Macro

In today’s briefing:

From Capital Wars to Currency Wars: Weak US Dollar in 2023?… Or Will the Yuan Tumble To RMB10/US$?
China: Decisive Policy Shifts Improve Growth and Reduce Risks
Thailand Visit Note: Politics Will Determine the Growth Potential of the Economy
UK: Labour Fits the Fall Season
Indonesia: Chugging Along as 3Q22 Growth Perks Up
MADE FALSE BANK, AM RUIN*
CX Daily: The Secrets Behind a Chinese Banking Superstar’s Fall

From Capital Wars to Currency Wars: Weak US Dollar in 2023?… Or Will the Yuan Tumble To RMB10/US$?

By Michael J. Howell

Watch the CNY as well as DXY. Chinese Yuan has broken out of its long-established target band. Net capital outflows are very weak. Could the CNY test RMB10/US$?
China’s broken economy needs a new source of demand that can create less debt dependent future GDP growth. Devaluation may prove the solution
Oct/ Nov show PBoC injecting more liquidity into Chinese money markets after year of tightness, following attempts to support the Yuan. Lower CNY will allow PBoC more space to ease

China: Decisive Policy Shifts Improve Growth and Reduce Risks

By Manu Bhaskaran

The economy continues to wilt under the pressure of multiple headwinds including new surges of covid infections and the deflating real estate sector.
In response, China’s leaders have effected a decisive shift in policy. Covid restrictions will be more calibrated. Downside risks in real estate will be more vigorously addressed as well.
Challenges remain including a likely weakening of the export sector. We expect more policy support which should suffice to produce a modest rebound in growth.

Thailand Visit Note: Politics Will Determine the Growth Potential of the Economy

By Nigel Chiang

Thailand is one of the few economies that will see growth accelerate in 2023. The driving force behind Thailand’s positive cyclical outlook is the tourism recovery.
Other factors also support growth, such as ramped up public investment and a surge in FDI approvals.
The main downside risks are a prolonged slowdown in China, financial shocks, and geopolitical shocks. However, Thailand is sufficiently resilient to these risks.

UK: Labour Fits the Fall Season

The UK unemployment rate surprisingly jumped to 3.6% as the single-month rate surged by 0.3pp. It is tracking a rise towards 3.8% in Q4, about 0.1pp above the BoE view.
Demand in the official vacancies and redundancies data is falling further from their peak, toward the Adzuna version, but continues to imply a cushion to output falls.
This surprise restores the cyclical ageing of the labour market while remaining outside the “burn-out” phase. We still see hawkish pressure fitting a 50bp BoE hike in Dec-22.

Indonesia: Chugging Along as 3Q22 Growth Perks Up

By Nicholas Chia

The upbeat 3Q22 GDP speaks to our sanguine outlook for the archipelagic economy. We re-affirm our full-year forecast of 5.3% GDP growth in 2022.
Investments will spearhead growth going forward, driven by the bourgeoning interest in the commodity refining sector, the inflows of manufacturing FDI, and the enduring emphasis on infrastructure development.
Strong growth strengthens BI’s case for further tightening. BI could opt for a smaller 25bps hike, following the moderation in US inflation which buoyed market and risk sentiment.

MADE FALSE BANK, AM RUIN*

By Mark Tinker

In a world where it has taken us huge amounts of effort, paperwork, compliance and due diligence to open an office, get licensed and start to launch funds, it is genuinely baffling to watch how a pair of twenty somethings managed to first attract and then seemingly vapourise tens of billions of $ of investor money in an update of a classic bank run-albeit with a modern VC twist.
Tales of how Sam Bankman Fried (perhaps it is simply nominative determinism rather than an anagram at work) not only fried his ‘bank’ but also managed to persuade some of the biggest names in VC to invest at high valuations in an unregulated business based in the Bahamas and yet none of them even wanted a seat on the board are simply extra-ordinary.
Of course the fact that some of them included Softbank and Tiger Global should have been something of a red flag, for as Leo Lewis at the FT put it this week: “But where there is an opportunity to lose money on tech these days, Masayoshi Son still seems one step ahead of the market at having found it ages agoLeo Lewis, FT

CX Daily: The Secrets Behind a Chinese Banking Superstar’s Fall

In Depth: The secrets behind a Chinese banking superstar’s fall.
Xi raises Anti-Secession Law in talks with Biden about Taiwan, foreign minister says.
Teaching staff who harm children face lifetime ban.

