Macro

In today’s briefing:

Nigeria Goes to the Polls – What Will Happen if Obi Wins?
Positioning Watch: Investors Are yet Again Short Bonds..
TPW Advisory Friday Musings: No Need To Chase

Nigeria Goes to the Polls – What Will Happen if Obi Wins?

By Mikkel Rosenvold

Africa’s most populous country, Nigeria, is headed for presidential elections on February 25th amidst democratic backsliding on the continent.
Young Nigerians hope that outsider, Peter Obi, can shake up Nigeria’s de-facto, two-party system. Obi is ahead in the polls but will face steep opposition in majority-Muslim states.
Overall, the best outcome for investors has less to do with the result and everything to do with how the election is conducted – namely ‘fairly, freely and peacefully’.

Positioning Watch: Investors Are yet Again Short Bonds..

Equity positioning: No love for tech stocks, consumer discretionary, while overall positioning remains VERY short
FX positioning: Market is too long NZD, while traders are not really buying the USD rebound
Bond positioning: Shorts are getting crowded again after hawkish Fed rhetoric

TPW Advisory Friday Musings: No Need To Chase

By TPW Advisory

We have written extensively about cross asset market dynamics going back to Things I Don’t Understand last October to Stocks & Bonds – Only One Can Be Right to last week’s Two Steps Forward, One Step Back.
It seems fitting to unite these thoughts this week when the US narrative flipped from recession and rate cuts to no landing, solid growth and no rate cuts but rather more rate hikes.
We covered this dynamic in our most recent Monthly: Narrative Speed where we discussed how narratives are flipping faster than ever and the avalanche effect of small changes leading to one big cumulative moment when the script is flipped.

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Feb 18

Daily Brief Macro: CX Daily: Exclusive: Billionaire Founder of China Renaissance Goes Missing and more

In today’s briefing:

CX Daily: Exclusive: Billionaire Founder of China Renaissance Goes Missing
UK: Sales Briefly Warmed in Jan-23
Commodity Watch – What Super Cycle?

CX Daily: Exclusive: Billionaire Founder of China Renaissance Goes Missing

In Depth: China’s rural Covid wave exposes flaws in plan to prevent hospital overcrowding
Xi says China must boost consumer spending, foreign investment this year
China to take action against U.S. entities after balloon-related blacklisting

UK: Sales Briefly Warmed in Jan-23

UK retail sales rebounded in Jan-23 from a downwardly revised December to leave the downward trend intact. Unseasonable warmth probably aided the bounce.
A slower inflationary impulse would curb its depressing effect on sales volumes, but expansion also requires spending value growth to regain some pace.
Falling house prices could fuel a second leg down. Ongoing BoE rate hikes squeeze affordability, yet better mortgage deals may spare the market from crashing deeply.

Commodity Watch – What Super Cycle?

Where is the global commodity super cycle that everyone keeps predicting?
Industrial metals have outperformed energy (as we predicted) and will likely continue to do so
Selective positioning in the commodity space remains of vital value with no super cycle in sight

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Feb 17

Daily Brief Macro: Japan Watch – The YCC Time Bomb for Western Fixed Income and more

In today’s briefing:

Japan Watch – The YCC Time Bomb for Western Fixed Income

Japan Watch – The YCC Time Bomb for Western Fixed Income

The risk of a severe change of policy in Japan remains clearly underpriced after Kazuo Ueda has officially been announced as the next BoJ governor
Traders and investors are still disliking the Yen amid higher inflation, pressure on JGB yields and global turmoil
US and French fixed income markets seem more vulnerable to a permanent turn-around of flows

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Feb 16

Daily Brief Macro: CX Daily: China’s Charity Law Revision Aims to Make It Easier for NGOs to Get Involved and more

In today’s briefing:

CX Daily: China’s Charity Law Revision Aims to Make It Easier for NGOs to Get Involved
UK: New Weights Stoke CPI Seasonality

