Macro

In today’s briefing:

How the G7 Meeting Exposes the Risks for 2024
Weekly Market Monitor – Week 19 Macro Momentum Is Fading, but Market Momentum Is Building.
Europe Bull 2023 = FANG Bull 2008?

How the G7 Meeting Exposes the Risks for 2024

The agenda of the G7 highlights the rising risk of a new Cold War 2.0 that decouples China from the West.
Tensions are likely to rise in 2024 as U.S. electoral politics will encourage both sides to show how tough they are on China.
Under such a scenario, the global economy would be split into a China bloc and a U.S. bloc that resolves in global stagflation

Weekly Market Monitor – Week 19 Macro Momentum Is Fading, but Market Momentum Is Building.

AI-Hyped US Equities are not off the hook. The US Leading Indicator dropped for the 13th consecutive month, taking the index further into recessionary territory.
The rally in Big Tech stocks hides that only just over one-third of NASDAQ stocks are trading above their 200-day moving average, the threshold between positive and negative future returns.
Singapore electronics exports were down a whopping 23.3% year-on-year in April, indicating a severe decline in global earnings-per-share numbers.

Europe Bull 2023 = FANG Bull 2008?

Stocks staged a relative upside breakout against global stocks from multi-year bases, which makes us bullish on the region.
An analysis of the region shows that different sources of underlying strength are sustainable into the future.
The possibility exists that this could be the start of a major bull leg in Europe, much like how the U.S. FANGs led global markets in 2008.

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May 21

Daily Brief Macro: China May Nullify World Recession and more

In today’s briefing:

China May Nullify World Recession
Positioning Watch: The Mystery Behind the Massive Shorts in Equities and Bonds

China May Nullify World Recession

By Michael J. Howell

Several indicators point to approaching World recessionary trough and early pick-up. Chinese economic recovery since late-2022 ‘re-opening’ may help explain this
Chinese Liquidity injections have slowed from their early year pace, but no evidence of deliberate tightening. Also visible acceleration in shadow bank lending
Switch from last year’s Chinese tightening to this year’s policy easing may lift the World economy higher over coming months. We should look for confirming evidence from other Asian markets

Positioning Watch: The Mystery Behind the Massive Shorts in Equities and Bonds

Both equity market shorts and US Treasury shorts are close to all time highs in futures positioning data
But is the positioning data a true indication of the underlying market sentiment?
We doubt it and discuss why both equity and curve positioning could be skewed by technicalities here

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May 19

Daily Brief Macro: Bank Watch – Banks Will Have to Buy MORE Bonds when the Dust Settles and more

In today’s briefing:

Bank Watch – Banks Will Have to Buy MORE Bonds when the Dust Settles
CX Daily: How Smart Cars Are Upending the Auto Supply Chain
Prepare for the Dollar Rally

Bank Watch – Banks Will Have to Buy MORE Bonds when the Dust Settles

When the dust settles on this deposit crisis, banks will have to buy more bonds as financial authorities are likely to tighten LCR rules
Banks will have to be punished to a larger extent for holding corporate deposits relative to household deposits
Consequently, banks will have to increase buffers of cash equivalents (bonds) at a time when true cash (central bank reserves) dwindle

CX Daily: How Smart Cars Are Upending the Auto Supply Chain

Autos /In Depth: How smart cars are upending the auto supply chain
Capsized /: 39 missing after Chinese fishing vessel capsizes in Indian Ocean
Talk show /: Chinese comedy producer takes $2.1 million hit for military pun

Prepare for the Dollar Rally

By ByteTree Asset Management

Compared to everything else, gold is in good shape, but it is competing with the world’s most liquid currency, that now pays a 5.25% yield while inflation is falling.
The $2,000 breakout was exciting, but the price has now stalled.
US consumer price inflation (CPI) was a little softer last month. The latest reading of 4.9% feels much more comfortable than the 9% we suffered last summer.

