Macro

In today’s briefing:

Assessing “Big Short” Michael Burry’s Crash Warning
How I Learned to Stop Worrying and Love the Bond Market

Assessing “Big Short” Michael Burry’s Crash Warning

A number of readers asked us to comment on Michael Burry’s forecast of a crash. We find Burry’s wildly bearish projection of S&P 1900 to be implausible.
Nevertheless, the S&P 500 faces strong valuation and macro headwinds in the near future.
On the other hand, conventional technical analysis view calls for market weakness and a bottom during the September–October time frame.

How I Learned to Stop Worrying and Love the Bond Market

Cross-Asset signals from the commodity market indicate that bond prices are poised to rise, which should provide tailwinds for large-cap NASDAQ stocks.
A key risk is continued market fears of rising rates from hawkish Fed rhetoric.
Another risk is a possible sudden policy reversal in response to crisis conditions, which changes the narrative from recessionary conditions to renewed growth.

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Sep 10

Daily Brief Macro: CX Daily: How China Is Trying To Get Debt Dodgers To Pay Up and more

In today’s briefing:

CX Daily: How China Is Trying To Get Debt Dodgers To Pay Up

CX Daily: How China Is Trying To Get Debt Dodgers To Pay Up

In Depth: How China is trying to get debt dodgers to pay up
Record numbers apply for China’s teachers exam amid bleak job market
Trending in China: Good samaritans ‘coldly’ told to self-isolate after helping with overturned ambulance

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Sep 09

Daily Brief Macro: UK: Bullishly Capping Yields with Energy and more

In today’s briefing:

UK: Bullishly Capping Yields with Energy
Putin vs Europe – The Long War
ECB: Leaping Towards Neutral

UK: Bullishly Capping Yields with Energy

By Phil Rush

Inadequate energy supply for the winter has squeezed wholesale prices up, taking yields with it owing to the BoE’s fear of high spot inflation fuelling second-round effects.
The UK government’s new energy price cap removes this as a direct source of inflation and a reason to hike rates near market pricing. It is tactically bullish.
Price caps do not fix supply, so rationing remains likely. Along with the painful fiscal costs, this unimaginative scheme means bearish pressures may reassert in the winter.

Putin vs Europe – The Long War

By The Macro Compass

Last week, Vladimir Putin released a massive speech that clearly outlined his strategy to bring Europe to its knees.
For decades, Europe’s business model has been largely structured around cheap energy and input costs used to produce good-quality manufactured goods to export around the world – Germany being a prime example of such business model.
Due to globalization, ageing demographics and technological advances real output growth wasn’t necessarily spectacular and most importantly interest rates headed lower and lower over time.

ECB: Leaping Towards Neutral

By Phil Rush

The ECB hiked by 75bps in response to the resilience of excessive inflation pressures. It agreed to raise rates further but that the latest leap would not be the norm.
Some persistent slack in the ECB’s forecast means it is only currently seeking to reach neutral in 3-4 meetings rather than an outright tight setting, unlike other countries.
It seems overly optimistic about activity’s resilience to rapidly rising rates and inflation, but fading peer pressure and market pricing are more likely to lead hikes to moderate.

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Sep 08

Daily Brief Macro: India: De-Leveraged and more

In today’s briefing:

India: De-Leveraged, and Hence Set on a Path of Investment-Led Growth
CX Daily: The Weak Link in China’s New-Energy Power Plan: Weather

India: De-Leveraged, and Hence Set on a Path of Investment-Led Growth

By Prasenjit K. Basu

Amid a global deceleration, India’s real GDP grew 13.5%YoY in Apr-Jun’22, led by GFCF(+20%YoY) and PCE(+26%YoY). Actual growth was under-estimated because of errors in deflators for GDP and net exports.
Nominal GDP growth of 26.7%YoY enabled corporate tax revenue to rise 35%YoY and income taxes 50%YoY, bringing the 12mma of the fiscal deficit down to 6.1% of GDP.
As the government’s market borrowing declines, it will crowd-in more private investment, enabling real GDP to grow 8% in FY23 despite the global slowdown. Stay Overweight.

CX Daily: The Weak Link in China’s New-Energy Power Plan: Weather

In Depth: The weak link in China’s new-energy power plan: weather
Debate rages after residents barred from earthquake evacuation due to Covid curbs
Xi tells nation to mobilize for ‘core technology’ breakthrough

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Sep 07

Daily Brief Macro: CX Daily: Why U.S.-Traded Chinese Firms Are Choosing Dual Primary Listings in Hong Kong and more

In today’s briefing:

CX Daily: Why U.S.-Traded Chinese Firms Are Choosing Dual Primary Listings in Hong Kong
Degraded Economic Outlook for Europe Puts Spotlight on Global Profit Forecasts and Currencies

CX Daily: Why U.S.-Traded Chinese Firms Are Choosing Dual Primary Listings in Hong Kong

