Macro

In today’s briefing:

5 Things We Watch – EUR Inflation, Ifo Survey, Swedish CRE, Deposit Flights & Nuclear/Uranium
Indonesia: Next President Needs to Overcome Serial Economic Underperformance
CX Daily: Huawei Unveils New Products Boasting Self-Developed Chips

5 Things We Watch – EUR Inflation, Ifo Survey, Swedish CRE, Deposit Flights & Nuclear/Uranium

It’s Wednesday once again, and that calls for us to have a look at the 5 things in global macro that we are looking at to stay on top of markets and everything related.
Markets are as always having a hard time figuring out where the economy is heading, and some of the topics listed below will be of great importance to the future direction of all asset classes.
This week we are watching out for the following 5 topics within global macro: EUR Inflation, Ifo, CRE, Deposit flights, Nuclear.

Indonesia: Next President Needs to Overcome Serial Economic Underperformance

By Manu Bhaskaran

As Indonesia gears up for presidential elections, the political parties behind the three main candidates are in the last stages of bargaining before nominations close in October.
Voters are broadly satisfied with the status quo and are likely to vote for “continuity” candidates such as Ganjar or Prabowo. Whoever President Jokowi endorses will have an edge.
The next president will be responsible for ensuring that growth performance is on track for Indonesia’s high-income ambitions. Structural shortfalls make this a daunting task.

CX Daily: Huawei Unveils New Products Boasting Self-Developed Chips

By Caixin Global

Huawei /: Huawei unveils new products boasting self-developed chips
Bully / Trending in China: Case of ‘extreme’ bullying, sexual assault of a minor in school sparks public outrage
Corruption /: Investigator at China’s top graft buster turns himself in

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Sep 27

Daily Brief Macro: Global Liquidity Will Be Hit By Sell-Off in Treasuries and more

In today’s briefing:

Global Liquidity Will Be Hit By Sell-Off in Treasuries
USDJPY – An Opportunistic Currency Trade
The Great Game: Why Russia is Really Cutting Diesel Exports
EUR Inflation Watch: Another Couple of Months of EASY Disinflation on the Cards
FOMC Goldilocks Projections Overlook Fiscal Drag & Student Loan Repayments
The Energy Cable #39: A Maturing Bull Market

Global Liquidity Will Be Hit By Sell-Off in Treasuries

By Michael J. Howell

US Treasury term premia, a key component of yields, are starting to move higher from their recent extreme lows
Potentially they could jump 100bp higher, forcing 10yr US Treasuries to test 5½%. US Fed may be powerless to stop this move
Problem is higher Treasury coupon supply and lower foreign demand

USDJPY – An Opportunistic Currency Trade

As observed elsewhere, inflation in Japan is sticky and the country is importing a considerable amount of inflation due to its weakening currency.
While too early to tweak monetary policy again, to limit currency volatility as much as possible, hinting at a less accommodative policy now would be opportune.
The Japanese Finance Minister appears to be anticipating potential Yen intervention.

The Great Game: Why Russia is Really Cutting Diesel Exports

By Mikkel Rosenvold

Welcome to this week’s Great Game which follows in the footsteps of our overall energy and oil theme this week.
In this piece, we will dive into some of the hotspots and political drivers behind the developments in the oil markets, both short-term and long-term.
Tanks and ThreshersLast week, markets were stunned by the Russian decision to cut off exports of diesel, marine fuels and other fuels.

EUR Inflation Watch: Another Couple of Months of EASY Disinflation on the Cards

It’s time for the monthly preliminary inflation numbers from Europe again and we are yet to fear a YoY re-acceleration in European numbers.
Base effects are massive over the course of September and October, but there are signs of a cyclical pick-up in EUR-flation from late Q4 and onwards as well.
Conclusions up front:– Energy-inflation will bottom in November in Europe and goods inflation will likely follow– Services inflation will likely start to look very weak already this month, leaving a surprise in EUR-flation likely.