CX Daily: China’s Charity Law Revision Aims to Make It Easier for NGOs to Get Involved

China’s Charity Law revision aims to make it easier for NGOs to get involved
Experts quash fears of greater chance of China quake after Turkey
China’s local governments go on hiring spree to spur growth

UK: New Weights Stoke CPI Seasonality

UK inflation delivered mixed surprises in Jan-23 as the RPI remained at 13.4% while the CPI crashed to 10.1%. Transport weighting changes exaggerated the latter’s downside.
Increased airfare weightings in January have historically reversed in February. To the extent it persists, the high weight will stoke CPI seasonality.
The underlying inflation impulse is more than double the BoE’s target, encouraging it to keep hiking. Upscaled seasonality hacking the CPI to its low forecast is not dovish.

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Feb 15

Daily Brief Macro: Valuation Watch – Are Equities Worth the Risk? a Look at Risk Premia and more

In today’s briefing:

Valuation Watch – Are Equities Worth the Risk? a Look at Risk Premia
Three Major Reasons Why Foreigner Are Pouring In So Much Capital into Korean Equities in 2023
Political Risks in Asia: Where Could the Surprises Come From?
Asian Currencies Face a Bumpy Ride Towards Recovery
CX Daily: China’s Hunt for Strategic New Energy Minerals
UK: Cyclical Turn Is Taking Too Long
The Butterfly Effect

Valuation Watch – Are Equities Worth the Risk? a Look at Risk Premia

Europe and China offer the best risk compensation in equity space, while the US is running at levels below 1% in extra “yield” from equities relative to risk-free rates
Even if European equities look relatively cheap compared to US or Indian stocks, it is worth noting that risk premia are almost at record lows.
We prefer US cyclicals over European as the repricing of US cyclicals looks lukewarm relative to what we have seen elsewhere around the world.

Three Major Reasons Why Foreigner Are Pouring In So Much Capital into Korean Equities in 2023

By Douglas Kim

In this insight, we discuss three major reasons why foreigners are pouring so much capital into the Korean stock market this year.
In the first two months of 2023 (as of 13 February), foreigners net purchased 8.2 trillion won in KOSPI included stocks.
These three major reasons include meaningful corporate governance improvements, increasing probability of South Korea being included in the MSCI developed country status, and overall turnaround in the global equity markets.

Political Risks in Asia: Where Could the Surprises Come From?

By Manu Bhaskaran

Despite Xi’s dominance, the party-state will face subtle but substantial forms of dissent and pushback. Beijing, in turn, will double down on driving growth to keep anger at bay.
Despite underlying risks, we are cautiously optimistic about political developments in Taiwan, Malaysia, and Thailand as pragmatism allows for navigating uncertainty.
India and Indonesia are sources of potential downsides, with identity politics and economic and foreign policy nationalism being sources of potential turbulence.

Asian Currencies Face a Bumpy Ride Towards Recovery

By Manu Bhaskaran

Asian currencies are likely to trend upwards against the Dollar in general, although the magnitude and timing of their movements will vary.
China’s reopening provides tailwinds for Asia via export, commodity, and tourism demand. Countries that historically relied on Chinese demand will benefit more.
Asian central banks are beginning to diverge in their policy stances as their respective inflation outlooks differ. A longer-than-expected tightening cycle will prop up their notes.

CX Daily: China’s Hunt for Strategic New Energy Minerals

Minerals / Cover Story: China’s hunt for strategic new-energy minerals
Covid-19 / China’s localities spent hundreds of billions of yuan on pandemic
Bonds / Chinese real estate companies test offshore bond markets

UK: Cyclical Turn Is Taking Too Long

As expected, the UK unemployment rate remained at 3.7% in Dec-22 but will probably hit 3.8% in Jan-23 because the underlying 3-month trend rise has returned to 0.2pp.
Demand remains too high, with weekly vacancies stabilising up at Sep-22 levels. Pay deals are also settling at 5%, boosting weekly pay despite workers off on strikes.
Cyclical tightness and excessive inflation expectations push the BoE to keep raising rates, albeit by 25bps rather than a “forceful” 50bp now rates are so high.

