Macro

In today’s briefing:

When Inflation Peaks, Favor Nominal over Real Assets: The Multi-Asset Evidence
Turkey Election Watch – Erdogan and Kiliçdaroğlu Foreign Policies Compared

When Inflation Peaks, Favor Nominal over Real Assets: The Multi-Asset Evidence

There is a clear distinction between the returns of nominal and real asset classes following a peak in US headline inflation.
The 1,2,3,6, and 12-month returns for both US Equities and Treasuries are positive and, more importantly, above the average returns measured over the entire sample period.
The returns on Commodities following a peak in US inflation are negative for all five holding periods, while Gold is somewhat of a mixed bag caused by elevated return volatility.

Turkey Election Watch – Erdogan and Kiliçdaroğlu Foreign Policies Compared

The May 14th election in Turkey has been named the most import election of the year. Why? Because of the surging geopolitical significance (and unpredictability) of Turkey.
But how much does the foreign policy positions of incumbent President Erdogan and opposition challenger, Kemal Kılıçdaroğlu (Nation Alliance), differ?
We have taken a closer look at the election manifestos of the Nation Alliance and Erdogan’s AK Parti. Comparing key excerpts, we give you the full FP analysis.

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Apr 20

Daily Brief Macro: Labor Market Watch: The Final Nail in the Coffin? and more

In today’s briefing:

Labor Market Watch: The Final Nail in the Coffin?
EA: Narrow HICP Slowing in Mar-23
Newly Leased Space in Beijing Prime Office Buildings Plunges 21%
UK: Inflation Incinerating BoE Hopes
CX Daily: Long Tethered to Apple, Chinese Suppliers Seek New Options

Labor Market Watch: The Final Nail in the Coffin?

By Andreas Steno

Close to all timely indicators show a weakening labor market
Nominal wage growth is diminishing, but real wages rise on the back of dwindling inflation
The US economy WILL be in a recession in 2023 – but risk assets could still thrive a little longer

EA: Narrow HICP Slowing in Mar-23

The final EA HICP inflation print confirmed the steep drop to 6.88% in Mar-23, close to the similarly unsurprising ex-tobacco rate amid marginal news in the details.
There wasn’t much room for seasonal normalisation from January’s cuts. Other price rises remained broadly excessive, supporting underlying inflation measures.
The ECB needs to tighten policy further to break economic excesses and achieve its target. So we still expect 25bps rate hikes at its May and June meetings.

Newly Leased Space in Beijing Prime Office Buildings Plunges 21%

Office leasing in Beijing plunged 21% in the first quarter from the fourth, according to real estate service provider CBRE Group Inc., signaling businesses’ reluctance to expand in a shaky post-pandemic economy.
The data reflect newly leased areas in prime office buildings. The number of deals signed to expand office space rental in Grade A office buildings in Beijing dropped 6% during the first three months from the last three months of 2022.
The average expansion area of office rental decreased from 1,700 square meters to 1,400 square meters on a quarter-to-quarter basis, data from CBRE showed.

UK: Inflation Incinerating BoE Hopes

Inflation slowed by less than expected in Mar-23 to 10.1% on the CPI (RPI 13.5%). That 0.3pp CPI surprise (14bps for us) worryingly follows a 0.5pp miss last month.
This upside news was painfully broad-based again as services and core inflation ran hot. The underlying monthly impulse is resisting a return toward target-consistent rates.
Excessive pressures are proving painfully resilient, with a 0.9pp surprise to the BoE’s forecast incinerating their dovish hopes. We still expect another 25bps hike in May.

