Macro

In today’s briefing:

China Watch: The Big Losers from an Imports Pull-Back
EM by EM #18 – Why Jackson Hole is more important than Johannesburg
CX Daily: China’s Auto Exports Belie Roadblocks to Conquering Europe, U.S.

China Watch: The Big Losers from an Imports Pull-Back

Real estate isn’t the only sector in commotion.
Chinese imports have plummeted and this too has implications for global markets.
Without further ado, let’s dive into some statistics – welcome! The CNY is still in the driver’s seat of cross-market action.

EM by EM #18 – Why Jackson Hole is more important than Johannesburg

During an otherwise uneventful week, the International Finance correspondents are having a party.
The first destination for the flying journalist class is the Johannesburg summit, which has not only cast the BRIC nations into the spotlight but has also introduced a rejuvenated composition of member states.
Ambitious assertions regarding unity, economic integration, and strategic cooperation have taken center stage, and the customary media channels appear to be embracing these prospects with an air of uncritical acceptance.

CX Daily: China’s Auto Exports Belie Roadblocks to Conquering Europe, U.S.

Autos /In Depth: China’s auto exports belie roadblocks to conquering Europe, U.S.
China-South Africa /: Xi calls for more cooperation between China and South Africa
Schroders /: Schroders China unit seeks approval for first mutual fund

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Aug 24

Daily Brief Macro: CX Daily: China’s Pension Growth Dwindles as Population Ages and more

In today’s briefing:

CX Daily: China’s Pension Growth Dwindles as Population Ages, Workforce Shrinks
Risk-Adjusted Yields and High Correlation Make Equities Unattractive!
5 Things We Watch: China, Burdens & Beyond
Out of the Box #16: Is the White House finally killing the Treasury put?
European Epicentre to Shrinkage So Far

CX Daily: China’s Pension Growth Dwindles as Population Ages, Workforce Shrinks

Pension /: China’s pension growth dwindles as population ages, workforce shrinks
Fines /: Three banks fined $15.9 million for loan-related breaches
Unverified List /: U.S. eases export restrictions on 27 Chinese entities

Risk-Adjusted Yields and High Correlation Make Equities Unattractive!

By Jeroen Blokland

The recent rise in interest rates is leading to a further shift in cross-asset valuation.
The volatility-adjusted yields of equity-related asset classes have become even less attractive than those of bond-related asset classes.
The case for bond investments becomes even stronger when considering that the correlation between equity and bond returns is remarkably high, diminishing diversification benefits.

5 Things We Watch: China, Burdens & Beyond

Happy Wednesday folks and welcome to this week’s edition of our ‘5 Things’!These past weeks have been all about China, but we intend to keep a wider scope in this fast-moving world of global macro.
Read along for a brief on the 5 things grasping our attention this week.
The topics of particular interest this week:The burden of higher rates Increased fragility in energy marketsWhy European inflation will be below 2% before New Year’s The current situation and outlook for US real estateA weaker Yuan, its effect on Chinese imports and implications for global markets1) Burden of higher interest rates (in full here)The weakest are the most vulnerable: The Matthew principle is in full effect both among companies and consumers in this cycle.

Out of the Box #16: Is the White House finally killing the Treasury put?

Fiscal Policy & COVID support: As followers of our Out of the Box series would know, I have openly stated that my current base case is a recession at the start of 2024.
This a bold claim given how many have been wrong-footed on recession calls lately and considering how much the US keeps outperforming expectations.
To be sure, I am not predicting the end of the world but a rather ordinary recession.

European Epicentre to Shrinkage So Far

The flash PMIs broadly disappointed expectations by a significant margin in August, led by the manufacturing sector but also knocking services closer to stagnation.
Despite mounting market concerns about China, Europe (inc UK) appears to be the continental epicentre. Japan was a bright spot in August, and ASEAN grew through July.
Monetary tightening is probably part of the story but does not appear to be the global differentiator. Potential changes in unemployment will eventually indicate tightness.