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May 18

Daily Brief Macro: Spoiler Alert: Global Macro Data Is Tilting the Wrong Way and more

In today’s briefing:

Spoiler Alert: Global Macro Data Is Tilting the Wrong Way
China’s Gold Buying Spree Stretches Into Sixth Straight Month
CX Daily: Hong Kong Targets Young Talent, Tech Sector in Post-Covid Push
EA: Inflation’s Apr-23 Uptick Finalised

Spoiler Alert: Global Macro Data Is Tilting the Wrong Way

The latest Empire State Manufacturing Index points to an ISM Manufacturing Index of 42.5, a recession, and lower stock markets.
China’s reopening is driven by less than half of its economy, consumers. Production, Property, and Financing are lagging.
Germany – Waiting for a recession? It’s already in one.

China’s Gold Buying Spree Stretches Into Sixth Straight Month

China expanded its gold reserves in April for a sixth straight month as global central banks add to their bullion holdings as a hedge against inflation and geopolitical risks.
China’s gold reserves increased by 8.09 tons in April, according to data from the State Administration of Foreign Exchange.
Total gold stockpiles reached 2,076 tons after the nation added 120 tons in the five months through March.

CX Daily: Hong Kong Targets Young Talent, Tech Sector in Post-Covid Push

Hong Kong /In Depth: Hong Kong targets young talent, tech sector in post-Covid push
Soccer /: Accused of bribery, South Korean soccer star detained in China
Talk show /Trending in China: Chinese comedian canceled for PLA pun

EA: Inflation’s Apr-23 Uptick Finalised

The final EA HICP inflation print confirmed the 0.1pp rise to 7.0% in Apr-23, while the ex-tobacco rate printed at 6.98%. Food price inflation has reassuringly subsided.
Underlying inflation’s impulse remains 2-3 times the target in Germany and France, but the trend is slowing, which should eventually create space for the ECB to stop hiking.
It’s too early to declare victory over inflation, so we expect the ECB to hike at least twice more this cycle and not cut until the second half of 2024.

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May 17

Daily Brief Macro: Supply Chain Reconfigurations Gaining Steam and more

In today’s briefing:

Supply Chain Reconfigurations Gaining Steam
Asset Class Performance After the Final Hike – Part II Equities, Treasuries, Commodities, and Gold
Post-Election Uncertainty Looms Following Thai Polls
Out of the Box #2 – Italian Banks the First Domino?
UK: Unemployment’s Second Slackening
The US Economy: A Decade’s Forecast Through an Economic Scenario Generator Lens
India’s Karnataka Elections a Much-Needed Win for Congress
Ultra-Bond Futures, USDCNY, and Dollar Index
CX Daily: Chinese Exporters Turn Toward Emerging Markets

Supply Chain Reconfigurations Gaining Steam

By Manu Bhaskaran

Evidence is mounting that firms are doubling down on plans to shift production out of China. Geopolitical risks and shifting consumer dynamics will strengthen this trend.
Economic efficiency is being de-prioritized as firms seek to bolster resilience and security. Reshoring and near-shoring are the new modus operandi.
China’s large scale, however, means that no single economy will be the new centre of global production. Firms will make different locational choices based on their own needs.

Asset Class Performance After the Final Hike – Part II Equities, Treasuries, Commodities, and Gold

Equities and Treasuries shine once the Fed’s final rate hike is in, but the latter do so with much lower risk.
Commodities lag once the tightening cycle is in, likely reflecting declining economic activity as higher rates push down GDP growth.
After a weak six months, the return on Gold recovers quickly, comfortably beating the broader commodity index.

Post-Election Uncertainty Looms Following Thai Polls

By Manu Bhaskaran

The reformist Move Forward Party has outperformed prior expectations and emerged as the largest party in parliament, while Pheu Thai was relegated to a close second place.
Parties aligned with the military-royalist establishment were the target of voter ire, as the electorate sought new political options that promised changes to the status quo.
Despite its victory, an MFP-led government is unlikely to be tolerated by establishment forces. The humbled Pheu Thai remains in a position to lead a grand coalition government.

