Macro

In today’s briefing:

EM by EM #24 Tightening the noose on EM
Oil Watch: The EIA plot thickens
Steno Signals #68: There is NOT enough buyers for bonds amidst all this
Macro Nugget: How do markets react to turmoil in Gaza/Israel?
The Week That Was in ASEAN@Smartkarma – Filters, Barito Renewables, and Vertex Technology SPAC.
Portfolio Watch: No Quarter and No Surrender
Positioning Watch: Who is caught in the Crossfire?
German Labor Nugget: Will the Ukrainians play a role in German wage development?
Great Game – What comes next for Hamas and Israel?
China Property: Golden Week – Early Data Suggests Weaker New Home Sales

EM by EM #24 Tightening the noose on EM

This week’s standout story has undeniably been the startling EIA report from the US.
Unless we receive a substantial revision or information that undermines the bleak picture -the unfortunate reality is probably that US consumers are, regrettably, capitulating.
If this proves to be true, it aligns with the somewhat disheartening credit card spending data from BofA, as well as the diminishing excess savings and eroding real disposable incomes

Oil Watch: The EIA plot thickens

The EIA report moved oil markets markedly yesterday and the sell-off has continued today.
If the EIA report is indeed a true reflection of the slide in the retail gasoline demand, it may shave off >1mn barrels a day in global demand for oil.
The BIG issue for the EIA report is that it is 100% out of sync with high frequent transportation data, so what do we make of it here?

Steno Signals #68: There is NOT enough buyers for bonds amidst all this

A deal between the US/Israel and Saudi Arabia seems off the table after this weekend
Oil markets are physically tight still, but there are some signs of cracks in demand
Nat gas markets have started to rally, which is another issue for EUR, GBP and JPY markets

Macro Nugget: How do markets react to turmoil in Gaza/Israel?

We have taken a look at the data over the course of the last five stand-offs between Israel and Hamas/Palestine on the back of the atrocious scenes unfolding in the region over the course of the weekend.
We hope and pray for a peaceful outcome and send our thoughts and prayers to hostages and impacted civilians.
We consider an escalation involving Iran to be the biggest market risk right now and will release our geopolitical analysis shortly.

The Week That Was in ASEAN@Smartkarma – Filters, Barito Renewables, and Vertex Technology SPAC.

By Angus Mackintosh

The past week saw insights published onn Selamat Sempurna (SMSM IJ), Barito Renewables, Boustead Plantations (BPLANT MK), and Vertex Technology Acquisition Corporation (VTAC SP). and UOB (UOB SP).
There were also insights in the 3Q2023 performance in Singapore, as well as a look at Singapore’s monthly balance sheet, and a credit insight looking at Medco Energi (MEDC IJ).
The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

Portfolio Watch: No Quarter and No Surrender

We’re here again for our weekly Portfolio Watch, and I must admit, it’s been a rather challenging week.
We found ourselves on the wrong side of the equity spread between CRAK and IYT. It’s ironic, really, as we initially thought the main risk was being fashionably late to the party.
Alas, it was the crack spreads that unexpectedly threw us off balance.

Positioning Watch: Who is caught in the Crossfire?

Welcome back to our weekly positioning watch, where we run through interest positioning insights/data collected throughout the week.
As we put pen to paper, history is unfolding in Israel, with plenty of shocking footage circulating online.
With Netanyahu declaring war and a growing mobilization, it appears that the worst of the bloodshed may be yet to come.

German Labor Nugget: Will the Ukrainians play a role in German wage development?

With the Alternative Für Deutschland (AfD) on the rise in regional elections in Bayern (Bavaria) and Hesse, we have decided to look at the economic ramifications of a continued large influx of migrants in Germany.
What are the lessons learned from 2015 and will migration again impact German wages?
Take aways: Germany taking more Ukrainian immigrants than its peers.

Great Game – What comes next for Hamas and Israel?