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Aug 23

Daily Brief Macro: Inflation Watch: Why EUR inflation will print below 2% before New Years and more

In today’s briefing:

Inflation Watch: Why EUR inflation will print below 2% before New Years
FX Nugget: What Policy Normalization? The BoJ Is as Interventionist as Ever….
‘Bidenomics’ Delays Recession, but USD Rebound & Fiscal Reins Are Tipping Points
Real Estate Watch: Too Early to Call off the Crisis in Western Markets
Ascending El Niño and Its Impact on Corn Production and Prices
Developing Asia’s Improving Fundamentals Will Further Attract FDI
Great Game: Will F16s destroy Russia? Will BRICS destroy the USD?
China’s Economic Woes Will Prompt a Ramp-Up of Measures
CX Daily: China’s ‘Hidden Debt’ of Local Governments Threatens National Economy
The Energy Cable #34 – Double top…now what?

Inflation Watch: Why EUR inflation will print below 2% before New Years

It’s Jackson Hole week and even if Wyoming is typically only full of cowboys (also when CBs gather), they are joined by a cowgirl from France this week for the conference.
The Fed and the ECB will enter the yearly conference with different macroeconomic backdrops as the US growth and inflation momentum seems stickier than Euro peers on our models.
And using leads/lags from the European PPI basket and the US HICP index, we intend on showing you that sub 2% inflation in Europe is a clear possibility in just 3 months from now.

FX Nugget: What Policy Normalization? The BoJ Is as Interventionist as Ever….

Markets are stuck in a discussion on the JPY this morning as BoJ governor Ueda and PM Kishida held a meeting allegedly discussing FX developments.
Our models continue to signal weakness ahead for the JPY.
Even a move to 1% in the YCC-curve control has NOT allowed the BoJ to become less interventionist.

‘Bidenomics’ Delays Recession, but USD Rebound & Fiscal Reins Are Tipping Points

By Prasenjit K. Basu

‘Bidenomics’ investment subsidies aided the 7.7%QoQsaar growth in business investment in Q2CY23, delaying the onset of recession. Policy rate to stay near 5.5% until Q2CY24, thereby restraining growth until then.
ECB and BoE face less pressure to raise rates amid easing headline inflation, so yield differentials will strengthen USD; the latter will be a drag on net exports in H2CY23.
The spending restraints agreed in May’23 kick in from Oct’23, and will be a drag on aggregate demand from Q4CY23, the quarter a mild recession is likely to begin.

Real Estate Watch: Too Early to Call off the Crisis in Western Markets

These past few weeks have been all about China and China is all about real estate.
With that, welcome to this week’s real estate-focused edition of the ‘Watch Series’, where we look for clues on the state of the US parallel in particular.
Our findings in brief: Favorable fixings counter forced selling, Record low affordability discourages buying, Little volume and stalemate in price, Weakening labor market and layoffs remain THE triggers for potential selloff.

Ascending El Niño and Its Impact on Corn Production and Prices

By Pranay Yadav

El Niño & Southern Oscillation (ENSO) is a recurring climate phenomenon with adverse impact chiefly on agriculture causing volatility in grain production leading to price shocks.
Shortening frequency of ENSO cycles and its intensity has increased due to global warming. Given its potency of causing shocks, ENSO now has an outsized influence on global economics.
Considering El Niño’s impact on corn, expect production to decline next year as La Niña effects fade compounded by agri productivity declines due to higher temperatures & extreme weather.

Developing Asia’s Improving Fundamentals Will Further Attract FDI

Southeast Asia could regain the position it had in the early 1990s as a premier FDI destination. There are positive signs in a range of new-economy sectors.
The region’s reforms will help overcome challenges in absorbing FDI caused by infrastructure and other deficiencies.
The evolving investment landscape thus favours Southeast Asia and other emerging Asian economies. But further reforms are needed to rectify historical weaknesses and establish a lasting appeal.

Great Game: Will F16s destroy Russia? Will BRICS destroy the USD?