The Butterfly Effect

By Untying The Gordian Knot

The Asian Dollar Index is down (US Dollar up) 1.7% from 1st -13th February.
After the initial excitement of China reopening accelerating after the LNY holidays, the CNY weakened by 1.7%, and Yen weakened by nearly 3% during the same period in February.
The Bloomberg Dollar index is up 1.78%, and the DXY index is up 2.57%.

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Feb 14

Daily Brief Macro: Asia Ex-Japan’s Rising Stars and more

In today’s briefing:

Asia Ex-Japan’s Rising Stars
US: Recession Imminent, as M2 Needs to Contract Further to Squeeze Out Inflation
The Week That Was in ASEAN@Smartkarma – Kungri’s Reincarnation, BlueBird Is Back, and Bank Rakyat.
Licence to print money

Asia Ex-Japan’s Rising Stars

By Steven Holden

We screen for companies that are at record positioning among active Asia Ex-Japan managers, whilst capturing strong investment growth over the last 6-months.
9 companies stand out, led by Yum China Holdings, Inc (YUMC US) and Glodon Company Limited A (002410 CH)
These 9 stocks have accelerated to a record combined weight of 3.04%. The rate of increase has been remarkable, with average weights doubling since the end of March 2022.

US: Recession Imminent, as M2 Needs to Contract Further to Squeeze Out Inflation

By Prasenjit K. Basu

M2 contracted 1.3%YoY in Dec’22, its first YoY contraction in 80+ years. Since core PCE inflation was still 4.4%YoY that month, more monetary contraction is needed.
The 10yr-2yr yield spread is -0.76pp (10th Feb’23), while ISM manufacturing new orders have slipped to 42.5, both unequivocally signaling that recession will likely begin next quarter (Q2 2023).
US real GDP decelerated for 4 consecutive quarters (to +1%YoY in 4Q2022), but the labour market appears tight merely because the participation rate is 4pp lower than 2008.

The Week That Was in ASEAN@Smartkarma – Kungri’s Reincarnation, BlueBird Is Back, and Bank Rakyat.

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 Bank Of Ayudhya, Blue Bird, Bank Rakyat Indonesia, Delta Electronics Thai, Total Access Communication, and True Corp Pcl.
We also saw insights on Boustead Holdings, Sabana Industrial REIT, Pertamina Geothermal, and Lippo Karawaci, with additional commentary on Bank Rakyat, Sido Muncul, Sariguna Primatirta, and a lot more below.

Licence to print money

By Mark Tinker

The European Banks story is starting to play out as, while Macro Investors continue to speculate on GDP and inflation trades, news flow from corporates means bottom up investors are starting to realise that the end of Zero Interest Rates (ZIRP) means huge improvements in Net Interest Margins (NIMs) for banks, which in turn means huge upgrades in revenues, even without any new loans.
Announcements of increased dividends and buybacks (eg Unicredito) have come against a background where, despite some nice moves already, those same banks are still priced for a recession that many are starting to think may not be as bad as first thought, meaning the macro specialists are also starting to rethink.
The combination of low valuation, operational leverage, the end of regulatory restrictions on dividends and buybacks and a general improvement in pricing power and competitive advantage is sector wide – and in fact not limited to banks -but for those banks with a deep and rich deposit base it is that NIM story that is the most powerful; having a large deposit base in this new New Normal is, quite literally a License to Print Money.

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Feb 13

Daily Brief Macro: Why You Should Fade the NASDAQ Surge and more

In today’s briefing:

Why You Should Fade the NASDAQ Surge
Macro Strategy– Has Global Liquidity (And the Equity Market) Bottomed Already?
Cautious Signs of a Bullish Revival

Why You Should Fade the NASDAQ Surge

By Cam Hui

The recent market rally has been led by a resurgence in large-cap NASDAQ stocks
This leadership has become overly extended, as evidenced by the rising divergence between their relative performance and the 10-year Treasury yield.
A detailed factor and sector performance analysis reveals an underlying trend in favor of cyclical exposure.