Out of the Box #2 – Italian Banks the First Domino?

Net interest margins and profitability measures are unusually high, while financial strength and asset quality show significant improvement with low non-performing loans and bad debt
Italian banks are facing difficulties in funding their TLTRO repayments scheduled for this summer
The BTP Bund spread will be THE thing to watch the coming months, and it has severe implications for asset markets

UK: Unemployment’s Second Slackening

The UK unemployment rate increased by 0.1pp for the second consecutive month to 3.9% in Mar-23 as labour market levels rebounded further.
Change is coming from an under-sampled area, raising the risk of statistical error. A fall in vacancies would corroborate this weakening if sustained.
Total pay growth remains too rapid to be consistent with the inflation target and should encourage the BoE to hike by another 25bp in June.

The US Economy: A Decade’s Forecast Through an Economic Scenario Generator Lens

By Albert Maass

The US economy faces challenges such as rising interest rates, inflation, geopolitical unrest, and banking instability, potentially leading to a recession, amid a global economic slowdown.
Economic Scenario Generators (ESGs) are advanced computational tools used for generating plausible future economic scenarios, aiding in risk management, asset valuation, and investment decision-making.
Using an ESG, predictions for 2030 include a slowdown or recession in 2024 with return to normal growth rates afterward, peak inflation and a lackluster stock market performance in 2024.

India’s Karnataka Elections a Much-Needed Win for Congress

By Manu Bhaskaran

Elections in the Indian state of Karnataka delivered a setback to Modi’s BJP. Despite the prime minister’s popularity, party infighting and anti-incumbency were hard to overcome.
Congress better managed its internal divisions and made a campaign pitch based on economic well-being which resonated with voters.
Congress will aim to re-use its winning tactics for upcoming state polls, but defeating the BJP at the national level remains out of reach for now.

Ultra-Bond Futures, USDCNY, and Dollar Index

By Untying The Gordian Knot

China’s retail sales and industrial production fell short of expectations in April.
The People’s Bank of China (PBOC) has increased long-term liquidity through the medium-term lending facility (MLF).
The PBOC and the government will likely need to consider implementing monetary and fiscal stimulus to support the economy.

CX Daily: Chinese Exporters Turn Toward Emerging Markets

Exports /Cover Story: Chinese exporters turn toward emerging markets
China-Australia /: China and Australia resume trade talks in sign of stabilizing ties
Espionage /: China sentences Hong Kong-based U.S. citizen to life for espionage

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May 16

Daily Brief Macro: USD Watch: Markets Vastly Underestimate the Impact on USD Funding from the Debt Ceiling and more

In today’s briefing:

USD Watch: Markets Vastly Underestimate the Impact on USD Funding from the Debt Ceiling
The Week That Was in ASEAN@Smartkarma – XL Axiata’s Convergence Push, Cimory & GT, SCG Chemicals IPO
The Silver euphoria is over // Why crude oil continues to fall

USD Watch: Markets Vastly Underestimate the Impact on USD Funding from the Debt Ceiling

The USD debt ceiling is a returning topic and it’s typically not overly important for markets, but this time is likely to be different.
He repercussions for USD funding markets may be material and in sharp contrast to consensus expectations the USD may stage the biggest comeback since Lazarus.
In this piece we elaborate why you should expect volatility in USD funding rates in coming weeks

The Week That Was in ASEAN@Smartkarma – XL Axiata’s Convergence Push, Cimory & GT, SCG Chemicals IPO

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 XL Axiata (EXCL IJ), Cisarua Mountain Dairy (CMRY IJ), SCG Chemicals IPO, Jardine Matheson Holdings (JM SP), and Flash Coffee.
There were also macro insights on Thailand post last week’s election results plus related investment strategy and a price looking at the tapering of Thailand’s inflation.