By Mikkel Rosenvold

Welcome to this week’s Great Game which will focus on two hot current topics and how to understand them – first the F16 donations to Ukraine and then the BRICS meeting in South Africa.
First of all, let’s try to unwrap the latest European gift to Ukraine:The F16s are no gamechanger in current numbersAs mentioned several times in this space, the Ukranian summer offensive has halted mainly due to a lack of air superiority.
It’s simply too hard to break through heavily fortified Russian positions without air bombardment and close air support.

China’s Economic Woes Will Prompt a Ramp-Up of Measures

China’s faltering economy suggests that its cautious approach has not worked. A vicious cycle is emerging: economic weakness exacerbates real estate challenges, triggering financial stresses that further impact the economy.
Most concerning is the property crisis, with its impact on developers, homeowners, and local governments: contagion effects could lead to unprecedented defaults on bonds held by local government financing vehicles.
The larger set of still carefully calibrated actions that are being planned, while helping to preserve minimal growth, will not suffice for China to regain its previous dynamism.

CX Daily: China’s ‘Hidden Debt’ of Local Governments Threatens National Economy

Debt /Cover Story: China’s ‘hidden debt’ of local governments threatens national economy
Property /: Country Garden’s plan to extend bond repayment meets with resistance
Stocks /: China’s securities regulator steps up efforts to bolster sagging market

The Energy Cable #34 – Double top…now what?

By Ulrik Simmelholt

Are we starting to see the early signs of a 2022 dynamic in LNG?
The below chart describes the scenario we saw late summer last year here in Europe when policymakers all the sudden scrambled to secure natural gas.
For the cycle to truly have the chance of playing out we need natural gas demand to increase and the USD to strengthen as a product of the increase in demand.

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Aug 22

Daily Brief Macro: Steno Signals #61 – The End of China as We Know It? and more

In today’s briefing:

Steno Signals #61 – The End of China as We Know It?
Positioning Watch: Is Anyone Even Invested in China at This Stage?
Portfolio Watch: Catching a Chinese Cold?
Back with a Bang! – Macro and Sentiment Call for an Underweight in Equities
EM By EM #17 China: Real Estate Complex and The “Phony” Stimulus
Macro Strategy Nugget: Why USDCNH > or < 7.30 is everything you need to watch
Rates & FX nugget: The PBoC doom-loop
The Week That Was in ASEAN@Smartkarma – Sea Ltd’s Rout, GoTo’s Budget Focus, and Indosat’s Surge
Malaysia: State Elections Bolster Anwar Near-Term; Long-Term PAS Shadow Grows
Traders Remain Neutral Commodities // Copper Loses as China Falls Apart

Steno Signals #61 – The End of China as We Know It?

Happy Sunday and welcome to our flagship editorial! Everyone seems to have been occupied with Chinese doom-mongering over the past week as the malaise in the Real Estate sector is now out in the open once again.
It is obvious to everyone that China is stuck in a mess but how grave are the issues really?
Another couple of trading days as we have had last week and we will be back at the abysmal October lows in traded property stocks, which prompted or even forced the CCP to initiate a surprise reopening of the economy in November last year.

Positioning Watch: Is Anyone Even Invested in China at This Stage?

We hope you have enjoyed our China Week coverage with extensive analysis on the ongoing malaise in Chinese Real Estate.
Positioning in CNY markets is an underreported angle in the discussion on China as it may help guide asset performance from here, now that everyone and their mother agrees that China is stuck in a mess.
Are international investors even involved in China anymore?

Portfolio Watch: Catching a Chinese Cold?

Hello everybody and welcome back to our weekly Portfolio Watch! This week we have witnessed considerable turmoil in the markets, and it would be an exaggeration to claim that we’ve emerged from it unscathed.
A few positions have been stopped-out but it is some source of consolation that our strongest conviction trades remain performers in an otherwise red massacre in financial markets. We have been rather vocal about our major conviction of a steepening of the yield curve was if not inevitable then at least very favourable on a r/r basis.
I too have clearly declared my aversion against the momentum of risk assets.