CX Daily: Long Tethered to Apple, Chinese Suppliers Seek New Options

Apple /: In Depth: Long tethered to Apple, Chinese suppliers seek new options
GDP /: China’s first-quarter GDP grows 4.5% on pickup in consumption, industrial production
Banking /: Citic Bank promotes president Fang Heying to chairman

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Apr 19

Daily Brief Macro: Is Singapore Setting Itself Up for a Fall? and more

In today’s briefing:

Is Singapore Setting Itself Up for a Fall?
Asian Urbanization Warrants Plugging Infrastructure Gaps
The Great Game – a New Migrant Wave into Europe?
UK: Wages Reflate Hawkish Pressure
CX Daily: China Emerges As Powerbroker On Global Diplomatic Stage

Is Singapore Setting Itself Up for a Fall?

By Manu Bhaskaran

The city-state has had a good few years due to sound pandemic management, adept investment promotion, and setbacks experienced by rival hubs such as Hong Kong.
However, concerns over the costs of doing business, particularly in labour and rental costs, are early warning signs that firms may look elsewhere if these issues are not fixed.
Structural shifts in policy are required, including enhancing regional integration with neighbours, rethinking the education system, and pro-competition policy reforms.

Asian Urbanization Warrants Plugging Infrastructure Gaps

By Manu Bhaskaran

Emerging Asia is on the cusp of a rapid expansion in its urban population. This brings with it exciting opportunities for employment and business activity.
However, investments into infrastructure need to be made now to ensure that the needs of the expanded urban population can be met to avoid downsides such as congestion.
The medium-term financing needs for infrastructure are significant, with the transport, energy, and telecommunications segments facing their own set of challenges.

The Great Game – a New Migrant Wave into Europe?

A new migrant wave threatens Europe as Italy declares emergency and Mediterranean deaths reach new heights
Refugees will be used as a tool of war in Putin’s hybrid war against Europe and the West
And Refugees will potentially shape a series of key elections in 2024

UK: Wages Reflate Hawkish Pressure

The UK unemployment rate increased back to 3.8% in Feb-23 as an unusually actively unemployed cohort joined the sample. The underlying trend remains broadly flat.
Vacancies are high, encouraging firms to pay up to hire and retain staff. Revisions into rapid Feb-23 wage growth remove signs of a slowdown.
Settlements are anchoring around 5%, with a skew up, fuelling problematic second-round effects. We maintain our call for the BoE to hike by another 25bp in May.

CX Daily: China Emerges As Powerbroker On Global Diplomatic Stage

Diplomacy /Cover Story: China emerges as powerbroker on global diplomatic stage
France /: France and U.S. are allies with different voices, French ambassador to China says
Yi Gang /: China calls for ‘fair burden sharing’ to address poor countries’ sovereign debt issues

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Apr 18

Daily Brief Macro: Asset Allocation Watch: Are Equities Cheap or Expensive Ahead of the Reporting Season? and more

In today’s briefing:

Asset Allocation Watch: Are Equities Cheap or Expensive Ahead of the Reporting Season?
Changes in Portfolio Weights: Lowering the Weight of Equities
IPO Price Band Widening, Cornerstone Investors Requirement, & Top 8 IPOs in Korea in 2H 2023
Soft commodities dominate 2023 – US orange crop falls to 86-year low
The Week That Was in ASEAN@Smartkarma – ASSA’s Mobility Edge, Alfamart’s Convenience, and ITMG.

Asset Allocation Watch: Are Equities Cheap or Expensive Ahead of the Reporting Season?

By Andreas Steno

Equities are NOT expensive in a historical context. They are relatively close to fair value
US equity markets look slightly expensive relative to European or Asian markets.
If we get a recession (our base case for H2), we find no signs that it is already priced in.

Changes in Portfolio Weights: Lowering the Weight of Equities

US retail sales fell 1.0% in March, the fourth decline in the last five months. We expect the downturn in the housing market to cause another dip in consumer sentiment.
Our earnings-per-share vs. P/E ratio analysis provides little upside. It will demand higher valuations and/or positive earnings growth to allow for meaningful upside.
Sentiment has been the key market driver in recent weeks. But with the VIX Index down to 17 in a weakening macro environment, the impulse may be fading.