FOMC Goldilocks Projections Overlook Fiscal Drag & Student Loan Repayments

By Prasenjit K. Basu

FOMC’s median Goldilocks projections entail faster growth, lower inflation, but rates staying higher for longer. With the fiscal booster, real GDP is likely to grow over 4%QoQsaar in Q3CY23.
A 25bp hike on 1st Nov’23, coupled with fiscal retrenchment (as spending restraints kick in), and resumed student loan repayments eating into PCE, will cause an abrupt contraction in Q4CY23.
With USD set to stay strong (as ECB and BoE face less tightening pressure), net exports will be a drag too, and a short US recession will last into Q1CY24.

The Energy Cable #39: A Maturing Bull Market

By Ulrik Simmelholt

The oil market consensus is getting very uniform as everyone and their mother has figured out that there is an obvious supply deficit through Q4.
Is it time to switch focus in energy markets to better risk/rewards than long oil bets?
We take a look at oil, natural gas and uranium bets in this weeks Energy Cable newsletter.

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Sep 26

Daily Brief Macro: Global Equity Managers Trim EM Underweight and more

In today’s briefing:

Global Equity Managers Trim EM Underweight, but Remain Bearish
Macro Nugget: Why the price at the pump matters for inflation expectations
The Week That Was in ASEAN@Smartkarma – Bank Mandiri’s Livin’, BliBli’s Different, and AoT’s Rebound

Global Equity Managers Trim EM Underweight, but Remain Bearish

By Steven Holden

The heavy decline in EM allocations that started in early 2021 came to an end last October. Since then, a growing number of Global Equity funds are raising allocations.
Taiwan, China & HK, Mexico and Indonesia are at the heart of these moves, but all major countries are still held underweight, on average.
Stock exposures remain heavily skewed to the large caps, with 38% of the EM allocation in 6 key companies.

Macro Nugget: Why the price at the pump matters for inflation expectations

By Emil Moller

When oil prices increase, so does CPI by nothing else than through its direct influence on retail energy prices.
This effect holds true when assuming all other prices remain constant.
Naturally, we tend to anticipate that a surge in oil prices would ripple through to affect other prices by hiking up respective costs basis

The Week That Was in ASEAN@Smartkarma – Bank Mandiri’s Livin’, BliBli’s Different, and AoT’s Rebound

By Angus Mackintosh

The past week saw insights on Bank Mandiri, Global Digital Niaga (BELI IJ), Airports of Thailand (AOT TB), Bank Negara Indonesia (BBNI IJ), and Multi Bintang Indonesia (MLBI IJ).
There was also a macro insight on Singapore’s structural growth constraints plus additional insights on Barito Renewables IPO, Vinfast, GoTo, and DBS (DBS SP).
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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Sep 25

Daily Brief Macro: Is Stagflation in Our Future? and more

In today’s briefing:

Is Stagflation in Our Future?
BoJ Risks Major Credibility Test, While Fed and ECB Send Different Signals About Peak Rates
Has the VIX Lost Its Use As A Fear Gauge?
Positioning Watch: Higher for longer vs Lower for longer?
Steno Signals #66: Buckle up for the energy crisis 2.0
Taking a Stab at Monitoring the Macro Pulse of China

Is Stagflation in Our Future?

By Cam Hui

Stagflation is not our base-case scenario, but a review of market leadership shows that stagflation risk is rising and needs to be monitored carefully.
In addition, stagflation could be exacerbated by disgruntled electorates turning to populist governments, which have shown to depress economic growth.
Investors can hedge against a stagflation scenario with a barbell exposure to commodity producers, U.S. megacap growth stocks, and value and high-quality outside the U.S.

BoJ Risks Major Credibility Test, While Fed and ECB Send Different Signals About Peak Rates

By Said Desaque

The Bank of Japan’s (BoJ) credibility could be tested as it exits its negative interest rate policy (NIRP) and yield curve control (YCC) due to political pressure.
The European Central Bank strongly hinted that the peak in short-term interest rates may have been reached. Markets seem to be betting on a spring decline in Eurozone interest rates.
The latest Federal Open Market Committee’s (FOMC) meeting confirmed a higher for longer policy stance in 2024, although the FOMC will allegedly receive more dovish voting members.

Has the VIX Lost Its Use As A Fear Gauge?