Caixin Explains: Why U.S.-traded Chinese firms are choosing dual primary listings in Hong Kong
Update: Sichuan earthquake death toll rises to 66
Too much state investment has a downside, investors warn

Degraded Economic Outlook for Europe Puts Spotlight on Global Profit Forecasts and Currencies

By Said Desaque

The Fed is attempting to quell inflation that is largely the result of excessive economic stimulus. Meanwhile, the European Central Bank faces price pressures accentuated by disruptions to energy supplies.
Structurally higher energy prices will have significant implications for Germany’s economic competitiveness. Foreign exchange markets are discounting that German companies will face a tougher challenges being competitive on international markets.
Despite headwinds stemming from energy supply disruptions, corporate profits in Germany are expected to fall only -2% in 2023. The weak euro reflect lower potential productive capacity and demand destruction.

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Sep 06

Daily Brief Macro: Peak Asian Inflation Is In Sight but Rates Will Continue Trending Higher and more

In today’s briefing:

Peak Asian Inflation Is In Sight but Rates Will Continue Trending Higher
India: Upside Growth Story Risks Unravelling
Difficult Times Lie In Wait For Asia’s Exporters
CX Daily: China’s Steel Industry at a Crossroads as Long Winter Looms
The Commodity Report #67
The Week That Was in ASEAN@Smartkarma – Ace Hardware SSSG Turns Up, United Tractors, and CPALL

Peak Asian Inflation Is In Sight but Rates Will Continue Trending Higher

By Manu Bhaskaran

Recent inflationary woes have been the product of supply issues rather than excess demand. This is implied by output levels in many Southeast Asian economies being below pre-pandemic levels.
A reprieve from rising prices should be on the horizon, with a global slowdown taking shape alongside an easing in supply chain bottlenecks.
However, inflation could still see a resurgence, especially if governments start to cut back on fuel subsidies. As global interest rates rise further, expect monetary tightening in Asia to persist.

India: Upside Growth Story Risks Unravelling

By Nicholas Chia

India’s growth story risks unravelling, following the disappointing 2Q22 GDP print.
To be sure, we think some form of measurement error in manufacturing and industrial growth is clearly at work.
The mooted capex upturn will be key to ensure India clocks growth in excess of 7%.

Difficult Times Lie In Wait For Asia’s Exporters

By Nigel Chiang

Economic growth in Asia’s key markets is faltering, with the latest PMI data showing a slowdown in manufacturing activity in China as well as the G3 economies.
A bevy of business and economic indicators also do not bode well for Asian exporters. Fixed investment and international capital goods orders are slumping, signalling weaker demand for Asian exports.
With flagging external demand, domestic spending will be an important lifeline for Asia. ASEAN in particular continues to demonstrate resilience in manufacturing demand, despite a widespread drop-off in export orders.

CX Daily: China’s Steel Industry at a Crossroads as Long Winter Looms

Steel / Cover Story: China’s steel industry at a crossroads as long winter looms
Covid-19 / 33 cities in China are under some sort of lockdown
Hack / China accuses the U.S. of hacking a leading aerospace university

The Commodity Report #67

By The Commodity Report

Global food prices fell for the fifth month but remain at highly elevated levels.
On a nominal basis, we’re basically now back to levels seen last time at the peak of the Arab Spring back in 2011.
Meanwhile, we should keep in mind that we should keep an eye on the spread between farmers’ input costs for growing stuff and the selling prices based on the futures market.

The Week That Was in ASEAN@Smartkarma – Ace Hardware SSSG Turns Up, United Tractors, and CPALL

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 Ace Hardware Indonesia, United Tractors CP ALL, and Selamat Sempurna
There were also insights on Thai macro, Link Net, Avanseus Holdings, Adaro Energy, and Singapore’s first green bond.

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Sep 05

Daily Brief Macro: Trading the Failed Breadth Thrust and more

In today’s briefing:

Trading the Failed Breadth Thrust
Why A Financial Crisis Could Be The Bulls` Best Hope
Korean Financial Authorities Announce Measures to Protect Minority Shareholders in Split-Offs

Trading the Failed Breadth Thrust

Technical analysts recently became excited when the percentage of S&P 500 stocks surged from below 5% at to over 90% in mid-August, but markets took a risk-off tone since then.
From a technical analysis perspective, the bullish implications of the breadth thrust are still alive.
The key risk to this forecast is the Fed will continue to tighten into a recession and deliberately tank stock prices to fight inflation.

Why A Financial Crisis Could Be The Bulls` Best Hope

Based on the message from Jackson Hole, monetary policy is hawkish as far as the eye can see. However, there are two non-linear and narrow paths forward for equity bulls.
One is a financial crisis that forces central bankers to pivot to an easier policy to preserve financial stability.
The other is central bankers have misjudged the inflation outlook and markets are right. If long Treasury yields fall convincingly, it could be the signal for a market-led dovish pivot.