IPO Price Band Widening, Cornerstone Investors Requirement, & Top 8 IPOs in Korea in 2H 2023

By Douglas Kim

We provide details of the widening of the IPO price band in Korea, cornerstone investor requirement, and the potential top 8 IPOs in Korea in 2H 2023.
The FSC is also in the process of allowing cornerstone investor requirement for Korean IPOs.
We also provide a list of top 8 potential IPOs in Korea (with market caps of at least 500 billion won) that could get completed in 2H 2023.

Soft commodities dominate 2023 – US orange crop falls to 86-year low

By The Commodity Report

USDA on Tuesday pegged the 2022-2023 U.S. orange crop at 62.25 million boxes (2.57 million tonnes), an 86-year low and down 23% on the year.
That is less than 20% of U.S. output in the record 1997-1998 season.
Florida, which has previously accounted for more than 80% of the annual U.S. orange crop, is seen producing an 87-year low of 16.1 million boxes, down 61% on the year.

The Week That Was in ASEAN@Smartkarma – ASSA’s Mobility Edge, Alfamart’s Convenience, and ITMG.

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 Adi Sarana Armada (ASSA IJ), Sumber Alfaria Trijaya (AMRT IJ), Jardine Strategic Holdings (JS SP), Lian Beng, and Indo Tambangraya Megah (ITMG IJ).
There were also bottom-up insights on Aneka Tambang (ANTM IJ), Mayora Indah (MYOR IJ), and Alam Sutera Realty (ASRI IJ).

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Apr 17

Daily Brief Macro: The Market Leaders Hiding in Plain Sight and more

In today’s briefing:

The Market Leaders Hiding in Plain Sight
How to Position for the Coming Growth Slowdown
Sustainability Meets Innovation: ESG Derivatives Become Mainstream
US Corporate Outlook: Credit and Labour Hoarding Profit Risks Lurk in the Background

The Market Leaders Hiding in Plain Sight

By Cam Hui

The long-term structure of global markets is seeing a loss of leadership by U.S. equities and emerging new leadership in Europe.
The short-run outlook will depend on the results of earnings season.
Our base case calls for a choppy and range-bound market.Wait for the breakout, or breakdown.

How to Position for the Coming Growth Slowdown

By Cam Hui

The IMF warned about a growing risk of recession in the advanced economies: “A hard landing — particularly for advanced economies — has become a much larger risk.”
The risk of a substantial economic slowdown is rising based on our review of macro, fundamental, and real-time market factors.
Investors should position themselves by holding a diversified portfolio of stocks and bonds to protect themselves from possible future asset price volatility.

Sustainability Meets Innovation: ESG Derivatives Become Mainstream

By Albert Maass

ESG derivatives (SLDs) are emerging as a key financial instrument in sustainable finance, as they incentivize companies to improve their ESG practices and help investors achieve their sustainability goals.
As the market is rapidly growing and evolving, market participants and regulators are facing challenges related to data standardization, transparency, and greenwashing.
To ensure transparency and effective risk management, market participants must collaborate and adopt data standards and frameworks to support the successful growth and impact of SLDs.

US Corporate Outlook: Credit and Labour Hoarding Profit Risks Lurk in the Background

By Said Desaque

US non-financial corporations’ debt exposure has risen since the global financial crisis. Tighter bank lending standards will raise borrowing costs, while a higher federal funds rate raises debt servicing costs.
The 2023 Q1 US corporate earnings reporting season should confirm the arrival of a corporate profits recession, while another contraction is expected in Q2.
Labour hoarding and falling profits make the current environment similar to the onset of the 2001 recession: corporations were eventually forced to reduce headcount to stabilise earnings and stock prices.

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Apr 16

Daily Brief Macro: Major Global Liquidity Warning – Don’t Fight the Feds and more

In today’s briefing:

Major Global Liquidity Warning – Don’t Fight the Feds
Sentiment Strengthens, While Fundamentals Fade

Major Global Liquidity Warning – Don’t Fight the Feds

By Michael J. Howell

A major bull market in Global Liquidity has started. Be prepared the cycle is rising and looks set to expand towards a new top sometime around 2026.
A sharp uptick in the pace of liquidity injections into World financial markets occurred around October of last year in the wake of the British gilt crisis
China’s PBoC also began a major easing policy coinciding with the end of COVID-lockdowns. China matters hugely to the World economy because of her whopping size.