By Cam Hui

In this era of increased 0DTE option trading, VXST is a more useful sentiment indicator, and readings are indicating a fear spike.
The S&P 500 has become sufficiently short-term oversold that a relief rally is imminent.
However, oversold markets can become more oversold and market internals could be supportive of one final sentiment flush before a durable bottom can be seen.

Positioning Watch: Higher for longer vs Lower for longer?

By Emil Moller

Hello everyone, and welcome back to our weekly weekend Positioning Watch.
The Central Bank bonanza week has come to a close, with only a few localized surprises in policy decisions.
It appears that only a handful of bold (or perhaps desperate) governors are willing to stand up to the market’s pressure these days.

Steno Signals #66: Buckle up for the energy crisis 2.0

Is there another major energy crisis in the making and how does it differ from the crisis in 2021/2022?
We have long held the view that the tightness in energy markets would lead global macro trends from one extreme to the other with relatively short 18-24 month cycles and here we are probably on the verge of another extreme again.
The impulse from input costs in necessities (read mainly energy costs) will dictate the cycle trends and after an outright landslide in input costs over the past 12 months, we are now edging higher fast again.

Taking a Stab at Monitoring the Macro Pulse of China

By Thomas Lam

While it is desirable to gain more insights on China, it is also crucial to view it through a differentiated lens
This is partly because of the country’s multifaceted policy environment and its complex relationship to overall economic activity
My approach is to harness the proprietary China Credit Impulse Measure (CIM) to extract statistical relationships and unearth macro clues

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Sep 24

Daily Brief Macro: The Weekly Market Monitor – Are Central Banks Finally Breaking Sentiment? and more

In today’s briefing:

The Weekly Market Monitor – Are Central Banks Finally Breaking Sentiment?

The Weekly Market Monitor – Are Central Banks Finally Breaking Sentiment?

Fed Chairman Powell delivered a very powerful statement this week on the need to retain price stability. As a result, investors are giving up their fight to think otherwise.
We focus on France’s horrible PMI data and explain how we may see a repetition of the US retail sales slump witnessed in December 2018.
With central bankers embracing the ‘higher for longer’ narrative, real yields will start to hurt.

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Sep 23

Daily Brief Macro: El Niño Enhances Soybean Yields Creating Deflationary Impact on Its Prices and more

In today’s briefing:

El Niño Enhances Soybean Yields Creating Deflationary Impact on Its Prices
Portfolio Watch: The wheels are coming off in Europe

El Niño Enhances Soybean Yields Creating Deflationary Impact on Its Prices

By Pranay Yadav

Soybean ranks as the most traded crop globally. It comprises 10% of the total value of global agriculture trade.
The Americas comprise >80% of total global production. China mops up ~60% of global imports and is primarily used to feed massive livestock.
Soybean is more prone to shocks from geopolitical disruptions. Weather also impacts Beans. El Niño favours Soybean yields.

Portfolio Watch: The wheels are coming off in Europe

Happy Friday and welcome to our weekly Portfolio Watch where we discuss trade ideas from a risk/reward perspective.
Conclusions up front:– The wheels are coming off in Europe, but the notion that Germany is the “sick man” is an old hat.
Southern Europe will be the next shoe to drop.

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Sep 22

Daily Brief Macro: Understanding Oil Price Shocks: What to Expect from Asset Class Returns? and more

In today’s briefing:

Understanding Oil Price Shocks: What to Expect from Asset Class Returns?
Japan Watch: How will Ueda cope with all of the “pauses”?
China’s Slow-Burning Financial Crisis Worsens Amid Persistent Overcapacity
China Housing – And The Sum Of All Tiers [Webinar Presentation Video]
Energy Watch: Time for Nat Gas to Outshine Oil?
EM by EM #22 The Good, the bad and the ugly
BoE: Fine Balance Falls Down

Understanding Oil Price Shocks: What to Expect from Asset Class Returns?

We examine asset class performance over 1, 2, 3, and 6 months after a 15%+ oil price increase in one month and a 25%+ spike in three months.
Historically, oil price shocks were not detrimental to stocks. Returns were positive for all periods after the shock. More importantly, returns were higher after oil shocks than the ‘normal’
Gold also outperformed, and interestingly, oil continued to spike, causing additional headaches for central banks. Mainly since spiking oil prices are indeed reflected in higher inflation.