By Mikkel Rosenvold

Welcome to a quick rundown of what’s what in the Hamas-Israel war that we’re all watching these days.
We will be releasing a bunch of macro analyses on both commodities and other areas, so in this space we’ll stick with the geopolitical analysis.
Here’s my main takeaways:1973 all over again?

China Property: Golden Week – Early Data Suggests Weaker New Home Sales

By Robert Ciemniak

Early indications for the Golden Week suggest new home sales in the 18 major cities (with consistent data we track) deteriorated further on multiple metrics
There might be some data distortions due to delays in reporting over the holiday
For the full picture, we would wait another 1-2 weeks and look at the Golden Week and 1-2 weeks surrounding it

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Oct 09

Daily Brief Macro: Global Monetary Policy Outlook: Bracing for an Asymmetric Policy Rate Path and more

In today’s briefing:

Global Monetary Policy Outlook: Bracing for an Asymmetric Policy Rate Path
The Outside-The-Box Way to Play A Relief Rally
Term Premium and Real Rates: Drivers of Risk Appetite
The Hoo-Ha in the Bond Market

Global Monetary Policy Outlook: Bracing for an Asymmetric Policy Rate Path

By Said Desaque

Monetary policy conduct in Western economies is still dominated by inflation considerations, particularly tight labour markets. Strong demand for services makes it difficult for central banks to lower policy rates.
Tight labour markets are no longer regarded by central banks as being compatible with price stability. Labour hoarding will slow disinflation, making it more difficult to quickly reduce policy rates.
Central banks are reviewing their estimates of their neutral policy rates due to the different inflationary backdrop. Various factors suggest that higher neutral policy rates for a considerable period.

The Outside-The-Box Way to Play A Relief Rally

The stock market is oversold, washed out and poised for a FOMO relief rally.
Our review of sector relative performance leads us to believe that the leadership in a rebound will be led by the cyclically sensitive materials stocks.
In particular, gold and gold stocks have defied their inverse correlation to USD strength and could be strong beneficiaries under a relief rally scenario.

Term Premium and Real Rates: Drivers of Risk Appetite

The financial markets have taken a risk-off tone as bond yields rose against a backdrop of better news on inflation and employment, and expectations that the Fed has finished hiking.
If the nominal Fed Funds rate stays steady and inflation falls, this will induce higher real rates, excessively tight monetary conditions and eventually a pivot toward easing.
We believe the market is at or near the point of maximum pain and investors should be prepared for a FOMO scramble for bonds and risky assets.

The Hoo-Ha in the Bond Market

By Thomas Lam

The upward spike in Treasury yields, particularly at the longer-end, has introduced market anxieties lately
But the recent jump in the 10-year yield, unlike earlier periods, seems to be influenced by the unobserved term premium component
I introduce my long-maturity term premium estimate, attempt to tease out statistical relationships and conjecture on the potential rate path

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Oct 08

Daily Brief Macro: The Weekly Market Monitor – Real Rates = Growth Scare? and more

In today’s briefing:

The Weekly Market Monitor – Real Rates = Growth Scare?

The Weekly Market Monitor – Real Rates = Growth Scare?

This week, we show why the economy is in the final innings of this economic cycle. The only macro-indicator that stubbornly refuses to acknowledge this is the US labor market.
Real yields are bad for Equities and good for Bonds, but gold is the unlikely asset class that really thrives when real rates spike above 2%.
We update our scary valuation chart, revealing a monstrous gap between yields and stock market valuation, and look at Bitcoin positioning, our Fear & Frenzy Sentiment Index, and much more.

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Oct 06

Daily Brief Macro: Asia Economics: Where Do Asian Currencies Go as Fed Rate Hikes Cease? and more

In today’s briefing:

Asia Economics: Where Do Asian Currencies Go as Fed Rate Hikes Cease?
Real Rates Above 2%? Buy Bonds and Sell Equities
Recession Nugget: 4 Charts for the Equity Bears, 1 Chart for the Bulls!
Macro Regime Model: Inflation down while growth is on the up?

Asia Economics: Where Do Asian Currencies Go as Fed Rate Hikes Cease?

