Macro

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

By Mikkel Rosenvold

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

By Caixin Global

AI /Cover Story: Chinese internet giants, AI startups rush to jump on ChatGPT bandwagon
China-EU /Opinion: Macron and VDL’s visits to China – will the rejection of decoupling lead to restoration of relations?
Inspections /: China doubles down on rooting out corruption in sports

The Week That Was in ASEAN@Smartkarma – SCMA’s Reset, Metrodata, and Indocement’s Alternative Edge.

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 inights on PT Surya Citra Media, PT Metrodata Electronics, Indocement Tunggal Prakarsa Monde Nissin Corp, Golden Energy & Resources, Thai Solar Energy, and Thai Union Group.
There were also macro insights on Malaysia and Vietnam and sector insights on banking, EVs in Indonesia and Singapore-listed manufacturing stocks plus a credit insight on Medco Energi (MEDC IJ)

💡 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 11

Daily Brief Macro: Inflation Watch: 10 Reasons Why No One Will Talk Inflation in 6 Months from Now and more

In today’s briefing:

Inflation Watch: 10 Reasons Why No One Will Talk Inflation in 6 Months from Now
Macro Strategy – Slow Walking into a Recessionary Credit Crunch
South Korea’s Economic and Geopolitical Risks Pose Strategic Quandary
China’s Economy Remains Fragile Despite Headline Recovery
Australian Dollar
Will North Korea Spring a Nasty Surprise?
Between Chilean Copper Woes & Brazilian Sugar Rush

Inflation Watch: 10 Reasons Why No One Will Talk Inflation in 6 Months from Now

All major forward looking indicators point to disinflation in coming quarters
Even sticky prices now seem to be fading in various indicators
No one will talk inflation in six months from now

Macro Strategy – Slow Walking into a Recessionary Credit Crunch

The weakest 2-week change in bank lending on record over the course of March
Banks take extremely conservative decisions on the back of SVB
If bank lending continues to contract, Real Estate will be the first victim

South Korea’s Economic and Geopolitical Risks Pose Strategic Quandary

The sluggish semiconductors market will weigh against the cyclical outlook via manufacturing activity and exports. China’s reopening in trade and tourism is unlikely to compensate.
The severe population headwinds are caused by entrenched and interlinked factors including labour market rigidities, costs of household formation, and cultural legacies.
Geopolitical tensions also pose questions for South Korea’s export-driven model of industrialization. Other Asian markets wishing to emulate this path should be cautious.

China’s Economy Remains Fragile Despite Headline Recovery

The central bank’s depositors’ survey shows signs of recovery in sentiment, but household behaviour still leans towards rebuilding financial buffers and precautionary savings.
Exporters are also facing difficulties, spurring policy support. A nascent recovery in the property sector, although this needs to be spread geographically for a significant upside.
These pockets of fragility mean that spillovers from China’s re-opening may be less than hoped, although outbound tourism remains a bright spot given pent-up demand.

Australian Dollar

By Untying The Gordian Knot

The Australian Dollar is at a medium and long-term inflexion point.
The first question it raises is, does the Australian Dollar holds support and makes a sustainable rally or take the next major leg down?
Secondly, is it a cause or an effect of weakening Global Demand for industrial commodities?

Will North Korea Spring a Nasty Surprise?

The chances of destabilizing actions emanating from Pyongyang have increased due to changes in domestic and external dynamics in the regime’s decision-making.
Pyongyang’s history of calibrated but high-risk provocations points to the regime trying to pressure the US to recognize the regime and nuclear power, bypassing Seoul.
A series of weapons tests and demonstrations, a severance of communications, and domestic troubles mean that the risk of foreign adventurism has risen.

Between Chilean Copper Woes & Brazilian Sugar Rush

By The Commodity Report

As the new season commences in April, Brazil is predicted to manufacture 40.3 million tonnes of sugar, marking the second highest yield ever recorded.
This is primarily due to the favorable climate conditions and the sufficient capitalization of mills, allowing for the proper care of crops.
As per a report by Job Economia, mills are likely to concentrate on sugar production, reducing ethanol production, since the cost of sugar futures is at its highest in over six years.

