Macro

In today’s briefing:

US Bank Deposits and the Real Economy: More Complex than Commonly Perceived
AFC Vietnam Fund April 2023 Report
The Final Fed Rate Hike?
The Case For An S&P 500 Correction

US Bank Deposits and the Real Economy: More Complex than Commonly Perceived

By Said Desaque

Lower deposit levels in the US banking system have historically been associated with bearish implications for the real economy.
The dynamics driving deposit growth have, however, changed since the repeal of Regulation Q, thereby making the economic implications of lower deposits more uncertain.
Deposit growth will be impinged by weaker loan growth, lower banking profitability and passive quantitative tightening that will have an incremental impact at a later date.

AFC Vietnam Fund April 2023 Report

By Asia Frontier Capital

In April the stock market trended mostly sideways with little change in the benchmark index, while market liquidity improved significantly.
The VN-index slightly decreased by -1.5%, while the AFC Vietnam Fund manged to increase by +2.3% to an NAV of USD 3,025, according to internal estimates.
In the first month of the second quarter, around 60% of all listed companies released their first-quarter financial reports.

The Final Fed Rate Hike?

The Fed appears poised to raise rates for the last time next week for the current rate hike cycle.
We conducted a study of the behaviour of stocks and bonds after the final rate hike of the monetary cycle.
If history is any guide, the S&P 500 is likely to exhibit subpar performance in the coming year, while 10-year Treasury yields decline and bond prices should see some gains.

The Case For An S&P 500 Correction

The technical backdrop may be setting up for pullback in the S&P 500. Strong support can be found at the 3770–3800 zone should the market weaken
The bear case consists of renewed doubts over banking system stability, narrow leadership and negative divergences from risk appetite indicators.
The bull case consists of positive divergences in the regional banking index, a bullish recycle in NYSI and a relatively benign earnings season.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 30

Daily Brief Macro: What Did Global Liquidity Do Last Week? and more

In today’s briefing:

What Did Global Liquidity Do Last Week?
Bond Market Monitor: The Bullish Case for Bonds Continues
Positioning Watch: The EUR Is the Only One Left at the Party
Wage Watch: Wage Negotiations in Germany to Taint the Disinflationary Picture?
USA: Record Underweight as Shift to Europe Accelerates

What Did Global Liquidity Do Last Week?

By Michael J. Howell

We exlore a new weekly time series on Global Liquidity. The data start in 2010 and reveal a strong leading relationship to World asset markets. This is confirmed statistically
Latest data show a US$5 trillion rise since the end-2022 and a US$10 trillion increase since the cycle low in late-October 2022. Further gains are bullish for asset prices
Behind expanding Global Liquidity is a strengthening World Shadow Monetary Base. This measures the collateral pool than can be levered up by credit providers. It is leading the way

Bond Market Monitor: The Bullish Case for Bonds Continues

By Warut Promboon

Xi’s call with Zelensky this week may not have any immediate impact but we believe the world is moving in the right direction.
The 2/10 spread remains in negative territory while inflation remains sticky but moved sideways.
We are leaning in favor of investment grade bonds and “BB” high yield bonds in general

Positioning Watch: The EUR Is the Only One Left at the Party

Overall equity positioning remains short but the sentiment is not overly bearish across styles/sectors
EUR seems like the new safe haven. In will likely turn, but as long as the events are centered around the US, the EUR could be a place to hide
Industrial metals are not popular. Copper positioning has quickly went back to being net short again after being net long last week

Wage Watch: Wage Negotiations in Germany to Taint the Disinflationary Picture?