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Nov 15

Daily Brief Macro: Bear Market Rally or Turning Point (Again)? and more

In today’s briefing:

Bear Market Rally or Turning Point (Again)?
The Commodity Report #77
The Week that Was in ASEAN@Smartkarma – Diagnosed with Prodia, ITail, and Jardine C&C
CX Daily: Will Europe Pour More Money Into China?

Bear Market Rally or Turning Point (Again)?

By The Macro Compass

Do you remember July? Here we are again: left to assess whether we are looking at a bear market rally or a sustainable turning point for the stock market.
Last week’s softer than expected inflation print spurred a massive rally across asset classes: the 60-40 portfolio posted one of its strongest 2-day performances ever, precious metals zoomed higher while the US Dollar took a beating.
The magnitude of the market reaction was exacerbated by technical reasons we will discuss, but to assess medium-term implications we need to break down the CPI report and take a broader look at the global macro puzzle.

The Commodity Report #77

By The Commodity Report

Fundamentally speaking, it was nearly a perfect week for commodities as much major news aligned during the week after China eased some Covid restrictions, raising hopes of a demand recovery in the world’s second-biggest economy.
Almost all major commodities traded higher following China’s move to reduce the time that travelers and close contacts of infected people must spend in quarantine, a significant amendment to the Covid Zero policy.
China’s loosening of restrictions strengthened a rally that began on Wall Street, with risk assets rising after US inflation slowed.

The Week that Was in ASEAN@Smartkarma – Diagnosed with Prodia, ITail, and Jardine C&C

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 published on Prodia, I-Tail (ITC TB), Jardine Cycle & Carriage (JCNC SP) Singtel (ST SP), Golden Energy & Resources (GER SP), and Golden Agri Resources.
There were also macro insights on Thailand’s economy and Malaysia’s impending election, as well as insights on Minor International, Berli Jucker, Kerry Express Thailand, and Bangkok Chain Hospital (BCH TB).

CX Daily: Will Europe Pour More Money Into China?

Business / Cover Story: Will Europe pour more money into China?
China-U.S. / Xi calls for China-U.S. relations to return to ‘right course’
Banking / Exclusive: Agricultural Bank of China to name Fu Wanjun president

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Nov 14

Daily Brief Macro: Soft CPI Is Helpful and more

In today’s briefing:

Soft CPI Is Helpful, But It’s Still A Bear Market
Who’s Swimming Naked As The Tide Goes Out?
US Economic Management Under Divided Government: Is the Fed Still Capable ?

Soft CPI Is Helpful, But It’s Still A Bear Market

While the soft October CPI report is intermediate-term positive for risk assets, equities face a number of important hurdles before a new bull market can begin.
We believe the U.S. equity market is undergoing a bear market rally.
The S&P 500 will encounter considerable resistance at about 4130.

Who’s Swimming Naked As The Tide Goes Out?

Warren Buffett famously said that when the tide goes out, you find out who has been swimming naked.
We undertake an analysis to find out what countries and sectors have been swimming naked, and who has been opportunistically swimming with the tide.
We conclude from our technical review that the equity markets are discounting a global recovery, led by cyclical sectors, while technology and China exposure should be avoided.

US Economic Management Under Divided Government: Is the Fed Still Capable ?

By Said Desaque

Economic management by Fed due to divided government has been bullishly construed since the 1980s, but this view hinges on whether the Fed undertakes necessary measures to restore price stability.
Higher uncertainty about the economic and inflation outlooks will be reflected in investors demanding a higher term premium in US Treasuries compared to recent times.
Significant economic costs could be imposed on the US economy to cool inflation because the easing of fiscal policy during the pandemic period was the largest in peacetime history.

