Macro

• As economists anxiously await the coming CPI-print, we will in this ‘preview’ turn to our charts in an effort to align expectations according to select indicators. 
• We aim for 6.3% in headline and 5.5% in core in Thursday’s CPI report from the US, with the bigger downside risk in core relative to headline.
• This is (again) clearly below the consensus. Let’s have a look at a bunch of charts on why.

• On 10 January, the FSC announced that one of its key agendas this year would be to potentially complete a resolution of mandatory cancellation of repurchased treasury shares by companies.
• Korea is one of the few countries in the world where most of the shares that are repurchased by the companies are not cancelled.
• For now, it is unclear exactly what FSC will announce towards the end of this year with regards to this issue. At this point, there are two potential scenarios.

• European inflation has peaked, but that doesn’t mean that we have seen the peak hawkishness from the ECB yet.
• European core inflation has on the other hand not truly peaked, and everything points to a continued six-month lag pattern between U.S. and European core inflation
• A Chinese reopening is not necessarily bullish for oil. For one, Copper and Gasoline inventories started increasing during Q4 2022. The Chinese prepared for the opening and bought early. 

• Cover Story: China’s international air travel resumes, but Covid turbulence to delay takeoff

• Pfizer’s Paxlovid to be dropped from national subsidy program as talks collapse

• Foreign Ministry spokesperson Zhao Lijian transferred to Ocean Affairs Department

• The EA unemployment rate remains at a record low of 6.5%. A lack of rises among member states suggests a sharp turn isn’t imminent nor justified with vacancies high.
• The relative resilience of the EA labour market is extending its outperformance in the recovery. Still tightening conditions here sustain hawkish policy pressures.
• Wage settlements are rising from levels already inconsistent with 2% inflation, raising underlying inflation, which is more critical to policy-relevant horizons than spot HICP.

• Post-Pandemic normalization in factor markets and government policy, as well as domestic and international political shifts, will work under the hood of the world order.
• Early 2023 will be difficult, but we expect global growth to hold better than expected due to China’s reopening, post-pandemic normalization, and technological change. 
• A new asset pricing regime may result in financial stresses, as markets have yet to fully price in the end of the easy-money era.

• Dynamic zero-covid has been buried decisively, paving the way for an economic rebound. However, underlying weaknesses mean that the recovery will be a muted one. 
• Consumption, investment, and export growth face significant headwinds arising from weak external demand and scarred investor and household sentiment. 
• An accommodative policy stance towards business activity may offset some of the headwinds, but government capacity to implement expansionary policy is diminished. 

• Dynamic zero-covid has been buried decisively, paving the way for an economic rebound. However, underlying weaknesses mean that the recovery will be a muted one. 
• Consumption, investment, and export growth face significant headwinds arising from weak external demand and scarred investor and household sentiment.
• An accommodative policy stance towards business activity may offset some of the headwinds, but government capacity to implement expansionary policy is diminished.

• In the world of natural resources, iron ore is probably the most China-centric commodity — even more than crude oil, copper or soybeans.
• Beijing accounts for more than 70% of the world’s imports of the mineral.
• Therefore it’s not hard to see that there is a direct correlation between Iron ore prices and the health of the Chinese economy.

• US QT will soon melt away into a ‘stealth QE’ under pressure from illiquidity in key financial markets. QT is effectively already dead
• Recent experiences by the UK (September) and Japanese (December) Monetary Authorities evidence poor sovereign debt market liquidity
• Lesson is that QE and QT are not symmetric policies: QE is easier to engage than to disengage via QT. This likely puts a floor under Global Liquidity in 2023

• The U.S. stock market continues to face headwinds in the form of a deteriorating earnings outlook and a hawkish Fed.
• However, market internals are supportive of a short-term bounce before the downtrend resumes.
• Traders shouldn’t try to overstay their welcome. Investors should take advantage of any strength to lighten up equity positions.

• In contrast to previous monetary stimulus since the global financial crisis, the velocity of circulation of money rose very early during the present expansion, thereby helping to produce inflationary pressures.
• Premature policy easing by the Fed remains the biggest market risk, particularly if China’s re-opening sparks resurgence in commodity price inflation that undermines US inflation returning to its 2% target.
• Fiscal and monetary stimulus in the US has created liquidity strains in the US Treasury market. Heavy borrowing by the Treasury in 2023 Q1 could complicate the Fed’s policy plans.

• The equity outlooks for the three major regions are diverging. Europe stocks are the leadership, but investors need to recognize that the leadership is sensitive to weather and energy prices.
• China may be undergoing a re-opening rally, but a sustained advance is in doubt and a successful re-opening would have significant disruptive effects on commodities and the global inflation outlook.
• The U.S. stock market faces valuation headwinds, a deteriorating earnings outlook and a Federal Reserve that’s determined to suppress asset prices as a way to fight inflation.