By Manu Bhaskaran

The short-term outlook for Asian currencies is moderately positive as the US Fed signals an end to its hiking campaign. Economic conditions in major markets support this view.
Trade-Reliant economies, particularly those depending on semiconductor exports, have seen their currencies endure larger setbacks. A tentative recovery in trade may provide an upside
While policy uncertainty and investor risk aversion are headwinds, metrics of currency resilience remain broadly healthy across selected Asian markets.

Real Rates Above 2%? Buy Bonds and Sell Equities

Using a relatively short data sample, we show that buying bonds when the US 10-year real yield rises above 2% has been an attractive strategy.
Equities underperformed their long-term average once the real yield hit this critical level.
Moreover, the Federal Reserve Target Rate and the real yield tended to drop once the latter crossed the 2% threshold.

Recession Nugget: 4 Charts for the Equity Bears, 1 Chart for the Bulls!

Takeaways: Yield curve looks prone to make equities puke. Real economic data looks weak as well. Jobs still strong lending support.
Let’s start by honing in on the historic perspective of the recent moves in the yield curve.
Equity longs are already getting a taste of the curve medicine with SPX down some 6% in a month with long-end yields up more than 15%.

Macro Regime Model: Inflation down while growth is on the up?

Every month, we present our best evaluation of the present and approaching month’s macroeconomic conditions, balancing risks and rewards.
We put to use our Macro Regime Indicator framework, alongside the interactive Structural Asset Allocation Model, to carry out this analysis.
Coming into September, we wrote that: “Looking ahead, we do not expect sudden shocks or changes to the current conditions.

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Oct 05

Daily Brief Macro: Navigating Rocky & Volatile October After a Crushing September in US Equities and more

In today’s briefing:

Navigating Rocky & Volatile October After a Crushing September in US Equities
Taiwan: New Political Forces in the Presidential Poll
5 Things We Watch – Manufacturing, Natural Gas, JOLTS, BoJ & China
China Watch – Foreign Direct Investment & Capital Controls
Changing Dynamics of the Soybean Crush
Oil Watch: OUCH!

Navigating Rocky & Volatile October After a Crushing September in US Equities

By Srinidhi Raghavendra

September Effect refers to a month when equity returns gets crushed. The September Effect is followed by the sharpest month of volatility in October.
Does the September effect prevail in the current millennium? Since start of 2000, September indeed is the worst month for S&P 500 stocks with average returns of -1.8%.
History points to a positive upward bias during last 3 months. Q4 outlook this time is beset with head winds. Danger lurks in many places.

Taiwan: New Political Forces in the Presidential Poll

By Manu Bhaskaran

While the DPP’s Lai remains the frontrunner, voters are showing signs of discontent with the ruling DPP due to difficult economic conditions and domestic policy.
The strong showing of the TPP suggests that the electorate is receptive to its emphasis on bread-and-butter issues and its third-way approach to relationships with China.
Beijing will adopt a “wait and see” approach to avoid spooking Taiwanese voters. It may also recalibrate its strategy to account for the new political dynamics in Taiwan.

5 Things We Watch – Manufacturing, Natural Gas, JOLTS, BoJ & China

Happy Wednesday, and welcome back to our 5 Things We Watch, where we as always run through 5 interesting topics in global macro relevant for the current and near-term market actions.
We’ll as usual be short and concise, covering what has already happened this week, as well as what will happen next.
This week we are watching out for the following 5 topics within global macro: Manufacturing, Natural Gas, JOLTS, BoJ, China

China Watch – Foreign Direct Investment & Capital Controls

Welcome back to another piece on the ongoing turmoil in China, which seems to have slipped headlines over the last weeks as USDCNY has stabilized around the 7.30 level, which seems to be the line in the sand for now.
Xi and PBoC currently stand in a big dilemma, as a weaker exchange rate incentivizes domestic capital flights from CNY to USD amidst a domestic consumption crisis and real estate hovering at recessionary levels.
To cope with capital flights, PBoC controls imports and exports of various commodities on the domestic market, forcing domestic banks and other players to keep their trading activity in CNY by strengthening the Yuan.