Japan Watch: How will Ueda cope with all of the “pauses”?

The Japanese market is always puzzling for Western investors, even if they are seldom overly involved in it unless they borrow in JPY for FX carry trading.
Let’s take the conclusions up front:– The BoJ is en route for the largest-ever nominal purchase of JGBs in 2023 despite “policy normalization” efforts, which is a large discrepancy to the narrative that they are actually tightening.
They are NOT from a balance sheet perspective.

China’s Slow-Burning Financial Crisis Worsens Amid Persistent Overcapacity

By Prasenjit K. Basu

Persistent overcapacity in industry and real-estate has resulted in a spreading crisis among shadow-banks, as many of them begin defaulting on investment products (pseudo-deposits). Moral hazard rules out government rescues.
As global supply chains abandon China-centricity, exports continue losing global market share. But with domestic demand weak, the annualized trade surplus is US$900bn, much of it leaking as capital flight.
FAI is decelerating (adjusting to industrial capacity). Shrinking working age population requires productivity to be main driver of growth. Japanified decade ahead likely, but with RGDP growth settling at 3%.

China Housing – And The Sum Of All Tiers [Webinar Presentation Video]

By Robert Ciemniak

We hosted a Real Estate Foresight Webinar on Sep 20, with our latest take on China’s housing markets after the recent policy easing wave
Can we see the impact of the policy easing? How much of further stimulus to expect? What will be the ‘next normal’ for new home sales after the downturn?
A quick poll of the participants (experienced professionals in China property) showed a 100% consensus that more easing will be needed to trigger a rebound in new home sales

Energy Watch: Time for Nat Gas to Outshine Oil?

Back at the office after spending time with clients in the energy space with loads of discussions around the intersphere between Macro and energy markets.
The mood is obviously upbeat and the sell-side consensus is getting relatively crowded in calls for a higher oil price.
Where were these people 2-3 months ago?

EM by EM #22 The Good, the bad and the ugly

By Emil Moller

EM’s are desperate for a weaker USD and may see some brief yet necessary breathing room from the pending US Government Shutdown.
But don’t count on it making much of a difference.
A bottoming in China may present some relief to relevant trade partners

BoE: Fine Balance Falls Down

By Phil Rush

The BoE MPC’s September decision was thrown into doubt by the low CPI print. It divided 5:4 and erred on the side of no change, contrary to most expectations.
Weaker activity data gained emphasis while looking through surging average earnings data that it didn’t believe. Potential payback could easily turn this hold into a pause.
Four members already favour higher rates, and another four saw their no-change votes as finely balanced. So at least the HR hurdle to a November hike seems small.

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Sep 21

Daily Brief Macro: 5 Things We Watch – Fed and more

In today’s briefing:

5 Things We Watch – Fed, BoE, Energy, GDI/GDP & BoJ
CX Daily: China’s New Electricity Spot Market Rules Lay Groundwork for Unified Standard
Fed Nugget: Why the Fed dot plot will remain hawkish
UK: Flying Low in Augusts
CX Daily: China’s Trillion-Dollar Local Government ‘Hidden Debt’ Dilemma

5 Things We Watch – Fed, BoE, Energy, GDI/GDP & BoJ

It’s Central Bank bonanza once again, and that of course means that we will take you through the biggest central bank meetings and give you our take on them, as well as provide you with other observations of relevance for the time to come.
This week we are watching out for the following 5 topics within global macro: FOMC Meeting later today, BoE meeting tomorrow, Crude prices and the energy trade, the growing difference between GDI and GDP and BoJ
First it was a pause, then we got a hike and now it looks like we are back at pause with the market having priced in another 11 bps coming at the end of the year.