Macro Strategy– Has Global Liquidity (And the Equity Market) Bottomed Already?

Liquidity trends are RAPIDLY on the rise in China and Japan in contrast to the West
Global liquidity probably bottomed in November unless BoJ turns around soon
The PBoC is currently helping global equities perform via new liquidity/credit

Cautious Signs of a Bullish Revival

By Cam Hui

The signs of a bullish revival are becoming more evident in both the sentiment and technical data.
However, forward P/E valuations are elevated and fundamental risk is rising.
The market is also extended in the short run and may be in need of a corrective or consolidation period.

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Feb 12

Daily Brief Macro: What Did Biden’s State of the Union Signal About Upcoming Debt Ceiling Negotiation and more

In today’s briefing:

What Did Biden’s State of the Union Signal About Upcoming Debt Ceiling Negotiation
Japan Watch: Kazuo Ueda – Who?
China Macro: Jan CPI / PPI | Much Better Visibility Ahead
US Inflation Watch – Charts, Charts, Charts
Sector-Specific Issues Add to Macroeconomic Challenges Facing US Corporations
China Macro: A Blowout Month for New Loans, but Consumers Remain Timid
TPW Advisory Friday Musings: Two Steps Forward, One Step Back
Asian Frontier Markets Start the Year Strong – Asia Frontier Capital (AFC) – January 2023 Update

What Did Biden’s State of the Union Signal About Upcoming Debt Ceiling Negotiation

By Mikkel Rosenvold

Tuesday’s State of the Union address gave little cause for optimism that a looming debt crisis in the U.S. can be avoided.
Speaker Kevin McCarthy, seemed as powerless as the day he was elected and Biden certainly didn’t make his life any easier.
No debt ceiling solution in sight, which means that USD liquidity will be ADDED in coming months. Should be USD negative and on the margin positive for risk assets.

Japan Watch: Kazuo Ueda – Who?

Ueda seems like a centrist candidate compared to Amamiya (dove) or Yamaguchi (hawk)
Ueda, if he gets the nod on Tuesday, is likely to slowly but surely distance himself from YCC
We continue to like JPY on the prospects of tighter USD-JPY rates spreads

China Macro: Jan CPI / PPI | Much Better Visibility Ahead

By Stanley Tsai, CFA

The slightly weaker-than-expected inflation numbers for Jan represent a delay and not a detour from the broader reopening story. Investors will likely benefit from improved visibility in the months ahead.
The recovery in the PPI has been dragged by upward sticky factory gate prices for smaller producers downstream. This is consistent with our analysis of the Jan PMI.
A sustained improvement in consumer activity will likely drive PPI up to 0% and CPI to 2.5% by March.

US Inflation Watch – Charts, Charts, Charts

In this CPI ‘preview’ we’ll turn to our charts trying to align expectations to select indicators.
We see inflation coming in lower than expected again both in headline- and core terms
USD could weaken, while positive vibes could resurface around global equities

Sector-Specific Issues Add to Macroeconomic Challenges Facing US Corporations

By Said Desaque

Employment growth and service sector activity are exhibiting strength in early-2023, thereby suggesting that a higher terminal Fed policy rate could be in the offing.
Despite lower supply chain stress, higher operating costs are impacting corporations. Lack of suitably skilled workers could impact productivity growth, as well as encouraging labour hoarding and higher capital spending.
Sector-Specific challenges are facing US corporations as economic and financial conditions normalise, notably in housing and information technology. Those sectors dependent on discretionary spending will face demand headwinds in 2023.

