Macro

• We discuss the end of the mandatory lock-up periods for 52 stocks in Korea in April 2023, among which 4 are in KOSPI and 48 are in KOSDAQ.
• These 52 stocks on average could be subject to further selling pressures in April and could underperform relative to the market. 
• Among these 52 stocks, the top 5 market cap stocks include Ssangyong Motor (003620 KS), Classys (214150 KS), Jeio (418550 KS), EN Plus (074610 KS), and Nano TIM (417010 KS).

• Four things to know about how China’s PE funds are helping revive real estate.

• Beijing reaffirms Taiwan could adopt own social system after reunification.

• China’s short-video app users top 1 billion.

• Flash EA inflation crashed by 163bp to 6.88% in Mar-23, precisely as we forecasted, but below the consensus. A more resilient core offset downside energy price news.
• Spain’s fall was understated by the consensus, despite being symptomatic of the flat seasonals. Surprises skewed higher across the small member states for us again.
• Inflation will likely rise temporarily in April while underlying inflationary pressures remain too high. We still expect two more ECB rate hikes and no cuts until 2024.

• Geopolitically, no election can contest the significance of the dual Turkish Presidential and Parliament elections this year. 
• Incumbent president Erdogan has never lost an election (national, local or referendum) in his 21 year reign, but right now polls predict a toss-up between him and the opposition coalition.
• The countdown is on to May 14th! We are giving you the key insights in our new Turkey Election Watch Series. Come along for the ride.

• Ageing populations tend to act as a drain on public resources through the healthcare, social security and pension channels.
• Though the make-up of the most heavily-indebted countries remains similar (Japan, Greece and Singapore continue to make the top 3), the gap between those countries has shrunk dramatically.
• Left untethered, the ageing problem and its second-order economic impacts really are a ticking time bomb.

• Total Eurozone bank deposits have hardly declined, while US bank deposits have been coming down for just over a year.
• Yet, depositors are switching from Overnight deposits, callable immediately and earning the lowest interest rate, to longer-maturity deposits with some yield pickup.
• The decline in Overnight deposits has contributed to a decrease in M1 Money Supply Growth of 2.7%. This significantly impacts the inflation outlook.

• Despite financial stability issues, resilience appears to have continued in the Euro area through March. Sentiment has stayed robust, with employment expectations elevated.
• Consumers are the only group gloomier than their average. The positive sentiment is relatively narrow among EA members, unlike employment’s broad-based strength.
• Tight labour markets are more directly relevant to inflationary pressures, which are far too high. Firms still expect widespread price increases across sectors.

• As investors and businesses reposition themselves in the new asset pricing regime, there will be more episodes of market stress.  
• Preliminary PMI figures for advanced markets show that short-term reactions in real economic activity have been muted; Business optimism is still holding up.
• Shifts in sentiment and positions will have consequences for Asian capital spending, currencies, and trade. But we expect overall resilience to hold up. 

• Amid market volatility and economic uncertainty, advanced risk management tools are essential for investors in private asset investing to minimize potential losses and maximise returns.
• Effective risk management for private assets requires thorough due diligence and advanced financial models, such as factor models, to manage risks across diverse assets.
• Integrating public and private assets in risk management and portfolio optimization enables investors to better appraise risks and achieve their goals while adhering to their risk tolerance.

• Elections are slated for mid-May. The once anti-establishment Pheu Thai party is leading in voter surveys. Pro-establishment parties Palang Pracharath and the Democrats are on the backfoot.
• The most likely outcome is that Pheu Thai wins a plurality of parliamentary seats, and forms a coalition with pro-establishment parties.
• Thailand thus has a chance to leave behind a decade of political paralysis. But even with that, daunting economic challenges await the new government.

• The MOVE/VIX ratio has spiked to its highest level since 2005.
• When high MOVE/VIX ratio levels are driven predominantly by an increase in Treasury market volatility, things look ugly for equities.
• When the MOVE/VIX ratio tops 7.0, driven by an elevated MOVE Index, US equities have underperformed US Treasuries by almost 6% in the next three months.