Changing Dynamics of the Soybean Crush

By Pranay Yadav

Soybeans are crushed into soy oil and soymeal. The crush represents the Gross Processing Margin of Soybean.
The crush has been increasingly affected by the price of soy oil compared to soymeal. Ample meal supply suppresses its prices.
Meanwhile, soy oil prices are buoyed by supply concerns in the US as it is increasingly used to produce biodiesel.

Oil Watch: OUCH!

It is no secret that we turned energy bullish early in the summer with pretty accurate timing and made a nice run based on being ahead of the crowd on the call.
We have kept various energy proxies alive in our portfolio and were stopped out of our Refiners spread earlier today due to a material sell-off on the back of the weekly EIA report.
The EIA report is usually not a >1-2 sigma market mover, but oh boy it moved markets today and we find very good reasons why when assessing the data.

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Oct 04

Daily Brief Macro: Great Game: McCarthy blinked first and more

In today’s briefing:

Great Game: McCarthy blinked first
The Energy Cable #40 – Time to follow crack spreads!

Great Game: McCarthy blinked first

By Mikkel Rosenvold

On a tension-filled Saturday, a mere three hours away from a government shutdown, the US Senate passed a continuing resolution ensuring the wheels of the US Government would continue turning for another 45 days.
Many expected a drawn-out standoff over GOP’s spending cuts or the border policies.
However, the final outcome was not only surprising but raised eyebrows on the GOP’s newfound focus.

The Energy Cable #40 – Time to follow crack spreads!

It’s once again time for us to give our weekly take on energy markets, as well as where to place your chips in the time to come.
The crude bull-case is seemingly running on fumes, but while Warren’s models are back on neutral, Andreas’ oil model is still signaling bullish price action for some time to come, and Steno Research’s gas model is now back in bullish territory, for those who want to stay in the energy-trade.
Cracks are forming in the oil market. More specifically, cracks spreads are plunging. Below, we plot the front month 3-2-1 crack spread traded on the NYMEX.

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Oct 03

Daily Brief Macro: Steno Signals #67 – 150bps Higher 10yr Yields and Parity up Next in EURUSD? and more

In today’s briefing:

Steno Signals #67 – 150bps Higher 10yr Yields and Parity up Next in EURUSD?
Testing Times Loom for US Treasury Market Functionality with Potential Global Consequences
FX Watch: The world needs a Riyadh accord more than a Plaza Accord 2.0
Positioning Watch – Oil Longs Are Not as Big as You Think
The Week That Was in ASEAN@Smartkarma – Sea Ltd & TikTok, Prodia, and Matahari Department Store

Steno Signals #67 – 150bps Higher 10yr Yields and Parity up Next in EURUSD?

There are good reasons to chant “Europe, Europe, Europe” on the golf course, but not in financial markets as Europe is once again tested by commodity developments.
Oil markets remain in the driver’s seat of everything in Global Macro and even if it already feels like this energy squeeze is old hat, we find a continued strong risk/reward in betting on higher energy prices.
Our “chart of the week” reveals that the paper-market volume behind this latest oil market rally is very low, leaving the fear of a stretched positioning relatively dampened, which will allow the undersupplied physical market to drive price action.

Testing Times Loom for US Treasury Market Functionality with Potential Global Consequences

By Said Desaque

The significant incursion into the US Treasury market by the Fed has imparted legacy issues that potentially undermine its functionality. Primary dealers’ capacity to undertake market-making has been impaired.
Hedge funds are playing a larger role in the distribution and provision of price information of Treasuries to other investors via the use of leverage in the repo market.
Significant dysfunctionality in the US Treasury market has adverse implications for global liquidity due to its influence on riskier segments of the capital structure, notably corporate bonds and equities.