This week Germany’s biggest public union Verdi reached an agreement with the government, and other unions will likely follow
The wage negotiations will surely have an effect on core inflation in Germany and EU
The average worker conditions will improve, positively impacting the economy

USA: Record Underweight as Shift to Europe Accelerates

By Steven Holden

Global equity funds move to record USA underweight of -7.02% below the benchmark.
Heavy rotation out of the USA and in to the major European nations over the last 6-months.
Record spread between the US underweight/DM Europe overweight highlights strong conviction in US underperformance and EU outperformance.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 29

Daily Brief Macro: EM by EM – Copper Comeback? and more

In today’s briefing:

EM by EM – Copper Comeback?
Out of the Box #1: The Growing US Deficit and Why It Is Likely Going to Lead to Lower Interest Rates
Weekly Market Monitor (17) – Banking Anxiety – Back with a Vengeance!
ECB Still on Track For 25bp Hike in May
CX Daily: Scandal-Ridden Chinese Soccer Gets in Foul Trouble Again
TPW Advisory Friday Musings: Turn Signals

EM by EM – Copper Comeback?

By Emil Moller

Copper inventory is on the floor and Production is lower than usual
China’s rebound is not your ordinary one and services seem to drive the economy
Pricing and probability slowly turning and suspect this may be a trend to follow

Out of the Box #1: The Growing US Deficit and Why It Is Likely Going to Lead to Lower Interest Rates

If we run a model of the unemployment rate and the ISM composite growth gauge against the Federal Budget deficit/surplus, we get a gap of almost 7% of GDP
Individual tax refunds issued through March 2023 were 3% greater than the same period in 2022
A debt ceiling deal hence risks being the trigger for less bank liquidity, further deposit flights and USD liquidity

Weekly Market Monitor (17) – Banking Anxiety – Back with a Vengeance!

The measures taken by the Federal Reserve and the US Treasury do not protect against idiosyncratic bank runs like the one that hit First Republic Bank.
Big Tech is beating big time, but earnings and sales growth have declined significantly in recent quarters, while valuation increased.
Should volatility spike, which is definitely on the table, Systematic Macro investors will have to sell up to USD 300 billion in equities.

ECB Still on Track For 25bp Hike in May

By Phil Rush

Q1 EA GDP growth disappointed recently raised expectations, matching the ECB’s March forecast for 0.1% q-o-q. And the ESI and EEI were stable in April rather than rising.
Persistent excess demand continues to support excess inflation, but firms are trimming their expectations from the highs in surveys, which is at least on the right path.
National flash releases for April suggest upside risks haven’t crystalised again, so the ECB has space to resist raising by 50bp in May. We expect three 25bp rate hikes.

CX Daily: Scandal-Ridden Chinese Soccer Gets in Foul Trouble Again

Soccer / In Depth: Scandal-ridden Chinese soccer gets in foul trouble again
Law / China grants authorities more powers to fight spies
Covid-19 / Major Covid outbreak ‘unlikely’ in near term, expert says

TPW Advisory Friday Musings: Turn Signals

By TPW Advisory

As regular readers know we have been driving down the investment highway following our “Middle Path” directions for roughly a year.
The Middle Path calls for a high nominal growth world that drives between high inflation and deep recession – the two main economic fears of the past year or more.
More recently we have highlighted the huge positive policy changes occurring throughout our Tri Polar World, policy changes that are being obscured by a Curtain of Fear, Uncertainty & Doubt – the famous FUD.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 28

Daily Brief Macro: Systematic Macro Investors Represent USD 300 Billion in Selling Pressure! and more

In today’s briefing:

Systematic Macro Investors Represent USD 300 Billion in Selling Pressure!
CX Daily: Tencent, ByteDance Gut Metaverse Units in Virtual Reality Check
U.S. Firms’ Optimism on China Grows Despite Tensions, AmCham Survey Shows

Systematic Macro Investors Represent USD 300 Billion in Selling Pressure!

Positioning has been one of the few positives for equities in recent weeks, but a storm is brewing.
Systematic Macro investors have been absorbing USD 170 billion in global equities in recent weeks for just one reason, volatility.
Should equities drop to their October lows, our charts suggest volatility-related equity selling pressure of USD 300 billion. We remain underweight equities.

