Macro

In today’s briefing:

Is It Time To Buy China?
China: As Economic Conditions Deteriorate Further, Policy Has To Give
US-China-Taiwan: Just How Much Has Political Risk Changed?
EM Funds Raise ASEAN Allocations
The Philippines: Ample Dry Powder For 2H22
CX Daily: The Challenges Ahead for China’s Digital Yuan
CX Daily: Missfresh Implosion Highlights Bitter Business of Selling Groceries Online
UK: Labour Market Pains Propagating

Is It Time To Buy China?

By Michael J. Howell

Investors are overly pessimistic, but China may already be a contrarian ‘buy’
Latest economic data show positive surprises. GDP momentum is rising but investor positioning data evidence another big cut in exposure to China
Monetary policy stable and supportive. No sign of credit bust, or boom. Great potential for policy ‘pivot’ later in 2022

China: As Economic Conditions Deteriorate Further, Policy Has To Give

By Nigel Chiang

There was little good news in the latest batch of Chinese economic data. Domestic demand is weakening again after a brief rebound in June.
The drags on the economy are now deeply rooted – a contracting real estate sector whose ill-effects are spilling over into consumer despondency, weak investment and credit stresses.
Policy responses remain inadequate and sometimes contradictory. Policy makers are betting that incremental and cautious measures will allow employment and incomes to stabilise. We suspect that they are too optimistic.

US-China-Taiwan: Just How Much Has Political Risk Changed?

By Manu Bhaskaran

US House Speaker Pelosi’s visit has set in train developments that will raise big power frictions structurally, and for a long time.
The US and China will do what is necessary to avoid direct clashes. They may even restart direct talks which China just cancelled. But, tensions will persist
China’s strategy was never principally about an invasion. It was always about relentlessly increasing the pressure on Taiwan to force a negotiation on Beijing’s terms.

EM Funds Raise ASEAN Allocations

By Steven Holden

Regional rebalance occurring among active EM funds. Out of EMEA and the major Asian nations and in to ASEAN, MENA and South America.
ASEAN reversal shows EM investors moving from underweight to overweight since late 2021, driven by a record ownership and a rising number of funds positioned overweight the benchmark.
Indonesia and Thailand the key drivers and to a lesser extent Malaysia. The Philippines has been notably absent from the move higher, whilst Singapore allocations fell over the same period.

The Philippines: Ample Dry Powder For 2H22

By Nicholas Chia

While the Philippines’ 2Q22 GDP print surprised on the downside, the recovery still has legs.
Notably, excess private savings actually increased in the period, suggesting cutbacks to discretionary spending, perhaps because of the spike in Covid-19 caseloads or the high-inflation environment.
It will be business-as-usual for the BSP as we expect a 50bps hike in August, followed by 25bps hikes in September and November as terminal rates are in sight.

CX Daily: The Challenges Ahead for China’s Digital Yuan

Digital yuan / Cover Story: The challenges ahead for China’s digital yuan
Floods / Flash floods in Southwest China kill seven as tourists ignore warning
Jobless / China’s youth unemployment rate rises to another record

CX Daily: Missfresh Implosion Highlights Bitter Business of Selling Groceries Online

In Depth: Missfresh implosion highlights bitter business of selling groceries online
Beijing sanctions more individuals in Taiwan in response to U.S. congressional visits
Fugitive behind $15 billion Myanmar business hub arrested in Thailand

UK: Labour Market Pains Propagating

By Phil Rush

The UK unemployment rate held at 3.8%, while the underlying data showed more slight rises. Retirement is subduing labour supply while demand (vacancies) is falling.
Changes in wage settlements and unemployment suggest further progression towards the cycle burning out, especially leading into preliminary August data.
Inflation has crushed real wages to record falls, reversing 2020’s rise and growth since 2007. While helpful for the BoE, that record probably prevents a Tory re-election.

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Aug 16

Daily Brief Macro: The Week That Was in ASEAN@Smartkarma – Alfamart’s Growth and more

In today’s briefing:

The Week That Was in ASEAN@Smartkarma – Alfamart’s Growth, Comfort Delgro, and The Keepers
The Commodity Report #64

The Week That Was in ASEAN@Smartkarma – Alfamart’s Growth, Comfort Delgro, and The Keepers

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 Sumber Alfaria Trijaya, Comfortdelgro Corp, The Keepers Holdings, Inc,Phu Nhuan Jewelry Jsc (PNJ VN), and Total Access Communication (DTAC TB)
There were also sector pieces looking at some potential consumer GEMs to come out of Indonesia, and the prospects for Thai Banks in 2H2022 in light of rate hikes.