Sentiment Strengthens, While Fundamentals Fade

We have to go back to 1980 to find a month when small US businesses thought it was an even worse time to expand.
Volatility is falling off a cliff as investors embrace a new kind of goldilocks.
A common denominator drives Bitcoin and Gold higher: their perceived value as insurance against adverse market circumstances.

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Apr 15

Daily Brief Macro: EURO-USD Cross Rate and more

In today’s briefing:

EURO-USD Cross Rate
TPW Advisory Friday Musings: Iron Sharpens Iron

EURO-USD Cross Rate

By Untying The Gordian Knot

While the market has aggressively moved the US rates and the rate expectations lower, the European rates are pricing in higher for longer, with a rate hike possibility still on the cards.
In the current market environment, the Dollar crosses are driven by rate differential and sentiment rather than growth differential and geopolitical risk of the Ukraine war.
The Cross rate and the 13-day RSI are overlaid with two standard deviations Bollinger Bands to plot the mean reversion boundaries.

TPW Advisory Friday Musings: Iron Sharpens Iron

By TPW Advisory

Today’s title comes from the O line room @ dear old Duke. As a former member of that group, I always like it when the big fellas lead.
Iron Sharpens Iron was a social media quote from a Duke O lineman noting that when new O line guys come in via the transfer portal they make the existing guys better – just like iron sharpens iron.
A little research shows the phrase goes back to Biblical times and implies we are better together than separately much as one iron blade by itself gets dull, two iron blades working together stay sharp.

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Apr 14

Daily Brief Macro: The Market’s Triumph over the Fed: Winning by Losing! and more

In today’s briefing:

The Market’s Triumph over the Fed: Winning by Losing!
CX Daily: Giving China’s Death Row Inmates a Second Chance
The Long Term Debt Cycle
ESG Risk: A Key Factor in Enterprise Risk Management
Cre Watch: Illiquid Trouble Stuck on the Books
UK: Lying Flat Again in 2023
Asian Frontier Markets Not Impacted by U.S. And Europe Banking Sector Stress

The Market’s Triumph over the Fed: Winning by Losing!

The 3-month annualized change of all six CPI measures in our US Inflation Monitor fell compared to February.
Given the levels of inflation and its poor track record, the Fed will want to put one extra hike in to be ‘better safe than sorry.’
The odds markets will win this battle with Powell are increasing, but only because so is the likelihood of a recession.

CX Daily: Giving China’s Death Row Inmates a Second Chance

Legal /In Depth: Giving China’s death row inmates a second chance
China-New Zealand /: China-New Zealand ties will continue to ‘grow and mature,’ island nation’s top diplomat says
Stocks /: China’s newest stock exchange fails to recapture early momentum

The Long Term Debt Cycle

By The Macro Compass

Long-term, structural economic growth is mostly driven by two factors: demographics and productivity.
Both peaked in the late 80s, and we chose to fix the problem with a ton of debt.
It worked until now, but we are at very late stages of the long-term debt cycle.
Healthy demographics and high fertility rates facilitate a growing labor force: retirees are more than offset by new young workers, and hence the share of working-age population as % of total increases.

ESG Risk: A Key Factor in Enterprise Risk Management

By Albert Maass

Environmental, social, and governance (ESG) risks, also known as sustainability risks, can significantly impact an organization’s reputation, operations, and financial performance.
Assessing sustainability risk involves using methods such as ESG ratings, data analysis, and scenario planning, and considering both qualitative and quantitative factors.
To effectively manage sustainability risks, we must incorporate them into the overall ERM framework, with a clear understanding of their potential financial implications and alignment with organizational goals and objectives.