CX Daily: Tencent, ByteDance Gut Metaverse Units in Virtual Reality Check

In Depth: Tencent, ByteDance gut metaverse units in virtual reality check
Xi affirms China’s commitment to restoring peace in Ukraine in phone call with Zelenskyy
British Airways resumes service to China after two-year hiatus

U.S. Firms’ Optimism on China Grows Despite Tensions, AmCham Survey Shows

Although rising tensions between Washington and Beijing continue to be a top concern, American companies in China are increasingly optimistic about their outlook on China
In a survey conducted by the American Chamber of Commerce in China (AmCham China) last week, almost 60% of the 109 members who participated responded positively when asked about their outlook on China’s economic recovery for the next two years
Nearly all AmCham China members believe that positive relations between the U.S. and China are essential for the growth of their companies

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 27

Daily Brief Macro: Inflation Watch: A Short-Lived Acquaintance and more

In today’s briefing:

Inflation Watch: A Short-Lived Acquaintance, or in the Euro Zone to Stay?
Ukrainian Spring Offensive – 3 Things Investors Should Look Out For
RCEP Is Benefitting China, but Not ASEAN; Latter Gains US Market-Share
CX Daily: China’s Struggle to Unify Localized Health Insurance

Inflation Watch: A Short-Lived Acquaintance, or in the Euro Zone to Stay?

There are reasons to lean DOVISH on inflation in the short-term
Medium-Term prospects are much more muddy in Europe due to sticky wage inflation.
According to market pricing, we will see peak hawkishness from the ECB (Overnight index swaps) around September/October

Ukrainian Spring Offensive – 3 Things Investors Should Look Out For

By Mikkel Rosenvold

The Ukrainian Spring Offensive is underway! What should investors look out for?
Read about Black Sea Shipping, Migrant Pressure on the West and Baltic Sea Sabotage
Be prepared for the coming offensive and how Putin might respond

RCEP Is Benefitting China, but Not ASEAN; Latter Gains US Market-Share

By Prasenjit K. Basu

In 2022 (the first year with the RCEP fully operational), ASEAN’s bilateral trade deficit with China nearly doubled to US$163bn, while China’s surpluses with Japan and Korea shrank.
RCEP entailed the reduction in tariffs, but non-tariff barriers (China’s primary form of protection for its economy) remained unaffected. Ironically, China has seen big unilateral gains from implementation of RCEP.
The imposition of higher US tariffs since 2019, and tighter export controls since 2022, has shrunk China’s bilateral trade surplus with the US, while boosting the rest of Asia’s surpluses.

CX Daily: China’s Struggle to Unify Localized Health Insurance

Health insurance / In Depth: China’s struggle to unify localized health insurance
Diplomat / Chinese embassy in France plays down Ambassador Lu’s remarks on ex-Soviet states
Sudan / Chinese nationals evacuated from conflict-hit Sudan

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 26

Daily Brief Macro: Japan Watch #2: Ueda Is Under Increasing Pressure to Act and more

In today’s briefing:

Japan Watch #2: Ueda Is Under Increasing Pressure to Act
Operating Leverage in Reverse: The Impact on Equity Markets
Resilience in World Economy Is Only of Modest Help to Asia
Avoiding Recession Raises All Rates
China’s Recovery Progresses but Elements of Fragility Remain
CX Daily: Hubris And Heartache: Behind The Tragedy Of Beijing’s Deadly Hospital Fire

Japan Watch #2: Ueda Is Under Increasing Pressure to Act

Japanese inflation is getting increasingly embedded – >80% of basket components increase YoY.
Expectations ahead of the Ueda-led BoJ policy statement are low
In general, a move higher in the Japanese Core CPI speaks in favor of a defensive equity allocation

Operating Leverage in Reverse: The Impact on Equity Markets

Operating leverage works both ways. With the gap between earnings growth and sales growth now negative, stock markets have entered a phase of ‘reverse operating leverage.’
To determine the impact of reverse operating leverage on future equity market returns, we looked at all instances when sales growth topped earnings growth since 2000.
As it turns out, a recession determines whether ‘reverse operating leverage’ hits equities or not. And since we expect a recession…

Resilience in World Economy Is Only of Modest Help to Asia

By Manu Bhaskaran

The world economy has been more resilient than thought but the demand for Asian manufactured goods has been hurt by cyclical headwinds and lower commodity prices.
Global services activity, in contrast, has done better but this provides fewer benefits for Asian exporters. Still, a fuller tourism recovery should provide a boost to Asia.
However, capital expenditures in developed economies are proving resilient, while positive dynamics such as infrastructure spending and investment inflows provide support for growth.