💡 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 10

Daily Brief Macro: Why You Should Fade the Breadth Thrust and more

In today’s briefing:

Why You Should Fade the Breadth Thrust
The Fire & Ice Challenge to Risk Assets
Can the Yield Curve Predict the Future of the Economy? An Updated Analysis Using Granger Causality
TPW Advisory April Monthly: Look Behind The Curtain

Why You Should Fade the Breadth Thrust

The stock market was higher a year later in every instance of out-of-sample Zweig Breadth Thrust buy signals since 1986, though it did pause and pull back on two occasions.
We think that the latest signal will resolve in a pullback.
The market structure of the S&P 500 indicates it’s undergoing a bottoming process. Our base case calls for breadth to recover in a choppy manner for the next few months.

The Fire & Ice Challenge to Risk Assets

The stock market and other risk assets are facing a fire and ice challenge.
Fire in the form of still overly hot inflation readings and ice in the form of a deteriorating economy.
We believe current conditions are only bearish warnings and not outright bearish signals and offer several tripwires to watch.

Can the Yield Curve Predict the Future of the Economy? An Updated Analysis Using Granger Causality

By Albert Maass

Does the yield curve predict the US economy? Debate continues if the difference between short and long-term rates reliably indicates future GDP growth or if it’s just a coincidence.
If the yield curve spread accurately forecasted changes in GDP growth, it could help predict booms and recessions, offering a more informed basis for economic policy and decision-making.
An updated Granger causality analysis provides new evidence to settle the debate between correlation and causation.

TPW Advisory April Monthly: Look Behind The Curtain

By TPW Advisory

We go back to one of our favorite movies: The Wizard of Oz, to discuss what happens when investors pull back the curtain on the Fear, Uncertainty & Doubt (FUD) hype machine.
We believe that what lies behind the curtain is not a big, bad, brown Kodiak bear but rather a series of important policy changes that are in process of unfolding across the Tri Polar World.
These include: Central Bank acceptance of higher inflation targets; the return of US Industrial Policy after a 70 year absence; Europe’s push for integration across energy, tech, defense and climate; Japan’s shift off YCC and China’s adoption of a domestic demand led growth strategy.

💡 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 09

Daily Brief Macro: US Banks’ Commercial Real Estate Exposure: Not the Same as 2008 and more

In today’s briefing:

US Banks’ Commercial Real Estate Exposure: Not the Same as 2008

US Banks’ Commercial Real Estate Exposure: Not the Same as 2008

By Said Desaque

Loans & leases remain the largest component of bank credit. Tighter monetary conditions are impacting loan quality as testified by rising delinquency rates for auto loans and credit cards.
Focus has shifted to the high exposure of smaller banks to commercial real estate loans. Rising CMBS delinquencies are being viewed as potential signs of future trouble for banks.
Higher exposure to multi-family loans should help banks due to their historically lower delinquency rates compared to construction and development loans that were much more important in 2008.

💡 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 08

Daily Brief Macro: CX Daily: How China’s Shrinking Population Is Driving Education Reform and more

In today’s briefing:

CX Daily: How China’s Shrinking Population Is Driving Education Reform
Ignoring Tailwinds
Weekly Market Monitor 14 – Did the Fed Finally Break the US Labor Market?

CX Daily: How China’s Shrinking Population Is Driving Education Reform

By Caixin Global

In Depth: How China’s shrinking population is driving education reform
Beijing’s EU envoy warns of risks if bloc curbs China trade
Exclusive: Shagang still wants to buy Nangang Iron & Steel from Fosun

Ignoring Tailwinds

By Untying The Gordian Knot

The US 10-year rates futures had rallied for six consecutive days while Growth and Momentum stocks lagged.
Wednesday was a marked change, with NASDAQ falling while bonds rallied sharply.
It was a day when value and small caps outperformed FANMG and Growth stocks.

Weekly Market Monitor 14 – Did the Fed Finally Break the US Labor Market?