The Silver euphoria is over // Why crude oil continues to fall

By The Commodity Report

The Silver euphoria is over In the past two weeks, I have spoken to many people who are euphoric about silver.
Many charts on Fintwit also predict that now is the time to jump back on the silver bandwagon.
I believe that the next bubble could soon run out of steam, and this is not only true for gold.

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May 15

Daily Brief Macro: A Pause ≠ A Pivot and more

In today’s briefing:

A Pause ≠ A Pivot
How the Market Could Break Up to a Blow-Off Top
Positioning Watch: FX Market Positioning Is Completely Out of Sync with the Rest..
Rotation from Interest Rate to Credit Risk Looms as Bank Lending Standards Set to Tighten Further
The Real Deal

A Pause ≠ A Pivot

Is it time for the Fed to pause? Under what conditions would the Fed pivot to cutting rates?
We believe the Fed may pause rate hikes, but it’s unlikely to ease until it’s too late and a crisis erupts.
Expect a recession in H2 2023. Such an environment should be supportive of Treasury prices, but create headwinds for stock and commodity prices.

How the Market Could Break Up to a Blow-Off Top

We continue to believe the path of least resistance for stock prices in the intermediate term is down.
However, the odds of an upside breakout and a blow-off top are rising, followed by a collapse in the stock market.
We would estimate the chances of the breakout and melt-up scenario at about one in three.

Positioning Watch: FX Market Positioning Is Completely Out of Sync with the Rest..

Fixed Income and parts of equity space have already prepared for the recession
Commodity positioning is slowly but surely adjusting to a cyclical downturn as well
FX positioning remains in la-la-land with heavy longs in carry currencies

Rotation from Interest Rate to Credit Risk Looms as Bank Lending Standards Set to Tighten Further

By Said Desaque

The Fed’s latest quarterly survey of Senior Loan Officers conveyed that banks continued to tighten lending standards in Q1. Notably, all forms of commercial real estate (CRE) lending were tightened.
Banks expect lending standards to tighten further in 2023 H2 for commercial & industrial and CRE loans, but residential mortgages will be more selectively targeted.
Investors have hitherto focussed on interest rate risks at banks, but deteriorating credit quality should become an issue as lending standards tighten further.

The Real Deal

By Alfonso Peccatiello (Alf)

Our economic system is ultra-financialized and dependent on leverage.
That’s why understanding the incentive scheme for both investors and borrowers is an important step to piece the global macro puzzle together.
Real yields play a crucial role in that puzzle.

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May 14

Daily Brief Macro: Range Bound – Portfolio Changes and more

In today’s briefing:

Range Bound – Portfolio Changes, China’s Low Pulse, Why Earnings Will Go Down, and More

Range Bound – Portfolio Changes, China’s Low Pulse, Why Earnings Will Go Down, and More

China’s trade, credit growth, and inflation numbers were all uninspiring. Not offering the counterweight to slowing growth in the rest of the world that many investors are hoping for.
NASDAQ: the percentage of stocks trading above their 200-day moving average is a meager 30%.
Global earnings numbers will drop. China’s producer price deflation intensified in April, with the PPI falling 3.6% from a year ago. Historically, there is a close relationship between global earnings-per-share.

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May 13

Daily Brief Macro: UK: Quarter Ends Low Again in Mar-23 and more

In today’s briefing:

UK: Quarter Ends Low Again in Mar-23
Commodity and FX Impulse Moves
CX Daily: Grim Year For China’s Bankers, Brokers As Pay Slashed
TPW Advisory Friday Musings: It’s In Da Price

UK: Quarter Ends Low Again in Mar-23

UK GDP contracted by 0.3% m-o-m in Mar-23 as struggles in the services sector more than offset resilience in the industrial sectors.
This quarter is the fourth consecutive one to end on a low, so we are not worried about it or the carry-over effect. We still expect no Q2 GDP growth.
Surveys suggest upside risks to GDP growth, encouraging inflationary excesses to extend even further and sustaining hawkish policy pressures.