Back with a Bang! – Macro and Sentiment Call for an Underweight in Equities

By Jeroen Blokland

China could become a ‘Credit Event.’ Despite a slew of new stimulus measures by the Chinese government, they are not comprehensive enough to rule out one or more credit events.
200-Day moving averages hit. Several equity market indices have dipped below their 200-day moving average, including the MSCI Emerging Markets Index.
Response to the latest US inflation figure. In contrast to previous favorable inflation figures, American stocks closed lower on the day following the publication.

EM By EM #17 China: Real Estate Complex and The “Phony” Stimulus

In the past month, the focus of the markets revolved around the Bank of Japan and now August appears to have shifted its attention towards China.
Surprisingly, Japan’s current economic performance seems to be outpacing that of China- a sentence that would have merited a straightjacket and a padded room not long ago.
In my last PBoC piece on the “The People’s Bank Pickle” I outlined the conflicting monetary policy objectives within China, and how that circumstance would impose on them to commit to one at the expense of the other- in short defending the Remnibi would prevent the PBoC to address the domestic trend of deflation.

Macro Strategy Nugget: Why USDCNH > or < 7.30 is everything you need to watch

In our “Nugget series” we aim at visualizing the most important themes in global macro with a few timely charts and very few words.
This nugget will show why USDCNH is the by far most important global bellwether at this stage and why 7.20 (or 7.30) will serve as the most important level to watch in global macro.
Let’s look at 3 charts why USDCNH is a very binary predictor of risk assetsUSDCNY has served as a risk asset barometer around key intervention levels.

Rates & FX nugget: The PBoC doom-loop

In our “Nugget series” we aim at visualizing the most important themes in global macro with a few timely charts and very few words.
Today we will explain the market moves of the day with our “PBoC doom loop”.
Today’s market in short: A rebound in CNY after intervention above 7.30 against the USD, a sharp move higher in USDJPY and higher USD rates.

The Week That Was in ASEAN@Smartkarma – Sea Ltd’s Rout, GoTo’s Budget Focus, and Indosat’s Surge

By Angus Mackintosh

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.
The past week saw insights on Sea (SE US), GoTo (GOTO IJ), Indosat (ISAT IJ), Bumrungrad Hospital (BH TB), Home Product Center (HMPRO TB), and Vinfast (VFS US).
There was also an insight on Bank CIMB Niaga (BNGA IJ) plus insight looking at Chinese involvement in the South-East Asia data centre market.

Malaysia: State Elections Bolster Anwar Near-Term; Long-Term PAS Shadow Grows

By Prasenjit K. Basu

PM Anwar was strengthened in the near-term by PH comfortably winning the 3 states where it was the incumbent, although the alliance helped UMNO gain leverage in Negri Sembilan.
PAS won landslide victories in Kelantan, Terengganu and Kedah (three states that were part of Thailand until 1909, with smaller non-Malay populations). Bersatu is a token junior partner everywhere.
As the prospect of PAS gaining national power grows, non-Malay emigration and capital flight will increase, reversing the positive gain from the PKR-DAP vision of renewed strength for multi-racialism.

Traders Remain Neutral Commodities // Copper Loses as China Falls Apart

By The Commodity Report

Orange juice futures hit an all-time high last week as citrus crops all across the US have been hammered by a series of hurricanes and the spread of citrus greening, an incurable disease spread by insects.
The vast majority of oranges produced in the US come from Florida, which has been hobbled by hurricanes and a cold snap, massively hampering supply.
Such headwinds are responsible for the supply shortage in oranges, which has driven up prices that will eventually filter through to consumers.

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Aug 21

Daily Brief Macro: China and the US: Both Economies Addicted to Stimulus and more

In today’s briefing:

China and the US: Both Economies Addicted to Stimulus
Why We Are Both Bullish and Bearish
What Are the Contagion Effects of a China Slowdown?

China and the US: Both Economies Addicted to Stimulus

By Said Desaque

US financial markets became too addicted to generous Fed policy support after the global financial crisis (GFC). Post-pandemic economic conditions are very different. Investors need to realistically reset expectations.
Pressure on China’s central government to provide economic stimulus will increase as local governments undergo deleveraging after their borrowing binge. Calls for US-style transfer payments to households will be resisted.
Both the US and China have been addicted to stimulus in varying degrees since the GFC, while major future changes in easy policy dependency is probably more likely in China.

