we anticipated.

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Oct 11

Daily Brief Macro: Regional Geopolitics: The Middle East in Crisis and Its Implications for Asia and more

In today’s briefing:

Regional Geopolitics: The Middle East in Crisis and Its Implications for Asia
Thailand Economics: “Fresh” Policy Agenda Leaves Much to Be Desired
Risk Strikes When Least Expected. How Risk-Resistant Is Your Portfolio?
Recession Playbook: Here is how we think the recession will pan out
Macro Nugget: Fluctuations and the Perception of Gravity
The Energy Cable #41: There is something rotten in the state of EIA

Regional Geopolitics: The Middle East in Crisis and Its Implications for Asia

By Manu Bhaskaran

The ongoing Israel-Hamas conflict will be a critical turning point for the Middle East, but its economic impact on Asia is likely to be limited, unlike in 1973.
The key consideration for Asia is how the events may alter the foreign policy calculus in Washington, including implications for the US’ security guarantees in the Asia Pacific.
There may be domestic spillovers in regional politics. Inflamed religious sentiment may affect the political dynamics in countries such as Indonesia and Malaysia.

Thailand Economics: “Fresh” Policy Agenda Leaves Much to Be Desired

By Manu Bhaskaran

Thai premier Srettha’s inaugural policy speech to parliament is heavy on short-term stimulus measures, including a vow to freeze VAT and digital cash handouts.
Structural economic reforms are not forthcoming. While openness to free trade is welcome, there is little to address talent shortages and regulatory uncertainty.
A toxic political economy is unlikely to be resolved given the configuration of the ruling coalition. There are economic consequences due to crony capitalism and monopolization.

Risk Strikes When Least Expected. How Risk-Resistant Is Your Portfolio?

By Srinidhi Raghavendra

Optimism peaks before a downturn. Risk strikes when you least expect it. Human brains are tricked by non-linearity of recessions.
Monetary policy transmission takes time, lulling many to falsely believe that consumers and corporates are resilient.
Despite raft of risk narratives, a soft landing may still be possible. But with myriad risk vectors playing out in parallel makes the chance of soft landing slim.

Recession Playbook: Here is how we think the recession will pan out

We have refrained from taking a decisive stance on the recession timing through the year and have generally had the view that recession risks (for the US economy) were overcooked by the economic consensus.
We are now starting to see stars aligning in our framework and expect the US recession to arrive in Q1-2024 with the final confirmation arriving early in Q2-2024.
Here is our recession playbook and how we see markets developing alongside it.

Macro Nugget: Fluctuations and the Perception of Gravity