FX Watch: The world needs a Riyadh accord more than a Plaza Accord 2.0

“I’ve said on many occasions that I think a market-determined value for the dollar is in America’s interest.
And I continue to feel that way.” Janet Yellen, October 2022Janet Yellen basically wrote off the possibility of a Plaza Accord 2.0 (coordinated action against a strong USD) in Q4-2022 when the energy crisis was at its peak with a strong USD against almost all peers.
The current situation looks mostly reminiscent of last year, why we struggle to see why the US authorities should alter their view.

Positioning Watch – Oil Longs Are Not as Big as You Think

Welcome back to our weekly positioning watch, where we run through interest positioning insights/data collected throughout the week.
It’s safe to say that energy is all everyone is talking about with the oil rally still going strong, but the trade might have more to give as positioning is not as exhausted as some people might tell you.
When you take into account the number of traders in the CFTC report, oil positioning is barely anything compared to history.

The Week That Was in ASEAN@Smartkarma – Sea Ltd & TikTok, Prodia, and Matahari Department Store

By Angus Mackintosh

The past week saw insights on Sea Ltd, Prodia, Kalbe Farma, Matahari Department Store, Mitra Keluarga, Delta Electronics Thailand and Pakuwon Jati.
There was also a macro insight into prospects for the Indonesian economy, a PCOMP rebalance, Singspore’s ESG appeal, Malaysian Banks, Singapore Tourism stocks, and TSH Resources (TSH MK).
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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Oct 02

Daily Brief Macro: Time to Reconsider the Equity Bull Case? and more

In today’s briefing:

Time to Reconsider the Equity Bull Case?
Comparing S&P 500 Today to the October Bottom
The Weekly Market Monitor – Immaculate Disinflation, Spiking Yields, and the Waiting Continues
Monitoring Global Central Bank Actions for Potential Clues

Time to Reconsider the Equity Bull Case?

We highlighted a long-term buy signal in late July and early August when the monthly MACD of the NYSE Composite turned positive.
Now that the MACD buy signal has reversed itself and turned negative again. Is it time to reconsider the equity bull case?
We interpret this to mean that the latest episode of market weakness as only corrective and not the start of a major bear market.

Comparing S&P 500 Today to the October Bottom

The recent downdraft in stock prices left many indicators in severely oversold territory.
How oversold? As oversold markets have been known to fall further.
We compare the current technical conditions to the market bottom of October 2022.

The Weekly Market Monitor – Immaculate Disinflation, Spiking Yields, and the Waiting Continues

Inflation Came down fast across Europe, yet bond yields continued to rally. We think markets are wrong on yields even though Italy and France have zero appetite to sustainably lower their budget deficits.
We discuss falling consumer sentiment and the increasing parallel between current macro-consumer conditions and Q4 2018 when retail sales tumbled. Are we in for a rerun?
Though not the mother of all stock market indices, several indices have dropped below their 200-day moving average, while the equally weighted S&P 500 Index has reversed all of this year’s gains.

Monitoring Global Central Bank Actions for Potential Clues

By Thomas Lam

Global central bank decisions and words have intended and unintended effects on the macro environment
It is important to synthesize the direction and dispersion of global central bank actions for potential clues
My global Central Bank Diffusion Indicator (gCBDI) offers a snapshot of the worldwide policy interest rate slant

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Sep 30

Daily Brief Macro: Nuclear Nugget: 3 Questions For The Nuclear Space and more

In today’s briefing:

Nuclear Nugget: 3 Questions For The Nuclear Space
EA: Disinflationary Gravity in Sep-23
Party like It’s 2018?
Portfolio Watch: The Last Gasp of a Dying Man?

Nuclear Nugget: 3 Questions For The Nuclear Space

Fun fact: In 2009 there were about 35.000 people employed in the nuclear industry in Germany, which at that time produced 135 TWh of electricity.
In 2016 there were 160.000 people employed in the German wind turbine industry which produced a total of 80 TWh of electricity.
Question 1: What is the overall supply and demand outlook?