By Jeroen Blokland

Cracks are appearing in the US labor market, bringing relief for the Federal Reserve concerning inflation. But higher unemployment significantly increases the odds of a US recession.
The increase in Federal Reserve liquidity is keeping markets afloat. But assuming the banking crisis does not worsen from here, liquidity will reverse.
Our Fear & Frenzy Sentiment Index moved away from ‘Frenzy’ but remains in Neutral territory. Futures positioning and equity flows worsened, pushing the Fear & Frenzy Sentiment Index toward ‘Fear.’

💡 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 07

Daily Brief Macro: Japan Watch: The Flight Back Home and more

In today’s briefing:

Japan Watch: The Flight Back Home

Japan Watch: The Flight Back Home

The increase in Japan’s borrowing costs does pose a threat to further fluctuations in global bond markets.
Given the immense holdings of Treasury bonds by Japanese investors and institutions, this could be a worrying reading for US investors.
Both medium- and long-duration Treasuries have become unattractive as hedging costs have eaten away the upside.

💡 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 06

Daily Brief Macro: Vietnam’s Economy Is on Shaky Ground and more

In today’s briefing:

Vietnam’s Economy Is on Shaky Ground
Macro Regime Model Update: Qe-Like Environment Continues
Malaysia’s Long Road to Reform: Opportunities and Challenges
ISM Manufacturing: Zero Upside Left for Equities
Gold’s Big Breakout – Us$2,000 and Beyond
Recent NPS Buys and Sells in Korea

Vietnam’s Economy Is on Shaky Ground

Vietnam’s 1Q23 GDP figures reveal underlying weaknesses due to a slowdown in external demand. Manufacturing growth has also suffered as a result of poor export performance.
Private consumption is also under pressure, with higher inflation, higher borrowing costs, and a bleaker labour market weighing on consumer and business sentiment.
Real estate is another source of downside risk, with project suspensions and the closure of construction firms among the causes of worry. Policy remedies are on the way.

Macro Regime Model Update: Qe-Like Environment Continues

Liquidity indeed increased through March, which was accelerated by bank failures leading to liquidity injections via lending programs.
Our forward-looking indicators have all increased their conviction in continued disinflation through March
The depth of the slowdown/contraction will likely be decided by the credit standards from banks.

Malaysia’s Long Road to Reform: Opportunities and Challenges

The cyclical outlook remains broadly positive, with consumption showing resilience despite losing the one-off boosts from pension drawdowns and excess savings
The government is proceeding cautiously with its pace and sequencing of reforms, Working relationships with the bureaucracy are also carefully managed
A key strategic aim should be to rationalize and consolidate the fragmented patchwork of policies and frameworks in areas such as social welfare and investment promotion

ISM Manufacturing: Zero Upside Left for Equities

By Jeroen Blokland

With the ISM below 50 and falling, this historically has been one of the weakest phases for equities. On average, the 3-month average return has been virtually zero.
For any level below 46.0, our ‘Neutral’ scenario, equities have no upside, including Emerging Market Equities.
Our ISM Manufacturing Index scenarios call for a long US Treasuries, short US Equities strategy.

Gold’s Big Breakout – Us$2,000 and Beyond

By ByteTree Asset Management

Last month, I wrote how the last time government bond yields rose above 4%, it brought down the UK government.
It happened again, and five banks, including the almighty Credit Suisse, failed.
As a result, an old driver of the gold price has re-emerged, which is Sovereign risk.

Recent NPS Buys and Sells in Korea

By Douglas Kim

NPS adjusted holdings of 101 stocks in Korea as of 5 April 2023, of which it reduced ownership in 53 of them and raised ownership in 47 of them.
In this insight, we discuss 39 stocks major stocks in Korea which have experienced changes in their ownerships by the NPS in the past several weeks.
NPS has noticeably increased stakes in reopening related plays and it has also reduced stakes in numerous rechargeable battery related plays in the past several weeks.

💡 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 05

Daily Brief Macro: Oil Prices Soar when OPEC Cuts Production and more

In today’s briefing:

Oil Prices Soar when OPEC Cuts Production

Oil Prices Soar when OPEC Cuts Production

By Jeroen Blokland

Since 1990, OPEC has announced a production cut on 26 occasions.
Historically, oil prices have done well after OPEC announced a production cut, especially between three and 12 months after the announcement.
Expanding the analysis to commodity returns reveals that even though the prices of oil futures tend to fare well after oil production cut announcements, this is less so for Commodities.