Cre Watch: Illiquid Trouble Stuck on the Books

By Andreas Steno

Across the US, commercial real estate (CRE) has sharply reversed the covid boom.
We see more and more firms letting their leases expire to mitigate costs – an exercise which naturally will worsen the figures further.
Now, with CRE constituting upwards of 35% of small banks’ total assets, further pressure on balance sheets and credit ought to impact the broader economy as well.

UK: Lying Flat Again in 2023

UK GDP was flat in Feb-23 as strikes offset the boost from warm weather, which was especially pronounced in construction.
Upwards revisions since Oct-22 support Q1, lifting our forecast by a tenth further above the consensus to GDP growth of 0.1% q-o-q.
The UK may resist recession by lying flat. Potential growth could eventually catch supply up with demand, albeit with more excess inflation and policy rate persistence.

Asian Frontier Markets Not Impacted by U.S. And Europe Banking Sector Stress

By Asia Frontier Capital

Despite the immense volatility faced by banking systems in the U.S. and Europe, Asian frontier markets were relatively unscathed, with the AFC Asia Frontier Fund, AFC Iraq Fund, and AFC Vietnam Fund reporting positive returns for March.
This month’s performance continues to reflect the significant diversification benefits that Asian frontier markets offer investors during times of unsettling global events.
Furthermore, the banks in Asian frontier countries are not directly impacted by the banking sector stress which the U.S. and Europe faced in March since the banks in our universe predominantly focus on their domestic economies and run balance sheets geared towards traditional deposit and lending products.

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Apr 13

Daily Brief Macro: The Great Game – Geopolitical Overview Q2 2023 and more

In today’s briefing:

The Great Game – Geopolitical Overview Q2 2023
Back to the Future: ‘US Unemployment Hits 7% in January 2025’
CX Daily: Five Things to Know About Early Mortgage Repayments in China

The Great Game – Geopolitical Overview Q2 2023

If we learned anything from 2022, it’s that you need to keep your eye on geopolitics as an investor.
Gone are the days of American hegemony – now, great power rivalry is back
We give our assessment of key geopolitical situations that investors need to be on top of in Q2 2023

Back to the Future: ‘US Unemployment Hits 7% in January 2025’

The US labor is finally succumbing to the biggest and fastest Federal Reserve tightening cycle since the early 1980s.
The historical relationship between Fed tightening cycles and the US unemployment rate is strong. On average, US unemployment started rising six months after the last Fed hike.
It took nearly two years after the last Fed rate hike before the peak was in, with unemployment increasing by 3.5 percentage points. The big exception: 1994-1995!

CX Daily: Five Things to Know About Early Mortgage Repayments in China

Mortgage /: Five things to know about early mortgage repayments in China
Sandstorm /: China hit by yet another sandstorm as capital chokes in dust cloud
Brokerages /: Bear market saps Chinese brokerages’ 2022 earnings

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Apr 12

Daily Brief Macro: Debt Ceiling Countdown #4: The Chicken Game Catastrophe and more

In today’s briefing:

Debt Ceiling Countdown #4: The Chicken Game Catastrophe
CX Daily: Chinese Internet Giants, AI Startups Rush to Jump on ChatGPT Bandwagon
The Week That Was in ASEAN@Smartkarma – SCMA’s Reset, Metrodata, and Indocement’s Alternative Edge.

Debt Ceiling Countdown #4: The Chicken Game Catastrophe

Political commentators are freakishly zen when it comes to the U.S debt ceiling. The consensus view is that Congress *eventually* will come to a solution, “So calm down!”
While I don’t disagree with the end-result, it is astounding how few are concerned with the likely government crisis that will unfold before a deal is struck.
We are underestimating the power of the Freedom Caucus and overestimating Biden’s willingness to avoid a government shutdown. The cocktail is putting the U.S. on a path towards debt brinkmanship.

CX Daily: Chinese Internet Giants, AI Startups Rush to Jump on ChatGPT Bandwagon