Avoiding Recession Raises All Rates

By Phil Rush

Global activity has remained remarkably resilient to recessionary forces. A prolonged path of stagnation may spare the acute pains of recession but carries other costs.
Persistent excess demand sustains inflationary pressures, including through second-round effects that are particularly pronounced in the UK.
Policy needs to stay tighter for longer, increasing the hysteresis potential as rates need to defer demand ever further into the future, opposite to the 2010s’ regime.

China’s Recovery Progresses but Elements of Fragility Remain

By Manu Bhaskaran

Economic data in March showed that the recovery is underway, but the pace is uneven and shows signs of slowing in areas like retail sales, fixed investment, and real estate.
Forward-Looking indicators such as corporate confidence, loan demand, and housing market sentiment are improving, but a “wait-and-see” attitude is prevalent.
We upgrade our views on Chinese growth given that the recovery remains on track, but this is subject to a considerable margin of error given our reservations.

CX Daily: Hubris And Heartache: Behind The Tragedy Of Beijing’s Deadly Hospital Fire

Hubris and Heartache: Behind the tragedy of Beijing’s deadly hospital fire
China lodges complaint about South Korean president’s ‘erroneous’ remarks on Taiwan
China loses more of its share of U.S. imports to ‘low-cost’ Asian rivals

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 25

Daily Brief Macro: The Week That Was in ASEAN@Smartkarma – Matahari Dept Store Has Style and more

In today’s briefing:

The Week That Was in ASEAN@Smartkarma – Matahari Dept Store Has Style, Bank Mandiri, and Astra Intl.
Weekly Market Monitor (16) – The Odds of a Recession Is Rising; Earnings Just Don’t Know It Yet
China Household
Don’t Get Fooled by the Tight Inventory Narrative – Economic Situation Continues to Worsen

The Week That Was in ASEAN@Smartkarma – Matahari Dept Store Has Style, Bank Mandiri, and Astra Intl.

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 Matahari Department Store (LPPF IJ), Bank Mandiri Persero (BMRI IJ), Astra International (ASII IJ), and H2G Green in Singapore.
There were also sector pieces on Indonesian infrastructure and Indonesian tobacco.

Weekly Market Monitor (16) – The Odds of a Recession Is Rising; Earnings Just Don’t Know It Yet

‘We lower the weight of equities. With markets pricing several Fed rate cuts, valuation rising, and earnings expectations too upbeat, catalysts for further increases are vanishing.
After the significant decline in March building permits, the implied recession odds linked to this indicator are rising again.
There’s a classic example of reverse operating leverage going on: earnings growth is negative, while sales growth is positive. Most of the time, this is followed by a recession.

China Household

By Untying The Gordian Knot

The YoY growth in China Retail sales was 10.60%, TSF lending grew at 15.70%, and New Loans to Households increased by 65.10%.
Deposit growth was 12.68%. You look at the headline figures Individually; there is something for all versions of Bullish Reopening Narratives from the recent data.
The onshore investor has participated in the reopening theme and unwinding, but the Foreign Investor seems to believe more than the locals and continues to get more invested.