Why We Are Both Bullish and Bearish

By Cam Hui

We are bullish and bearish on U.S. equities, depending on the time frame.
The market is poised for a short-term rebound, but the durability of the rebound is in serious doubt.
However, the long-term trend of the market is still bullish.

What Are the Contagion Effects of a China Slowdown?

By Cam Hui

The market narrative is raising concerns about a China slowdown.
A review shows that the verdict from the market is the fears are overdone, though China faces long-term growth challenges.
The equity markets of U.S. and Europe are largely insulated from any China slowdown, though those of Asia and resource-producing countries are more exposed.

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Aug 19

Daily Brief Macro: CX Daily: China’s Updated Green Power Market Guidelines Set to Drive Interprovincial Trading and more

In today’s briefing:

CX Daily: China’s Updated Green Power Market Guidelines Set to Drive Interprovincial Trading
EA: HICP Inflation Calm Between Falls

CX Daily: China’s Updated Green Power Market Guidelines Set to Drive Interprovincial Trading

Green power /Analysis: China’s updated green power market guidelines set to drive interprovincial trading
HKEX /: HKEX first half profit rises 31% despite sliding trading
Hong Kong /: Hong Kong families now have fewer than one child each on average, survey shows

EA: HICP Inflation Calm Between Falls

The final EA HICP inflation print confirmed the 0.2pp slowing to 5.31% in Jul-23, while the ex-tobacco rate precisely matched our 5.26% forecast (index of 122.98).
Inflation’s decelerating decline looks close to stalling in August amid a rebound in petrol prices. However, the slowing trend should swiftly resume for September and October.
Underlying inflation is also slowing but has not yet reached a target-consistent monthly pace. The risk of another ECB rate hike increases with inflation’s additional stickiness.

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Aug 18

Daily Brief Macro: CX Daily: China’s Money-Losing IPO Fever Breaks and more

In today’s briefing:

CX Daily: China’s Money-Losing IPO Fever Breaks
FX Nugget: Can the PBoC defy gravity? 7.30 watch

CX Daily: China’s Money-Losing IPO Fever Breaks

IPO /: China’s money-losing IPO fever breaks
BRICS /: BRICS leaders to discuss expansion of the bloc, top Brazilian diplomat says
Property /: Property investment slid further in July amid weakening market

FX Nugget: Can the PBoC defy gravity? 7.30 watch

Our new “Nugget” concept is designed to deliver the very best charts and visualizations of key macro topics in a very palatable way.
One nugget, one chart – and only very few words!
Nugget 1: USDCNY decides risk assets from here. The USDCNY is the most critical global bellwether at this juncture and the path ahead for risk assets is dependent on the PBoC now.

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Aug 17

Daily Brief Macro: China Asset Watch: Keys for Xi to Getting the Economy and Equities Back Going and more

In today’s briefing:

China Asset Watch: Keys for Xi to Getting the Economy and Equities Back Going
UK: Inflating the Case for Another Hike
China News Headline Not Discounted
CX Daily: TikTok’s Foray Into Southeast Asian E-Commerce Is No Slam Dunk

China Asset Watch: Keys for Xi to Getting the Economy and Equities Back Going

By Ulrik Simmelholt

Xi kickstarting listed sectors in China using different policy tools will impact foreign markets
Biden looks like the winner in our four scenarios whereas Xi and MBS’ newly friendship could be tested
Chinese FDIs flows have already slowly but surely started to turn more positive from a rate of change perspective, which may be an early harbinger of slightly better times ahead for Chinese assets

UK: Inflating the Case for Another Hike

UK inflation matched consensus forecasts for an energy-driven drop to 6.8% on the CPI and 9% on the RPI. Surging rent prices prevented the downside surprise we expected.
Underlying inflationary pressures picked up some speed again, with the monthly impulse in our estimates exceeding twice the target-consistent pace.
Higher services inflation and the previously reported wage spike seem set to drive the BoE into another 25bp rate hike in September. We expect a final one in November too.