EA: Disinflationary Gravity in Sep-23

By Phil Rush

EA inflation slowed by 0.9pp to 4.3% in Sep-23, 0.2pp beyond the Consensus expectation after they overcompensated for August’s upside. There was little news for us again.
Underlying inflationary pressures are running much closer to the target than last year, so broad base effects dragged core inflation down to 4.5%, 0.3pp under the consensus.
Another substantial drop in October will only be confirmed after the ECB’s 26 October decision, but recent weakness will likely keep its policy on hold then.

Party like It’s 2018?

Americans have much less appetite for spending money during the coming ‘holiday season’ than in July.
A parallel is building between current macro-consumer conditions and Q4 2018, when retail sales tumbled by what was then the biggest decline on record.
Spiking interest rates, falling consumer sentiment, a somewhat less resilient labor market, and depleted excess savings may accumulate in another sudden spending stop.

Portfolio Watch: The Last Gasp of a Dying Man?

Hello Everybody and welcome back to our weekly Portfolio Watch where we take the temperature on our Macro calls and provide our perspective on how they align with what we read in the tea leaves.
Highlights upfront:We’ve performed exceptionally well in an exceptionally challenging market over the past few weeks.
Our equity exposure is entirely in spreads, but we lean bearish on equities and the overall economy.

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Sep 29

Daily Brief Macro: China Property – First Signs Of Improvement In Some Cities (Weekly New Home Sales To Sep 24) and more

In today’s briefing:

China Property – First Signs Of Improvement In Some Cities (Weekly New Home Sales To Sep 24)
CRE Debt Watch: The initiator or magnifier of financial crises
EA Slowdown Exaggerated in Summers
CX Daily: WHO’s New China Rep Says Tighten Disease Surveillance
EM by EM #23 Playing the Least Dirty Laundry Vs the Dirtiest
Out of the Box #20: Gas and Steepeners Brought to You by Muftis and Tsars

China Property – First Signs Of Improvement In Some Cities (Weekly New Home Sales To Sep 24)

By Robert Ciemniak

Weekly new home sales for a group of 15 major cities to the week ending Sep 24, continue to show deterioration in aggregate (YTD y/y, 4-week y/y, 52-week y/y)
But some cities, including Beijing and Shanghai, saw a jump in new home sales reported for the last week (based on the underlying data from CREIS)
This is likely the first signs of impact from the latest policy easing measures that now start showing in the data

CRE Debt Watch: The initiator or magnifier of financial crises

Historically, commercial real estate firms have posed significant risks to the financial system because of funding vulnerabilities and their impact on the broader economy.
Issues in the CRE market have often initiated or magnified financial crises.
This is largely because the CRE sector, being debt-financed and closely tied to the financial system, is sensitive to financial cycles.

EA Slowdown Exaggerated in Summers

By Phil Rush

PMIs place the Euro area as the global epicentre of current weakness, which is as bad as last year. Similarity may not be a coincidence: the trough may be imminent.
2020’s crash appears to be polluting the seasonal adjustment of many datasets. The ESI fell less in lockdown and looks less distorted. Indeed, it has proven resilient recently.
Monetary policy should be more sensitive to unemployment and inflation. We still expect no more ECB rate hikes and a final 25bp step from the BoE in November.

CX Daily: WHO’s New China Rep Says Tighten Disease Surveillance

By Caixin Global

WHO /: WHO’s new China Rep says tighten disease surveillance, expand primary care to tackle outbreaks
Electric cars /: China could resolve EV row with EU by ‘price undertaking’ talks, ex-WTO chief say
Esports /: China wins first ever esports gold medal at Asian Games

EM by EM #23 Playing the Least Dirty Laundry Vs the Dirtiest

Lately, we’ve been quite outspoken regarding the imminent threat posed by the USD/Oil dynamics, which has the potential to unleash turmoil within the emerging markets sphere.
While we typically don’t shy away from challenging prevailing opinions, it appears that, in this specific context, our perspective is slowly becoming the consensus view (which, I might add, is more lucrative than the opposite order).
But perhaps it is worthwhile to question and assess the fundamental drivers behind the current predicament- and ask what does it take to turn things around?

Out of the Box #20: Gas and Steepeners Brought to You by Muftis and Tsars