💡 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 04

Daily Brief Macro: The Week the Was in ASEAN@Smartkarma – Mitra Adiperkasa and more

In today’s briefing:

The Week the Was in ASEAN@Smartkarma – Mitra Adiperkasa, Bukalapak, and Singapore Airlines
AFC Iraq Fund March 2023 Update: “The Budget, and the Stock Market’s Next Move”
Scary: Oil market business conditions are worsening fast – due to policy mistakes

The Week the Was in ASEAN@Smartkarma – Mitra Adiperkasa, Bukalapak, and Singapore Airlines

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 a flurry of insights on Siloam International Hospitals, Prodia, AKR Corporindo, Telekomunikasi Indonesia, Mitra Adiperkasa, Bukalapak, and Cisarua Mountain Dairy.
There was also a macro insight into Thai Politics, and insights on Delta Electronics Thai, Singapore Airlines, Sembcorp Marine, Golden Energy & Resources, Areit (AyalaLand REIT), plus Indonesian Banks.

AFC Iraq Fund March 2023 Update: “The Budget, and the Stock Market’s Next Move”

By Asia Frontier Capital

The AFC Iraq Fund was up an estimated 4.1% in March, outperforming its benchmark, the Rabee Securities RSISX USD Index, which was up 2.3% for the month.
For the year, the AFC Iraq Fund is up an estimated 27.7%, outperforming the index’s increase of 21.5%.
The market’s and the fund’s solid performance, on the back of last month’s super performance, enhanced by a revalued currency, underscores the underlying strength of the market’s recovery that is in the process of looking through and discounting the currency’s volatility as discussed here recently.

Scary: Oil market business conditions are worsening fast – due to policy mistakes

By The Commodity Report

Oil businesses fear lower prices and a shortage of workers The quarterly Dallas FED Energy survey showed some pretty interesting results.
First of all, business activity tanked and the uncertainty level of businesses rose.
The survey also highlighted which price small and large drilling companies need in order to produce oil without a loss.

💡 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 03

Daily Brief Macro: US Banking System: Repeat of 2008 Unlikely as Fed Separates Balance Sheet from Interest Rate Policy and more

In today’s briefing:

US Banking System: Repeat of 2008 Unlikely as Fed Separates Balance Sheet from Interest Rate Policy
What USD Weakness Mean For Asset Returns
Managing Risk in SME Lending: A Perspective for Institutional Investors
Interpreting the Zweig Breadth Thrust Buy Signal
AFC Vietnam Fund March 2023 Report

US Banking System: Repeat of 2008 Unlikely as Fed Separates Balance Sheet from Interest Rate Policy

By Said Desaque

High losses on banks’ mortgage backed securities (MBS) portfolios are not due to degrading credit quality, but rising interest rates and high inflation that could impact bank lending standards.
Swift action by the Fed and Treasury to guarantee all bank deposits should limit the economic fallout stemming from recent events in the banking system.
The Fed’s balance sheet will be deployed to ensure future financial stability, while the federal funds rate will be the chosen tool to fight inflation.

What USD Weakness Mean For Asset Returns

The USD Index is on the verge of breaking long-term support. If it does, it would have multiple implications for asset class returns:
It would be bullish for gold and non-U.S. equities over U.S. equities.
It would be bearish for the near-term economic outlook and commodity prices.

Managing Risk in SME Lending: A Perspective for Institutional Investors

By Albert Maass

Institutional investors increasingly pursue SME loan portfolios for enhanced returns, diversification, and uncorrelated returns.
However rising interest rates, inflation, and market volatility necessitate reassessing risk management strategies in such portfolios due to potential negative impacts on SME performance and loan repayment ability.
Effective risk management in SME lending by institutional investors requires thorough due diligence, comprehensive risk models, stress testing, regular monitoring, communication with the external managers, and adaptability to market changes.

Interpreting the Zweig Breadth Thrust Buy Signal