China News Headline Not Discounted

By Untying The Gordian Knot

The People’s Bank of China (PBOC) has been draining liquidity through reverse repo while the Chinese Yuan (CNY) fixing has been notably stronger than anticipated.
It could be attributed to various factors, such as: A significant drop in the manufacturing Purchasing Managers’ Index (PMI)
Weaker PMI sub-indices, including export orders and employment

CX Daily: TikTok’s Foray Into Southeast Asian E-Commerce Is No Slam Dunk

E-commerce /In Depth: TikTok’s foray into Southeast Asian e-commerce is no slam dunk
Jobless /: Charts of the Day: The missing data in China’s rising unemployment
Payment /: Third-party payment industry consolidates as prepaid card issuers exit

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Aug 16

Daily Brief Macro: China Not Yet in a Deflationary Spiral but the Risks Are Mounting and more

In today’s briefing:

China Not Yet in a Deflationary Spiral but the Risks Are Mounting
China’s Ongoing Real Estate Disaster Is Pushing Emerging Markets to the Brink
Investment Screening: Why Biden’s Order is Actually a Good Sign for US-China Relations
Malaysian Politics: Stalemate in Malaysia’s State Elections Buys Anwar Breathing Space
The Energy Cable #33 – The handoff – From positioning to fundamentals
UK: Jobs Melt with Wages Burning Hot
China Watch: The People’s Bank Pickle – is 7.30 the line in the sand?

China Not Yet in a Deflationary Spiral but the Risks Are Mounting

Consumer and producer prices in China fell in July, a symptom of its sluggish economy. However, fears of a deflationary spiral are premature, given the still-healthy core and services inflation.
Growing slack in the economy, depressed economic sentiment, weak credit demand and the struggles of the trade-oriented manufacturing sector could, however, lead to deficient demand and downward price pressures.
Beijing is ramping up stimulus efforts but it needs to overcome its half-heartedness, lest a deflationary mindset becomes entrenched among consumers and firms.

China’s Ongoing Real Estate Disaster Is Pushing Emerging Markets to the Brink

By Jeroen Blokland

Financial markets are increasingly being dominated by headlines from China, where it is becoming clearer every day that the country is facing a historic real estate recession.
Despite the barrage of stimulus measures, Chinese and Emerging Market equity indices are trending down and is now within 1.5% of the 200-day moving average.
The 200-day moving average is a powerful sentiment indicator, distinguishing between positive and negative market returns.

Investment Screening: Why Biden’s Order is Actually a Good Sign for US-China Relations

By Mikkel Rosenvold

On August 9th, President Biden signed an executive order which addresses investment from US companies and individuals into China.
The executive order is a follow-up on the October 7, 2022 order to ban exports of advanced chips and other strategic technology, but the executive order focuses on investment in Chinese firms that operate in these areas, which was seen as a loophole in the October 7 order.
The Investment Screening order stipulates certain areas that are simply banned from investments, some areas where the government needs to be notified and then some areas that are completely exempt.

Malaysian Politics: Stalemate in Malaysia’s State Elections Buys Anwar Breathing Space

Malaysians in six states cast votes in state elections that were seen as an early referendum for the government of Anwar Ibrahim, in particular of its support among Malay voters.
Anwar’s coalition did well enough to ensure his government’s viability, with a virtual tie in terms of control of state governments and the popular vote.
His coalition is likely to remain intact and a lull in the electoral calendar gives it room to pursue its domestic and foreign policy agenda.

The Energy Cable #33 – The handoff – From positioning to fundamentals

By Ulrik Simmelholt

Steno Research: Stubbornness despite Chinese demand woes As China’s economic woes deepen with the housing market slumps, we note that the demand side in the energy space looks just as fragile as the supply side.
Sure, China might be taking advantage of the Russian discount, but the Ruble is down some 30% against the CNY year-to-date so it is not catching a bid that one would otherwise expect.
With Country Garden (potentially) defaulting on fixed-income payments expect more weakness to show up in CNY pairs, which in turn adds even weaker commodity demand from China.