• Cover Story: Chinese automakers rev up price war in race for market dominance

• China will do more to open its markets, vice premier says

• China invites Honduras president to visit after establishing diplomatic ties

• Alibaba / Alibaba splits into six business units in sweeping overhaul

• Corruption / Exclusive: Former Exim Bank executive pleads guilty to taking bribes

• Crackdown / China’s cyberspace watchdog takes aim at slander against businesses

• The EU banking sector is more resilient to deposit flights (for now), but we have started to see weaknesses in the banking system
• We are now on the second consecutive week of >100 bn. MMF inflows
• Fights for funding and banking turmoil might have been in the pipeline for some time now

• 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 GoTo (GOTO IJ) post results, Indosat (ISAT IJ), Del Monte Pacific (DELM SP). PT Trimegah Bangun Persada Tbk (Harita Nickel), and Thantawan Industry.
• There was a sector piece in Singapore Banks, now the 4th most owned banks globally plus insights on Kredivo as Mizuho entered and on Vingroup investing in Grab competitor Be.

• Goldman Sachs jumps back into the supercycle boat Goldman Sachs expects a commodities supercycle driven by China and the capital flight from energy markets and investment this month after concerns triggered by the banking sector, the U.S. bank’s head of commodities said.
• “Historically, when you have this kind of scarring event, it takes months to get capital back … We will still get a deficit by June and it will drive oil prices higher.”
• Jeff Currie, global head of commodities for Goldman Sachs, told the Financial Times Commodities Global Summit on Tuesday.

• Why is Deutsche Bank suddenly selling off violently again without a trigger?
• Could the FIMA-repo usage be a hint that a European entity needs USDs? 
• We look at alternative explanations of the contagion in European banking stocks

• We interpret current conditions as Powell Fed has conveyed that there is a limited Fed Put in the market.
• The Fed will act to support the banking system, or a Bank Put, but it will do nothing to support the overall stock market, or a Market Put.
• As long as the market concerns over the banking system are in place, expect a range-bound choppy stock market.

• The latest “dot plot” is stale by the time it’s published and there’s a high degree of uncertainty around its projections. Instead…
• What matters more is the Fed’s reaction function to financial crises. We have conducted an event study of how the Fed has reacted to shocks and crises in the past.
• In all cases, the Fed took action to stabilize the system. Once stability returned, the Fed withdrew stimulus measures 2–3 months after the event.

• Global Liquidity is the key driver of asset markets. Global Liquidity bottomed in October. Expect a small rise in 2023
• Central Banks, led by the US Fed seem to be restarting a QE program and injecting more liquidity
• Watch the MOVE Index and the daily size of Reverse Repos (RRP) for clues about the direction of Global Liquidity

• High inflation has made it impossible for the Fed to pause or ease policy settings this month despite the onset of banking system concerns, but rate hikes could soon end. 
• Futures contracts are discounting the Fed will cut the federal funds rate in H2. The Fed has responded to international banking events by opening dollar liquidity swap lines.
• The experience of the Bank of America and Merrill Lynch merger suggests that UBS could face significant legacy issues following the government-brokered takeover of Credit Suisse.

• European liquidity risks are smaller than US liquidity risks due to tighter legislation
• Loan books in European banks are on the other hand much more risky than US peers
• The negative bond yields in Europe led to even more extreme yield seeking from European banks

• As Xi meets Putin – what is the Chinese endgame?
• What are they hoping to gain from supporting Russia in the war?
• And how is this connected to your Tesla? To understand that, we must understand the Chinese subscription model!

• BTFP is a credit facility which enables bondholders to use their bond as collateral valued at par in turn for a loan.
• The BTFP is hence an extremely generous version of the goold old discount window and not outright QE.
• Both tools affect the market much the same way. Read below for a full detailed account 

• UK retail sales accelerated in Feb-23 from an upwardly revised base, breaking clear of the downward trend in volumes that has prevailed for almost two years.
• Slower goods inflation means less erosion of spending value’s stable growth. Trends in value growth and real wages now appear consistent with relatively flat volumes.
• Further resilience in activity partly reflects bumper pay deals. Neither indicates that economic excesses are breaking, so we still expect another BoE rate hike in May.

• The plate throwing, table tossing, cross asset market action continues to pingpong across the Atlantic as US /EU bank fears continue to burn like wildfires, leading to sharp falls in rates that coupled with weakness in energy prices signal markets are prepping for recession.
• The fear used to be that the Fed would overtighten and force the US economy into recession in order to get inflation down to its 2% target.
• As we wrote in last week’s Musings  we think that battle has been fought and won by the forces arguing for a higher target, though we note BofA’s FMS suggests that 65% of those polled disagree with us – only 65%?