China Macro: A Blowout Month for New Loans, but Consumers Remain Timid

By Stanley Tsai, CFA

Markets will likely look at Jan’s TSF data in a favorable light. The record loan growth was particularly encouraging, despite being boosted by a degree of bank credit reintermediation.
Corporate lending was robust, driven concurrently by a surge in long-term loans and working capital financing. However, the outlook for mortgages remains grim. Consumers appear unmoved by falling home prices.
We believe the PBOC’s easing bias will continue. A cut in the 5-year LPR may be the next sensible move. RRR cuts, while possible in 2023, may cause longer-term pain.

TPW Advisory Friday Musings: Two Steps Forward, One Step Back

By TPW Advisory

Trees don’t grow straight to the sky do they?
So why would one expect stocks to just keep soaring after one of the more aggressive 3 month moves in history, especially among non US DM or EAFE (All Star Charts notes EAFE doubled SPY performance since October).
The US has enjoyed the January trifecta as we wrote about last week which has a perfect track record of higher stocks a year out.

Asian Frontier Markets Start the Year Strong – Asia Frontier Capital (AFC) – January 2023 Update

By Asia Frontier Capital

The year began on a strong positive note for global equity markets and most AFC funds also had a positive return at the start of the year.
Investor sentiment continues to improve as confidence grows that we are at the peak of global inflation and interest rate hikes.
This was also evident in the less aggressive 25 basis point increase in interest rates by the U.S. Fed on 1st February 2023, as well as less hawkish messaging from the U.S. Fed in the past few weeks.

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Feb 11

Daily Brief Macro: Ukraine Has Lost the Initiative – 3 Key Predictions on What’s Next and more

In today’s briefing:

Ukraine Has Lost the Initiative – 3 Key Predictions on What’s Next
5 Things We Watch: Cyclical Upswing, Energy Inv., BOJ Governor, Higher for Longer, the Consumer
UK: Strikes Dent Dec-22 GDP
CX Daily: China’s Slumping Office Rental Market Faces a Steep Climb in 2023

Ukraine Has Lost the Initiative – 3 Key Predictions on What’s Next

By Mikkel Rosenvold

The Russian Army has succesfully regrouped and used the recent mobilization drive to reinforce and rest key units who are now ready for offensive operations.
The Russians are able to dictate where and when major battles occur – which translates to them having taken back the initiative.
The Ukrainians are now reacting rather than acting. They are, however, doing a pretty fine job at reacting.

5 Things We Watch: Cyclical Upswing, Energy Inv., BOJ Governor, Higher for Longer, the Consumer

Amamiya is perceived to be Kurodas lieutenant or internal architect, which will dampen hopes/bets on changes to YCC-control initially. Stay long JPY (but refrain from bets in JGBs for now).
Lower energy-prices and improving sentiment may be enough to reignite the actual production pace in Q1/Q2 relative to expectations.
Savings are slowly but surely evaporating, but on most recent trends, they are likely to hold up a while longer.

UK: Strikes Dent Dec-22 GDP

UK GDP ended 2022 on a low as widespread strikes made a deeper-than-expected dent in service sector output. GDP’s 0.5% m-o-m fall flattened Q4 to zero growth.
Zero isn’t negative, so a recession is technically avoided by the thinnest of margins that could revise away. GDP was still essentially flat in 2022 and should fall in 2023.
The BoE needs a recession to write off excess demand. Lost output from strikes over inflation-busting pay rises does not help second-round effects and underlying inflation.

CX Daily: China’s Slumping Office Rental Market Faces a Steep Climb in 2023

In Depth: China’s slumping office rental market faces a steep climb in 2023
Blinken’s planned visit to Beijing was ‘ill-timed’ given U.S. actions against China, diplomat says
Global gold demand soars in 2022 amid search for safe havens

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Feb 10

Daily Brief Macro: EA: Germany Pushes Jan-23 HICP Revision and more

In today’s briefing:

EA: Germany Pushes Jan-23 HICP Revision

EA: Germany Pushes Jan-23 HICP Revision