UK: Jobs Melt with Wages Burning Hot

Another surprise 0.2pp jump in the UK unemployment rate to 4.2% in June suggests the labour market suffered even before the BoE’s panicked 50bp hike.
Weakness still looks genuine to us, with 0.1pp monthly steps as the current underlying trend. However, underemployment and job vacancy data haven’t softened recently.
The tightness and second-round effects stoked another wage surge, which the BoE needs to break. This inflation pressure should encourage a 25bp hike in September.

China Watch: The People’s Bank Pickle – is 7.30 the line in the sand?

Conclusions up-front: – As the PBoC confronts Yuan depreciation and counters deflationary momentum, the continued divergence between these challenges will strain the central bank’s ability to effectively manage both – Whatever policy trajectory PBoC chooses there will be uncomfortable trade-offs – We remain confident that the PBoC will defend the Yuan at the 7.30 levelIn light of the ongoing measures taken by Chinese authorities to tackle issues within the real estate sector, the recent rate cuts announcement, along with discouraging concrete data and the persistent depreciation of the Yuan, we find it pertinent to examine the existing state of monetary policy in China:PBoC is essentially caught between a rock and a hard place if the current headwinds keep mounting.
Eventually, they could be forced to pick a side between two objectives:On one hand, China is dealing with a declining nominal demand problem which is reflected in the depressed CPI.
That is what last night’s rate cuts are designed to address.

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Aug 15

Daily Brief Macro: It’s A Duration Crisis and more

In today’s briefing:

It’s A Duration Crisis, Not (Yet) A Credit Crisis… Bonds, Not Banks Look Dangerous
Steno Signals #60: Worse than Lehman in China!? The 3 Most Important Questions Right Now!
Asset Allocation Watch: Country Garden Melt-Down? 5 Charts on Cross-Asset Spill-Overs!
China Deflation Watch – What Happens in China Stays in China
Will Xi fire the stimulus cannon?
The Week That Was in ASEAN@Smartkarma – Bukalapak’s Specialty, ASSA & Logistics, and Indosat
Cocoa Market Started Collapsing // Soybean Spreads crash down

It’s A Duration Crisis, Not (Yet) A Credit Crisis… Bonds, Not Banks Look Dangerous

By Michael J. Howell

The sell-off in government bonds could have further to go. US Treasury 10-year yields could test 5%
This fall in the value of prized collateral threatens to undermine the entire financial system, hit Global Liquidity hard and damage equities
Threat is most visible in very depressed levels of US bond term premia. Watch the slated step-up in Treasury coupon issuance and likely decline in foreign buying of US debt

Steno Signals #60: Worse than Lehman in China!? The 3 Most Important Questions Right Now!

Welcome to our weekly flagship editorial.
The markets over the past week or two have made little sense as commodities (especially energy) have continued to outperform risk assets despite China apparently suffering from long-covid symptoms economically.
Chinese money and credit trends look worse than US trends post Lehman, which means that either China rebounds or else it is the end of the Chinese economy as we know it! We have timed our rotation from high-beta tech/AI to Energy/Commodity proxies amazingly well, but we need to remain vigilant at this juncture.

Asset Allocation Watch: Country Garden Melt-Down? 5 Charts on Cross-Asset Spill-Overs!

We have spent this Sunday evening trying to prepare ourselves for the opening given the turmoil expected in China after Country Gardens (the former largest developer) is to suspend trading of at least 10 onshore bonds after a week where they failed to pay coupons of a couple of international payments.
The Hang Seng Property Index (HSP) is down 20% y-t-d but only lost 0.2% on Friday despite another landslide in the Country Garden stock.
If the HSP Index drops over the coming days, it ought to be taken as a signal that Chinese RE credit will decline further due to a lack of confidence in the financial system.

China Deflation Watch – What Happens in China Stays in China