Don’t Get Fooled by the Tight Inventory Narrative – Economic Situation Continues to Worsen

By The Commodity Report

Don’t get fooled by the tight inventory narrative While many copper bulls continue to write about the low copper inventories I would like to inform you once again that there is simply no correlation between copper inventories and the price of the industrial metal.
If you want to be precise – you could even make the case that excessive lows in the LME copper inventory data actually mark cyclical highs in the price of the brownish metal.
US Leading Economic Index’s recession signal deepens in March, Conference Board reports: “The US LEI fell to its lowest level since November of 2020, consistent with worsening economic conditions ahead,” says CB’s senior manager for business cycle indicators.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 24

Daily Brief Macro: Making Sense of a Mona Lisa Market and more

In today’s briefing:

Making Sense of a Mona Lisa Market
US Companies Preserve Profit Margins Via Higher Prices to Avoid Repeat of 2000-2003 Environment
Why You Shouldn’t Be Overly Bullish or Bearish

Making Sense of a Mona Lisa Market

The market is behaving like the enigmatic Mona Lisa as it is beset by a series of cross-currents that investors may not even be aware of.
The concerns over a potential debt ceiling impasse, as well as the de-dollarization narrative.
The possible effects of a credit crunch on the economy and the Fed’s reaction…and more.

US Companies Preserve Profit Margins Via Higher Prices to Avoid Repeat of 2000-2003 Environment

By Said Desaque

US equity prices declined -20% in real terms from 2021 Q4 to 2023 Q1, identical in magnitude to what transpired over the same time period after the internet bubble peak.
In contrast to the late-1990s, corporations are responding to rising unit labour costs by increasing selling prices, but this has produced economy-wide inflation.
Investors cannot have both rich equity valuations and high operating margins when the latter is due to companies simply raising prices to cover higher costs.

Why You Shouldn’t Be Overly Bullish or Bearish

A review of market conditions reveals bearish macro factors of a possible recession offset by bullish contrarian factors from extreme cautiousness from sentiment surveys.
A U.S. recession is probably in the cards, but most of the deterioration may have already been discounted.
This suggests a scenario where neither bulls nor bears gain the upper hand.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 23

Daily Brief Macro: Is Global Liquidity Already Threated By America’s Upcoming Debt Ceiling? and more

In today’s briefing:

Is Global Liquidity Already Threated By America’s Upcoming Debt Ceiling?
Optimizing Portfolio Performance and Mitigating Risk with Economic Scenario Generators

Is Global Liquidity Already Threated By America’s Upcoming Debt Ceiling?

By Michael J. Howell

Latest weekly Global Liquidity data reveal a sharp hiccup caused by tax payments in the US and repo timing issues in China
This does not foretell of any future serious disruption to our expectations for easier liquidity conditions later this year and next
The jump in America’s TGA at the Fed signals weak tax revenues and warns that the debt-ceiling may be hit sooner, possibly by June/ July

Optimizing Portfolio Performance and Mitigating Risk with Economic Scenario Generators

By Albert Maass

Economic Scenario Generators (ESGs) are computational tools that generate plausible future economic scenarios, aiding risk management, asset valuation, and investment decision-making.
ESGs differ from Monte Carlo simulations in focus, inputs, complexity, and output, and are specifically designed for economic scenario analysis.
Many investor types, including pension funds, life insurance companies, family offices, asset managers, and sovereign wealth funds, can benefit from using ESGs to optimize portfolio performance and mitigate risk.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Apr 22

Daily Brief Macro: EM by EM #2 – Don’t Fight the Xi and more

In today’s briefing:

EM by EM #2 – Don’t Fight the Xi
Money Watch: Your Favorite Liquidity Proxy Is About to Become Drier than a Martini
PW Advisory Friday Musings: Crunch Time
UK: Sales Soaked in Mar-23

EM by EM #2 – Don’t Fight the Xi

Chinese consumers are back with a vengeance after COVID. Pend-up savings and real incomes fuel the boom
CCP successfully managed to avoid an overall systemic meltdown with the Evergrande/Real Estate complex crisis in the fall of 2021
Should the global credit market once again take the Chinese real estate complex as a hostage, the CCP has plenty of macro-room to respond

Money Watch: Your Favorite Liquidity Proxy Is About to Become Drier than a Martini