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Nov 13

Daily Brief Macro: China’s Twin Crises: Overlending to Frontier Markets & Domestic Property Sector and more

In today’s briefing:

China’s Twin Crises: Overlending to Frontier Markets & Domestic Property Sector
MSCI Korea Index Rebalancing Results & Top Five MSCI Korea Exclusion Candidates in 2023

China’s Twin Crises: Overlending to Frontier Markets & Domestic Property Sector

By Prasenjit K. Basu

Like the US banks confronted dual crises in 1990 (Latin American debt, domestic S&Ls), Chinese banks face a crisis of overlending to 50+ frontier markets, compounding the domestic property crisis.
Just as US banks were the main lenders to Mexico until its Aug’1982 default, recent defaulters (Zambia, SriLanka) are heavily indebted to China. The property crisis already burdens China’s banks.
Dearth of macroeconomic expertise in the PBSC is alarming at a time when foreign reserves are down US$200bn YTD, despite YTD trade surplus of US$742bn. Dampened credit growth precludes evergreening.

MSCI Korea Index Rebalancing Results & Top Five MSCI Korea Exclusion Candidates in 2023

By Douglas Kim

On 10 November, MSCI announced the MSCI Korea Standard Index additions (1 company) and deletions (10 companies).
With MSCI announcing the inclusions and deletions for MSCI Korea Index, we highlight the five stocks that are the most likely MSCI Korea index exclusion candidates in 2023.
These 5 potential deletions in 2023 (MSCI Korea) include S1 Corp, Lotte Shopping, CJ Corp, SD Biosensor, and Meritz Securities. We believe that these stocks on average could underperform KOSPI.

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Nov 12

Daily Brief Macro: UK: Funeral for Recovery and more

In today’s briefing:

UK: Funeral for Recovery
CX Daily: The Roots of China’s Trouble Protecting Plant Variety Rights

UK: Funeral for Recovery

UK GDP crashed by 0.6% m-o-m in Sep-22 as the country shut for the Queen’s funeral. Revisions reversed previous disappointment to return Q3’s fall to 0.2% q-o-q.
Surveys suggest activity trends have fallen into recession. We forecast further falls in Q4 and 2023, despite UK output failing to recover its pre-covid levels.
The UK looks likely to underperform its peers as shocks like high rates bind more fiercely. We still see policy rates peaking below market pricing before cuts in 2024.

CX Daily: The Roots of China’s Trouble Protecting Plant Variety Rights

In Depth: The roots of China’s trouble protecting plant variety rights
Guangzhou suspends most schools as Covid-19 outbreak worsens
China to expand digital health code use for unified national platform

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Nov 11

Daily Brief Macro: UK: Housing Market Skids Toward a Crash and more

In today’s briefing:

UK: Housing Market Skids Toward a Crash

UK: Housing Market Skids Toward a Crash

Surveys are starting to confirm anecdotal evidence of a severe shock hitting the housing market in October after the government’s disastrous fiscal event.
Mortgage rates in November are yet to follow swaps down, so the pain is still palpable for households. A house price crash looks increasingly difficult to avoid.
We now assume a 5% price decline but see the market on the cusp of a downward spiral fed by adaptive expectations, which would mean a fall nearer 15%.

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Nov 10

Daily Brief Macro: CX Daily: Cosmetics-Makers Slash Double 11 Marketing Budgets as Consumer Spending Slumps and more

In today’s briefing:

CX Daily: Cosmetics-Makers Slash Double 11 Marketing Budgets as Consumer Spending Slumps

CX Daily: Cosmetics-Makers Slash Double 11 Marketing Budgets as Consumer Spending Slumps

Cosmetics-makers slash Double 11 marketing budgets as consumer spending slumps
China’s GPS challenger now ships on almost every new phone sold in the country
Trending in China: Teacher dies after online class gatecrashed by harassers

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Nov 09

Daily Brief Macro: Asian Monetary Policy: More Tightening on the Cards In 1H23 and more

In today’s briefing:

Asian Monetary Policy: More Tightening on the Cards In 1H23
Malaysia’s 15th General Election: Drivers and Scenarios
Curvaceous ECB Policy
Thailand: Downshift In Growth Momentum In Sep 22