CX Daily: China’s New Electricity Spot Market Rules Lay Groundwork for Unified Standard

By Caixin Global

Analysis: China’s new electricity spot market rules lay groundwork for unified standard
Tornadoes / Tornadoes kill 10 in coastal Chinese province
Shenzhen looks to attract more Hong Kong, Macao visitors — and their cash

Fed Nugget: Why the Fed dot plot will remain hawkish

It is time for the FOMC meeting this afternoon/evening depending on your location and we see a high probability of the FOMC solidifying that another hike is coming in November or December, which is not the base case for markets currently (accumulative 11bps priced in for the rest of the year by the time of writing).
Let’s have a look at three simple chart studies on the developments in 1) Growth, 2) Inflation, and 3) Labour since the June dot plot that will be updated later.
Both Services and Manufacturing have clearly surprised the UPSIDE since the June meeting and all sell-side economists have been busy revising up growth forecasts.

UK: Flying Low in Augusts

By Phil Rush

UK inflation shocked expectations by falling to 6.7% on the CPI and 9.1% on the RPI. An unseasonable summer fall in airfares was partly to blame, but pressure broadly eased.
The underlying inflationary impulse was close to target for the first time in 2yrs. Some positive payback is likely in September, including in services inflation.
Prices are tracking under the BoE’s August MPR forecast, but wages are running hotter, which creates pressure later, so the BoE remains likely to hike in September.

CX Daily: China’s Trillion-Dollar Local Government ‘Hidden Debt’ Dilemma

By Caixin Global

In Depth: China’s trillion-dollar local government ‘hidden debt’ dilemma
Corporate America is losing optimism over China, AmCham survey shows
China expands use of digital yuan to covering utility bills

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Sep 20

Daily Brief Macro: Double Crosshairs Haunt Wheat; Geopolitics and El Niño Impacts Global Staple and more

In today’s briefing:

Double Crosshairs Haunt Wheat; Geopolitics and El Niño Impacts Global Staple
Asset Allocation Watch: Best not hope for cuts
The Latest IMF Study on Inflation Calls for Even More Rate Hikes!
Recession Nugget: What’s the deal with GDP and GDI
EA: Disinflation Not Petering Out
The Energy Cable #38: Time to switch exposures in Energy space?

Double Crosshairs Haunt Wheat; Geopolitics and El Niño Impacts Global Staple

By Pranay Yadav

Global wheat trade is imbalanced with few exporters and many importers. This means a few nations’ trade policies affect supply during shortages as they restrict exports to prioritize domestic needs.
El Niño generally causes wheat production to decline among key exporters as well as most importers. This increases the likelihood of shortages in the wheat export market.
Currently diminished global wheat inventories increase the likelihood of supply shocks and price surges in global wheat markets.

Asset Allocation Watch: Best not hope for cuts

Recent developments in components of the inflation basket leave us less convinced of the path ahead for the Fed but judging by funds futures, the market is now pricing in cuts already by April 2024.
Energy (and oil in particular) could easily wrongfoot these expectations.
Our estimate is for a deficit just above 2mn barrels through the fourth quarter, which is enough to bring oil prices another 30% higher based on historical data.

The Latest IMF Study on Inflation Calls for Even More Rate Hikes!

While US headline inflation is returning to pre-Covid levels faster than average, the risks of premature celebrations are high!
In the Eurozone, headline inflation is nowhere near pre-shock levels, and our inflation outlook suggests it may well take another year now that oil prices are spiking.
Central banks have no choice but to accept stagflation, or worse, keeping rates higher for longer, which is NOT reflected in stock markets.

Recession Nugget: What’s the deal with GDP and GDI

With the spread between GDI and GDP reaching historical levels we ought to dig into the numbers once again to figure out if this is just statistical non-sense, or if we have got a good reason to be worried for the American economy.
Research points towards GDI being the most indicative variable of the two, and the spread is often seen as a recession indicator – remember that households make up ⅔ of GDP
But there is a (small) chance that the difference between the 2 is simply a statistical measurement error, which of course will grow more or less proportionally with the size of GDP/GDI

EA: Disinflation Not Petering Out

By Phil Rush

The flash EA HICP inflation rate was marginally trimmed in August’s final print, causing it to round lower from 5.24%, while the ex-tobacco rate still printed at 5.2%.
Resurgent petrol prices prevented inflation from slowing by more, but powerful base effects in September should re-establish the steep trend decline.
Underlying inflation continues slowing to the extent that the monthly impulse is no longer significantly above target, which should spare the ECB from hiking again.