The Commodity Report #64

By The Commodity Report

Here is what is structurally wrong in the way leaders/politicians and people in general talk about the green transition, about fossil fuels, oil, gas and metals. A cyclical commodity bull market.
I’m in favor of combating man-made climate change and replacing most fossil fuels with renewables in the long term, but the way we are currently going about it is not realistic and will end badly for society and also in high commodity prices and much higher cost of living.
Why is that the case? Everyone wants renewable energy but no one wants to invest in the raw materials needed to build the EVs, the power lines, or the battery capacity. Due to political pressure, the financial world has had to jump on the #ESG bandwagon.

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Aug 15

Daily Brief Macro: A Warning from a Market Leadership Review and more

In today’s briefing:

A Warning from a Market Leadership Review
Lessons from a Study of Past Major Market Bottoms

A Warning from a Market Leadership Review

The stock market has taken on a giddy tone in the wake of the tamer-than-expected inflation reports.
However, the latest bull move in the S&P 500 looks exhaustive and the short-term outlook is bearish.
Our base-case scenario continues to call for a re-test of the June lows.

Lessons from a Study of Past Major Market Bottoms

We offer a study of past major bear market bottoms using factor and macro analysis to see how current circumstances are fit with the fresh bull story.
We believe the most likely outcome will see the major market averages weaken and re-test the June lows in the coming months.
While excessive bearish market positioning can create a squeeze higher, durable market bottoms just don’t look like this.

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Aug 14

Daily Brief Macro: Strong Labour Market Challenges Fed and more

In today’s briefing:

Strong Labour Market Challenges Fed, as Risk Capital Outlook Rests on Rapid Inflation Decline

Strong Labour Market Challenges Fed, as Risk Capital Outlook Rests on Rapid Inflation Decline

By Said Desaque

The strong Employment Situation report for July has raised the ante on the Fed not to pivot to a more dovish stance in the near future.
The current size of the 10-year minus 2-year US Treasury note yield differential has historically been consistent with the pending onset of recession.
Sticky inflation could prevent the speedy return of risk capital to US financial markets by preventing the Fed from adopting more dovish policy settings.

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Aug 13

Daily Brief Macro: UK: Holidays Reduce Output in Jun-22 and more

In today’s briefing:

UK: Holidays Reduce Output in Jun-22

UK: Holidays Reduce Output in Jun-22

By Phil Rush

UK GDP contracted by 0.6% m-o-m in June after a downwardly revised 0.4% growth in May, which appears to confirm the distortions from the Diamond Jubilee holidays.
Some positive payback should occur in July as the output level normalises with the number of working days. However, GDP looks to be trending barely better than flat.
Aggressively increased interest rates will compound inflation’s squeeze on the cycle, raising the risk of a needless recession when pressures are burning out anyway.

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Aug 12

Daily Brief Macro: Fading The Soft Landing Narrative and more

In today’s briefing:

Fading The Soft Landing Narrative

Fading The Soft Landing Narrative

By The Macro Compass

A ‘‘very strong’’ labor market report coupled with the first preliminary signs of inflation slowing down have brought back 2021-like euphoria in risk assets: junk credit spreads are tightening fast, meme stocks are going through the roof and even Turkey (!) is now priced as a much safer investment despite front-end real interest rates as low as -60%.
In the investment world, when markets are behaving as if the economy is delivering decent growth and inflation is predictably low we call that ‘‘Goldilocks’’ – as in the story of Goldilocks and The Three Bears, markets are not hot or cold but just right.
There is one problem: the Goldilocks or Soft Landing market interpretation seems very misplaced at this stage.

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Aug 11

Daily Brief Macro: CX Daily: How a Hotly Pursued VR Startup Came to China and more

In today’s briefing:

CX Daily: How a Hotly Pursued VR Startup Came to China, and Imploded
CX Daily: Five Things to Know About China’s Scandal-Struck Chip Industry ‘Big Fund’

CX Daily: How a Hotly Pursued VR Startup Came to China, and Imploded

In Depth: How a hotly pursued VR startup came to China, and imploded
China says cutting military exchanges is a ‘necessary warning’ to U.S. over Taiwan
Lockdowns spread across China’s tropical Hainan province

CX Daily: Five Things to Know About China’s Scandal-Struck Chip Industry ‘Big Fund’

Five things to know about China’s scandal-struck chip industry ‘big fund’
Force remains ‘last resort’ for reunifying Taiwan, Beijing white paper says
Hong Kong to shorten quarantine for mainland travelers

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Aug 09

Daily Brief Macro: The Week That Was in ASEAN@Smartkarma – Bukalapak’s Take Rates and more

In today’s briefing:

The Week That Was in ASEAN@Smartkarma – Bukalapak’s Take Rates, Indonesia’s Digital Banks, and PTTEP
EM Asian Resilience: A Global Recession Does Not Seem Likely To Stifle Asian Growth
August Market Thinking
US Treasuries & Post NFP Thoughts
The Commodity Report #63

The Week That Was in ASEAN@Smartkarma – Bukalapak’s Take Rates, Indonesia’s Digital Banks, and PTTEP

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 Bukalapak post 2Q numbers, PTT E&P (PTTEP TB), Synnex Thailand (SYNEX TB) and Bangkok Aviation Fuel Services (BAFS TB).
There was also an insight on Indonesian Digital Banks, with much excitement around the space as major players start to draw on their respective ecosystems. We search for potential winners.