Korean Financial Authorities Announce Measures to Protect Minority Shareholders in Split-Offs

By Douglas Kim

Starting 1 January 2023, the Korean financial authorities will grant stock purchase rights to better protect minority shareholders’ rights.
The minority shareholders that oppose the physical split of companies will be given the right to sell their stocks at the stock price prior to the split off.
This is a long, overdue change that many investors have been waiting for. Therefore, this change in regulation will be viewed favorably by many investors.

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Sep 04

Daily Brief Macro: Second Leg Down: 5% Points More on Fed Funds! Central Banks Turn Up the Heat and more

In today’s briefing:

Second Leg Down: 5% Points More on Fed Funds! Central Banks Turn Up the Heat
Market Thinking September

Second Leg Down: 5% Points More on Fed Funds! Central Banks Turn Up the Heat

By Michael J. Howell

The post-Jackson Hole period has seen renewed tightening policies by the World’s major Central Banks, led by the US Fed
World Central Bank Liquidity is skidding at an annualised clip of minus 30%. This squeeze is coinciding with weakening corporate profits
Risk asset markets (eg SPX) typically lag liquidity by several months. They have two legs down, often separated by a brief rally of circa 20%. The second leg-down measures 15-20%

Market Thinking September

By Mark Tinker

September is, of course, probably the worst month for seasonality in Equity Markets, with particular anxiety around the option expiry mid month.
The restated hawkishness of the Fed in late August saw off attempts to break through long term resistance levels and encouraged further shorting by the CTA funds, leaving us in the ‘new normal’ position of potential capitulation versus potential bear market squeeze.
Of course, the Fed isn’t the only policy maker in town any more, with a raft of elections, in UK, Sweden, Italy, Brazil, Israel and of course the US and China coming up in the next three months, policy uncertainty remains high, not least as so many of the embedded policies of the last decade are having to be revisisted.

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Sep 02

Daily Brief Macro: CX Daily: Verdict Reversal in High-Profile Murder Stands Out Amid Exoneration Trend and more

In today’s briefing:

CX Daily: Verdict Reversal in High-Profile Murder Stands Out Amid Exoneration Trend
The Moment of Truth for Markets

CX Daily: Verdict Reversal in High-Profile Murder Stands Out Amid Exoneration Trend

In Depth: Verdict reversal in high-profile murder stands out amid exoneration trend
China’s local governments sell assets as fiscal income slumps
Trending in China: Defense of China’s centuries of isolationist policies sparks debate

The Moment of Truth for Markets

By The Macro Compass

Understanding what the bond market is pricing across its many dimensions is not useful because it tells us what’s going to happen – actually, its predictive abilities aren’t always great.
Exactly one year ago, fixed income markets were expecting the Fed to hike by 25 bps in 2022 – instead, only 8 months in the Fed has already delivered 225 bps worth of hikes and another 100+ bps are highly likely.
It’s instead a very useful exercise because the bond market is the biggest and most liquid building block of the ‘‘global markets pyramid’’, and as such fully grasping its multi-dimensional signals is crucial to understand where consensus lies.

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Sep 01

Daily Brief Macro: End of Mandatory Lock-Up Periods for 40 Companies in Korea in September 2022 and more

In today’s briefing:

End of Mandatory Lock-Up Periods for 40 Companies in Korea in September 2022
Biden’s Legislative Wins Provide a Boost to Growth, but Recession Still Inevitable
CX Daily: Why Chinese Companies Hesitate to Hedge Forex Risk
EA: Inflation Energises Another 50bp Hike

End of Mandatory Lock-Up Periods for 40 Companies in Korea in September 2022

By Douglas Kim

We discuss end of the mandatory lock-up periods for 40 stocks in Korea in September 2022, among which 3 are in KOSPI and 37 are in KOSDAQ.
These 40 stocks on average could be subject to further selling pressures in September and could underperform relative to the market.
Among these 40 stocks, the top five market cap stocks include Iljin Hysolus, Sebit Chem, Eoflow, Bumhan Fuelcell, and Voronoi. They could be exposed to greater selling pressures in September.

Biden’s Legislative Wins Provide a Boost to Growth, but Recession Still Inevitable

By Prasenjit K. Basu

Fed chair Powell pledged at Jackson Hole to “keep at it until the job is done”. After M2 growth averaging 18.2%YoY in Mar’20-Feb’22, much more monetary tightening is still needed.
The Fed Funds rate will rise to 3% next month, 3.5% by end-year and 4% by Mar’23. The consequence will be recession by Q1CY24, as telegraphed by the yield-curve.
Biden’s two legislative wins this month will boost the economy (especially manufacturing), aid the climate fight and lower drug costs in the medium-term. But their net fiscal impact is minimal.

CX Daily: Why Chinese Companies Hesitate to Hedge Forex Risk