The Energy Cable #38: Time to switch exposures in Energy space?

By Ulrik Simmelholt

Warren and 3Fourteen Research has been bang on with their bullish crude trade posted in July, which has returned approx. 33%
On the other side of the energy space, Natural Gas is starting to look like a possible substitute for a long crude position, while the uranium and nuclear trade could be running on fumes.
We had headline numbers in CPI and PPI jump on the back of a strong month in crude and we also note that the nuclear sector is flying higher with Sprott’s physical ETF being up 13% last week on the back of FOMO and political acceptance in nuclear space.

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Sep 19

Daily Brief Macro: Steno Signals #65 – The 4 things that worries me the most in global macro right now and more

In today’s briefing:

Steno Signals #65 – The 4 things that worries me the most in global macro right now
A Unique High-Frequency Indicator of Recessions
ECB Cranks Up for The Record Tenth Time; Yet the Euro Looks Weak and Wobbly
From Digital Highways to Energy Pathways: The New Era of Infrastructure Investments
Singapore Economics: Structural Growth Model Needs a Revamp
The Week That Was in ASEAN@Smartkarma – Bank Negara Indonesia, XL Axiata Leading Data, and VNG.
Central Bank Watch: 5 charts on the Central Bank bonanza week!
Asian Geopolitics: The Next Phase in the Asian Geopolitical Contest

Steno Signals #65 – The 4 things that worries me the most in global macro right now

I have four major worries around the current macro setup. The long consensus in bond positioning is worrisome paired with rising energy prices
The lack of reliability of recession forecasts and the relationship to Manufacturing
Germany being a nation-wide Nokia case despite falling input prices

A Unique High-Frequency Indicator of Recessions

By Thomas Lam

The current US recession debate, while seemingly dormant, is arguably unsettled and undeniably intricate
And US recessions tend to be accompanied by periods of subpar growth in many other economies around the world
Hence, it is crucial to track and assess the risks attending the US economy by harnessing the proprietary weekly Recession Odds (weRO) indicator

ECB Cranks Up for The Record Tenth Time; Yet the Euro Looks Weak and Wobbly

By Srinidhi Raghavendra

Currencies desire nothing more than higher rates. The Euro should have popped but instead it flopped after ECB’s rate hiking decision last Thursday.
For nine straight weeks, Euro has lost ground to the USD despite ten rate hikes collectively amounting to 450 basis points over the last 12 months.
Rates at record levels combined with macro weakness, ECB will be cornered at the Dec meeting and be forced to pause or cut rates.

From Digital Highways to Energy Pathways: The New Era of Infrastructure Investments

By Albert Maass

In a world shaped by geopolitical risks, infrastructure investments are pivoting to address energy supply vulnerabilities illuminated by global tensions.
As the pandemic accelerated digital transformation, the pressing demand for enhanced digital infrastructure, from data centers to renewable energy integrations, becomes evident.
Concurrently, the sector confronts financing challenges, emphasizing the need for sustainable projects that align with a low-carbon future.

Singapore Economics: Structural Growth Model Needs a Revamp

By Manu Bhaskaran

Singapore’s model as a dynamic, external-oriented economy has served it well through internal and external challenges, but there are signs that this has run its natural course.
Global economic bifurcation, external volatility, and a more competitive market mean that the city-state faces new challenges that warrant shifts in economic strategy.
There is thus a need to revisit the old economic playbook. The upcoming Forward Singapore strategy will provide hints as to whether the needed shifts are forthcoming.

The Week That Was in ASEAN@Smartkarma – Bank Negara Indonesia, XL Axiata Leading Data, and VNG.

By Angus Mackintosh

The past week saw insights on Bank Negara Indonesia (BBNI IJ), XL Axiata (EXCL IJ), Golden Energy & Resources (GER SP), and VNG (VinaGame) (VNG US) IPO
There was also a macro insight on Singapore, a screen on Indonesian banks, and a piece looking at the increasing importance of sustainability 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 South-East Asia.

Central Bank Watch: 5 charts on the Central Bank bonanza week!