• 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 first week of 2023 saw insights on Minor International, which continues to be a global Tourism recovery play, and Krungthai Card, as it sees credit costs creeping up.
• We also saw a macro piece looking at the stalling of the convergence of Malaysia’s per-capita income with developed economies and whether its decline can be thwarted. 

• The consensus forecast for the Global Economy in 2023 is pretty clear, a peak in inflation and a sharp slowdown in GDP that will be ‘short but not painless’.
• The associated view for markets, however, is more diverse and largely depends on the extent to which this economic slowdown is regarded as being ‘already in the price’.
• Most analysis at least implicitly acknowledges that bear markets tend to have two phases; the first is the de-rating phase associated with higher interest rates and a tightening of monetary policy (arguably what we have just seen in 2022), while the second phase is the credit cycle, where the economic impacts of the tightening of policy feed through into lower earnings and thus a second round of weakness.

• What a week in Ukraine! We take a look at all the events
• Rumours of Putins death, Russian calls for ceasefire and new vehicles bound for Ukraine
• What does this mean for our assessment of the war?

• China is de facto reopening by now as we rightfully forecasted a few months back.
• But is a reopening equal to good news straight away? Not necessarily.
• Here is our macro playbook for the grand Chinese reopening.

• Railway / China’s railway investment falls for a third straight year

• Covid-19 / China to end quarantine for travelers from Hong Kong to the mainland

• Academic fraud / China punishes dozens for academic fraud at medical universities

• Flash EA inflation in Dec-22 confirmed last month’s break of the upwards trend with another substantial surprise. Germany paying its citizens’ utility bills drove the drop. 
• Energy and food prices were weaker than expected more broadly too. However, core pressures often surprised already-raised forecasts to the upside. 
• Further slowing in headline inflation is likely, despite a Jan-23 normalisation in German utility bills. The ECB will maintain its hawkish focus on excessive underlying pressures.

• European inflation has peaked and it is now turning into a global phenomenon.
• .. but the European Central Bank is yet to admit to it
• Expect economists and markets to forget about inflation in 6-9 months from now in the US and Europe.

• Debt-plagued local financing vehicle in China gets ‘unprecedented’ extension to repay loans within 20 years

• Citic Securities cleared for new asset management unit

• Guangzhou records first drop in leased office space in a decade

• The two main forces driving global macro and markets are the rate of change of (nominal) growth and the monetary policy stance.
• Real-economy money creation and leading macro indicators inform us on the path ahead for economic growth.
• Financial money creation and risk-free real yields are key to understand the Central Bank stance and its implications for markets.

Not only has Malaysia’s convergence in per capita income with developed economies stalled, but its middle-income competitors are also catching up from behind. One reason for Malaysia’s lacklustre economic performance is its lower investment share of GDP. With less investment comes a slower pace of expansion of its economy’s long-run productive capacity. The new government led by Prime Minister Anwar Ibrahim has one last chance to craft a credible path towards the reforms necessary for a higher investment rate. Without that, Malaysia’s high-income ambitions may be fatally thwarted.  

• Rishi Sunak is trapped in a doom-loop between economic crisis and a defeatist Tory MP Group
• Will the 2024 general election clear the path for reform?
• What should you keep an eye on as professional investor?

• 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 week between Christmas and New Year saw nights on MR D.I.Y. Group, Dynasty Ceramic, Adi Sarana Armada, Sumber Alfaria Trijaya, Bank Negara Indonesia and Bank Mandiri. 
• There were also insights on Blibli and the LQ45 rebalancing in Indoneau, which will likely see some interesting additions including Saratoga Investama, Mitratel, and Adaro Minerals. 

• Well, we won’t know until later Q1, 2023. I don’t share the complete confidence that the Sell Side consensus, we are in for the “China is Roaring Back” narrative.
• With no transparency of Omicron spread, severe cases, fatalities, and genome sequencing, the current wave predictions are nothing short of “I believe it will boom” because it will.
• The reopening was going to be hamstrung by the initial spread surge, given the sudden U-turn in policy and unpreparedness.

• What a year it was for European energy prices. Every time it gets emotional, prices behave volatile and sometimes also irrationally.
• That was the reason why we called for a peak in European energy prices already back in August of 2022.
• Back then, prices were astronomically high. Per BTU, you had to pay $93 for US crude oil, $500 for European TTF natgas, and meanwhile, “only” $54 for US Henry Hub natgas for the forward futures contract.

• Passage of a $1.7 trillion spending bill by the US Congress complicates the Fed’s task of restoring price stability. Higher borrowing could push up interest rates and crowd-out private investment.
• The yen’s depreciation before October was accentuated by Japanese financial institutions hedging against losses on US Treasuries. Little evidence exists of significant liquidation of US financial assets by Japanese investors.
• China’s decision to cease its zero-tolerance policy towards COVID-19 will be positive for the global economy in 2023, but, initially, rising infection rates could be a headwind.