Asian Monetary Policy: More Tightening on the Cards In 1H23

By Manu Bhaskaran

Federal Reserve Chair Jerome Powell put paid to any hopes of a dovish pivot as the US labour market continues to defy expectations of a slowdown.
Until there is a significant moderation in the economic momentum and/or a cooling of inflationary pressures, the Fed will continue to press ahead with more rate hikes
Thus, Dollar strength is likely to remain as yield differentials with other currencies widen. We summarise our expectation for Asian monetary policy in the following table:

Malaysia’s 15th General Election: Drivers and Scenarios

By Manu Bhaskaran

Increasing voter dissatisfaction could hurt the incumbent Barisan Nasional (BN) govt but party machinery, tactical voting and racial sentiments could offset this. Political turbulence will, however, persist.
Our baseline: Barisan and Pakatan will be virtually tied in Peninsular Malaysia. Barisan’s East Malaysian allies are likely to do well, allowing Barisan to reassemble the pre-dissolution government excluding Perikatan.
A likely narrow result means that parliamentary manoeuvres and intra-party politics will remain sources of uncertainty after the elections. UMNO party elections within six months from GE15 will be key.

Curvaceous ECB Policy

Rapid rate hikes are trying to crush excess inflation as recessionary forces build. Monetary policy will eventually need to loosen back towards a neutral setting.
Markets price cuts by the BoE and Fed during 2024 when the Euro curve slopes up again, despite the ECB now recognising it will first need to hike beyond neutral.
We see a more curvaceous ECB path as likely to be followed. The monetary policy strategy is now clear, with evidence of falling demand supporting an inversion.

Thailand: Downshift In Growth Momentum In Sep 22

By Nigel Chiang

Thailand’s growth momentum stalled in Sep 22 amid declines in the agriculture sector, and headwinds from external demand, culminating in a moderation in consumption and investment growth.
But, stronger-than-expected tourism remains the economy’s saving grace, as a more aggressive marketing effort starts to pay dividend.
We hew to our 2022 growth forecast of 3.5% as slower export growth will be offset by vibrant tourism revenues.

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Nov 07

Daily Brief Macro: Hawkish Fed Faces New Challenge as US Treasury Examines Ways to Improve Market Liquidity and more

In today’s briefing:

Hawkish Fed Faces New Challenge as US Treasury Examines Ways to Improve Market Liquidity
The Hidden Story of Investor Capitulation
Peering into 2023: A Bear Market Roadmap

Hawkish Fed Faces New Challenge as US Treasury Examines Ways to Improve Market Liquidity

By Said Desaque

US financial markets have been persistently wrong to entertain thoughts of an early dovish pivot to Fed policy conduct without unambiguous evidence of returning price stability.
The Fed’s pursuit of quantitative tightening will raise the federal budget deficit via higher net interest costs and lower tax revenues due to slower economic growth.
Diminishing liquidity in the US Treasury market could force a bond buyback programme that potentially complicates the Fed’s quantitative tightening programme due to its impact on bank reserves

The Hidden Story of Investor Capitulation

The good news is that retail sentiment is more washed out than generally believed.
The bad news is the stock market faces a number of short-term challenges in November.
Uncertainty over the midterm election and a possible fiscal fallout, a likely hot CPI report and bearish World Cup seasonality will create headwinds for stock prices.

Peering into 2023: A Bear Market Roadmap

The Fed has made it clear that it wants to tighten monetary conditions by engineering an equity bear market.
Assuming the economy enters recession in Q4 or Q1, history shows that it will emerge within about six months, putting the timing of a bottom at about the same time.
The S&P 500 is trading at a forward P/E of 16.1. Assuming a typical 15-20% cut to forward earnings estimates in a recession, this puts the downside potential at 2500–2850.

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Nov 04

Daily Brief Macro: BoE: Hikes Reaching Exhaustion Early and more

In today’s briefing:

BoE: Hikes Reaching Exhaustion Early
A Pivot From Hawkish To…More Hawkish

BoE: Hikes Reaching Exhaustion Early