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Andreas Steno as he gives us a detailed tour around forward looking inflation indicators for all major economies.

From touchpoints like how money growth is outright negative in the West, to trends being opposite in China/Japan, join us as we dive deeper into the topic with Andreas and Smartkarma’s Co-founder, Raghav Kapoor.

The webinar will be hosted on Wednesday, 5 April 2023, 17:00 SGT/HKT.

Andreas Steno is the founder and Head of Research of the European Power Research house “Steno Research.” Building on years of experience as Global Chief Strategist at Nordea Bank, he is one of the most quoted and sought-after macro analysts out there. Andreas’ expertise is the macro strategy, energy, real estate and equity spaces, but doesn’t shy away from hot takes on other topics if the underlying analysis is strong enough. Andreas anchors the weekly editorial ‘Steno Signals’ and other watch series from Steno Research.

• The BoE hiked by 25bps in Mar-23, with only two dovish dissenters, in line with our forecast yet contrary to many excessively dovish cautious calls.
• Underlying inflationary pressures are excessively high, especially in our forecast, and reinforced by recent data. Second-round effects demand frontloaded tightening.
• We maintain our call for another 25bp rate hike in May. Markets underappreciate the likelihood of that but should progressively price it in again, as with Feb and Mar hikes.

• Laeven and Valencia (2012, 2018, 2020) provide an empirically sound framework to determine if a banking crisis should be defined systemic.
• The first condition of a systemic banking crisis – significant signs of financial distress in the banking system – has been met.
• The second condition of a systemic banking crisis – significant banking policy intervention – has not been met, including the impressive intervention of the SNB in the Swiss banking system.

• Sperm / In Depth: Why a sperm bank drive is fueling fears of infertility in China

• Imprisonment / Chinese man exonerated after record 29 years of wrongful imprisonment

• Covid-19 / China clears first homegrown mRNA Covid vaccine

• Confidence in the US banking system has been under immense stress, and some contagion crossed the Atlantic and struck Europe as well.
• At the moment, all banks are trading below their 52w highs – some more notably than others (median -25.82%).
• Deposit flights are driven by the inverted yield curve and particularly regional banks are vulnerable to it.

• With CPI inflation still 6%YoY and core CPI +5.5%YoY (annualised 6%MoM) in Feb’23, the Fed will be obliged to hike 25bp, and likely also reintroduce a reserve requirement for banks. 
• Unemployment at 3.6% is far below the long-accepted NAIRU of 4.5%, reflected also in average wages still rising 4.6%YoY in Feb’23. M2 declined in Dec’22-Jan’23 but needs to contract more. 
• A 50bp hike would’ve been warranted, but the collapse of 3 tech-related banks obliges the Fed to be a bit circumspect. The disappearance of CS can’t influence the FOMC decision. 

• The increasing CPI and RPI rates to 10.4% and 13.8% defied UK disinflationary expectations. Price collection on Valentine’s Day isn’t much to blame.
• The upside news was worryingly broad-based, raising core inflationary pressures. An underlying impulse more than three times the target is painfully excessive.
• These data reinforce our hawkish view that the BoE needs to raise rates further to break the problematic second-round effects, despite financial stability risks.

• Analysis: Why China’s 2023 fiscal policy may be less expansionary than it seems

• Xi, Putin call for ‘responsible dialogue’ to end Ukraine crisis

• Beijing’s deaths outrun births for first time in two decades

• A record 25.3% of Global funds have exposure to Singapore Banks, breaking out of a range of between 18% and 24% over the last decade.
• DBS Group favoured by investors, owned by 17.7% of funds compared to 11.2% in UOB and 7% in OCBC. 
• After the recent rotation, Singapore Banks are now the 4th most widely held Bank exposure, behind US, Indian and Canadian Banks but ahead of fellow European and Asian peers.  

• Banking / Cover Story: 2008 Redux? SVB collapse raises questions about banking oversight

• Research / China launches campaign to tackle pressing domestic challenges

• Taiwan / Beijing welcomes ex-Taiwan leader’s visit to the mainland