Commodity and FX Impulse Moves

By Untying The Gordian Knot

We review some charts, starting with commodities that are precariously close to signalling a breakdown.
The weakness became pronounced after China’s PPI, CPI, and the disappointing Aggregate Finance data (this needs a separate section).
If China’s recovery continues to be disappointing, then the deflation of exports and a long position on commodities will be a big problem for the rest of the world.

CX Daily: Grim Year For China’s Bankers, Brokers As Pay Slashed

Pay /In Depth: Grim year for China’s bankers, brokers as pay slashed
Border /: China resumes fast-lane services for cross-border travel
Audit /: U.S. audit watchdog finds deficiencies in first China inspection

TPW Advisory Friday Musings: It’s In Da Price

By TPW Advisory

Given the ever-thicker curtain of FUD (Fear, Uncertainty & Doubt) and the swirling cross currents of economic data here in the US and elsewhere we continue to lean on the markets themselves to tell us what’s happening – the old adage of: let the market tell us rather than we try to tell the market what’s happening.
We think the stock market in particular is telling us quite a bit these days, information that can be boiled down to the vernacular saying that we choose for today’s Musings: it’s in da price.
Today’s title came to me after yesterday’s close when I checked to see how the US regional banks had fared, using KRE as my proxy.

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May 12

Daily Brief Macro: The Great Game – Why No News from Ukraine? 4 Important Points and Predictions and more

In today’s briefing:

The Great Game – Why No News from Ukraine? 4 Important Points and Predictions
Us Debt Countdown – the X-Over Data Is Approaching! when Will Usd Funding Markets Be Impacted?
Changes in Portfolio Weights: Calibrating the Weight of Nominal and Real Assets.
EM by EM – Argentina and the Real De-Dollarisation
Spending Watch: The Great Question About Excess Savings
BoE: Persisting Under Pressures

The Great Game – Why No News from Ukraine? 4 Important Points and Predictions

By Mikkel Rosenvold

Why are we getting no news from the Ukrainian Spring Offensive?
What is going on with Wagner and the Bakhmut Battle?
Here’s our take and predictions for the spring and summer

Us Debt Countdown – the X-Over Data Is Approaching! when Will Usd Funding Markets Be Impacted?

By Mikkel Rosenvold

In a continued bank failure scenario, the x-over date for the US debt ceiling may be reached already during May
What’s the political outlook? Are we going to get a solution in time?
What does that mean for the entire USD funding market?

Changes in Portfolio Weights: Calibrating the Weight of Nominal and Real Assets.

We increase the weight of Developed Market Equities but remain short/underweight. We lower the weight of gold and cash and remove the marginal overweight in Developed Market Treasuries.
US equities have celebrated the end of more recent Fed tightening cycles and tend to outperform Gold and Commodities when inflation has peaked.
We remain underweight Developed Market Equities because of deteriorating Macro Indicators and earnings expectations that are too optimistic.

EM by EM – Argentina and the Real De-Dollarisation

By Emil Moller

Argentina is a state of permanent fiscal dominance but its economic weakness does not correspond to its geopolitical importance
The USD is not losing its reserve currency status anytime soon but China is actively trying to de-risk its supply chain and integrate key markets under its umbrella
Argentina remains uninvestable for the time being and the economic outlook is bleak. That may just change if the political winds do. For now, we remain skeptical from the sideline

Spending Watch: The Great Question About Excess Savings

Fiscal stimulus and money supply is the main driver of the increase in consumer spending and excess savings
Excess savings remain solid, but the outlook is looking darker based on the approach you take in estimating future savings
Decreasing profit margins and increasing real wages might lead to better consumer conditions, but also an inflation wave vol. 2

BoE: Persisting Under Pressures