EM Asian Resilience: A Global Recession Does Not Seem Likely To Stifle Asian Growth

By Manu Bhaskaran

The red-hot jobs market and rising capital goods orders in the US point to a disconnect between such bottom-up figures and the GDP advance estimates.
The latest PMI figures point to a sprightly recovery across ASEAN that still has legs, powered by domestic demand with the easing of curbs and the accumulation of excess savings.
There are two key risks – 1) China’s economic woes that predate Covid-19, and 2) harsh tightening by central banks that slows growth much more than intended.

August Market Thinking

By Mark Tinker

Markets are asking the same question as bored children stuck in a long delay at Dover “Are we there yet?”
The second half of July saw yet another bear market rally and while we are not sure we are ‘there’, this one does look the most convincing to date in terms of putting in some sort of market low.
Some of our ‘softer’ indicators, like Retail sentiment, Google word counts on topics like Bear market (down from index of 100 in June to 14 now) as well as opposite searches for terms like ‘new bull market’ (up from 16 to 94) are clearly more optimistic.

US Treasuries & Post NFP Thoughts

By Shyam Devani

US Treasuries may still be on the way up [in price]
The most interesting development is the fall in the Oil price as WTI takes out key levels
The price action on yields is so far no different to a month ago from where yields started to fall again after a strong NFP number. Equities may also benefit

The Commodity Report #63

By The Commodity Report

Let me be clear, as we can measure the net money market liquidity, we can also see that there was a slight pickup in available funds over the last few weeks.
This is inconsistent with the FED policy and its goal to tighten financial conditions.
This fact was also IMO THE driving factor that drove markets higher over the last weeks as well.

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Aug 08

Daily Brief Macro: The Overlooked Reason Why Stocks Are Strong and more

In today’s briefing:

The Overlooked Reason Why Stocks Are Strong
US-China Tensions: Material Deterioration in Asia’s Risk Profile
Singapore: In A Good Place Cyclically, But Daunting Structural Challenges Lie Ahead
How to Position for a Rolling Recession
The Philippines: Set For A Blockbuster 2Q22

The Overlooked Reason Why Stocks Are Strong

Why is the stock market holding up so well? What happened to all the warnings from the Fed?
All the talk of sentiment and momentum aside, the overlooked reason is the stock market may be sniffing out disinflation.
Our base-case scenario continues to call for a re-test of the June lows, but we allow that there is about a one-third chance that market is undergoing a V-shaped bottom.

US-China Tensions: Material Deterioration in Asia’s Risk Profile

By Manu Bhaskaran

Against our expectation, House Speaker Pelosi went ahead with her visit to Taiwan. China’s response in the form of massive military exercises around Taiwan crossed several lines not breached before.
The result is that Taiwan’s sense of insecurity has likely deepened. China’s diplomatic reactions have also meant that US-China ties are at their most precarious in decades.
China’s relations with Japan have also taken a hit. These moves are likely to push Japan even more firmly into working closely with the US to protect itself.

Singapore: In A Good Place Cyclically, But Daunting Structural Challenges Lie Ahead

By Nigel Chiang

The latest GDP and labour market data confirm Singapore’s cyclical prospects remain strong. Although external demand is likely to slow, the rebound in sectors badly hit by covid is firming.
But there are three structural challenges that need to be tackled. First, productivity growth has been persistently weak.
Second, the large external surpluses reflect excessive savings in the economy. And, third, rising home prices show a disconnect from fundamentals.

How to Position for a Rolling Recession

The world isn’t undergoing a single recession, but a rolling recession, which offers more opportunities for investors.
The conventional recession trade is to buy long-dated Treasury assets as the safe-haven trade. A better way might be to buy JPY assets
For equity investors, we make some suggestions on how approach rotation among the global regions.

The Philippines: Set For A Blockbuster 2Q22

By Nicholas Chia

The Philippines is set for a blockbuster 2Q22, as our nowcast pegged 2Q22 GDP growth, due for release on 9 Aug 22, at 8.9%.
Lagging indicators such as credit growth and lending standards, point to a buoyant recovery powered by domestic demand.
Expect the BSP to stay the course with further rate hikes in September, albeit in increments of 25bps moving forward as sequential inflation shows signs of easing.

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Aug 07

Daily Brief Macro: US Financial Markets Embrace a Fed Policy Pivot as Another Game of Chicken Looms Large and more