Macro

In today’s briefing:

JFK’s Naval Blockade of Cuba (1962) – Fast Forward 60 Years & A Blockade of Taiwan by China?
The World’s Most Important Market
BoE: Market Tail Wags Policy Dog

JFK’s Naval Blockade of Cuba (1962) – Fast Forward 60 Years & A Blockade of Taiwan by China?

By Douglas Kim

Nancy Pelosi has left Taiwan but the confrontation between China and Taiwan has stepped up to another level.
In the past two days, there have been numerous news flow about an emerging naval/arial blockade of Taiwan by the Chinese military.
An intermittent/prolonged blockade of Taiwan by China could lead to some of the biggest global investors that may reduce their exposures in Taiwan.

The World’s Most Important Market

By The Macro Compass

A repurchase agreement (repo) is nothing else than a form of collateralized loan, where the cash borrower posts collateral (i.e. a security, for instance a bond) against its loan but he also agrees to repurchase the security back at the end of the agreement.
The collateral “posted” by the cash borrower is basically a form of protection for the cash lender in the event that the borrower becomes insolvent – hence, repo is a secured or collateralized form of lending.
The biggest repo markets in the world use bonds as collateral.

BoE: Market Tail Wags Policy Dog

By Phil Rush

The BoE hiked by 50bps to 1.75%, in line with market and consensus expectations, but contrary to our view that a lack of increased second round effects would mean 25bps.
A reassessment of existing pressures proved more important than the downside news and state-dependent guidance that was needlessly issued and broken.
We now ignore retained guidance about the reaction function and focus on the BoE’s 2yr inflation forecast. GBP pressure will probably underly another 50bp if it occurs.

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Aug 03

Daily Brief Macro: CX Daily: Why Southeast Asia Is a Battleground in the Global China-U.S. Rivalry and more

In today’s briefing:

CX Daily: Why Southeast Asia Is a Battleground in the Global China-U.S. Rivalry
China: Incipient Recovery At Risk

CX Daily: Why Southeast Asia Is a Battleground in the Global China-U.S. Rivalry

Why Southeast Asia is a battleground in the global China-U.S. rivalry
China threatens ‘strong and resolute countermeasures’ to Pelosi Taiwan visit
China semiconductor fund graft scandal widens as another executive probed, sources say

China: Incipient Recovery At Risk

By Nigel Chiang

The incipient recovery in June is in danger of reversing amid the gruelling toll exacted by the unrelenting Zero-Covid approach.
The travails of the property sector are feeding into local government finances and threatening a downward spiral:
The latest Politburo meeting signalled no change in the government’s highly selective and targeted stabilisation approach which will not suffice to turnaround the ailing economy.

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Aug 02

Daily Brief Macro: Hong Kong: Worries About The Collapse Of The Currency Peg Are Overblown and more

In today’s briefing:

Hong Kong: Worries About The Collapse Of The Currency Peg Are Overblown
The Week That Was in ASEAN@Smartkarma – Bank Jago, Meralco’s Sell-Down, and Unilever Indonesia
The Philippines: First SONA By Marcos Falls Short Of Expectations
The Commodity Report #62

Hong Kong: Worries About The Collapse Of The Currency Peg Are Overblown

By Manu Bhaskaran

Falling foreign exchange reserves have reawakened fears for the HK Dollar peg to the US Dollar. This fear is fundamentally misplaced.
The currency board system underpinning the peg cannot break by definition unless there is a political decision to break it.
Instead, what HK might have to fear is the consequences of the peg for the domestic economy by way of asset price deflation and falling wages.

The Week That Was in ASEAN@Smartkarma – Bank Jago, Meralco’s Sell-Down, and Unilever Indonesia

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 in Bank Jago, Bank Central Asia, AKR Corporindo, Matahari Department Store, Unilever Indonesia, BFI Finance Indonesia, and Manila Electric Company.
There were also macro insights on Indonesian and Malaysian economies plus on SCG Packaging, Minor International, and Hwa Hong Corp.

The Philippines: First SONA By Marcos Falls Short Of Expectations

By Nicholas Chia

President Marcos’ first State of the Nation Address (SONA) represents a missed opportunity of-sorts, given his sizeable mandate & political capital. The address lacked fresh reforms on taxation or economic liberalisation.
Without a renewed push to open up the economy, foreign investment approvals, which have slowed, will only continue to languish.
Conversely, a large part of his speech addressed the agriculture sector which he personally oversees, reflecting attempts by Marcos to broaden his family’s political base beyond the Solid North.

The Commodity Report #62

By The Commodity Report

Commodities rallied as the dollar weakened and real rates declined again.
As you can see above, the CRB index bounced right from the 200D MA.
More important commodities did so even while GDP data was worse than expected.

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Aug 01

Daily Brief Macro: China – Policy Switches-Off and more

In today’s briefing:

China – Policy Switches-Off
Bearishness, Begone!
Warning: The Market Is Massively Fighting the Fed
Bulls & Bears: Near-Term and Short-Term View on Oil Prices

China – Policy Switches-Off

By Michael J. Howell

Chinese net capital outflows are again picking up to a US$600 billion annual clip. Chinese Yuan has also been under-pressure from the strong US dollar
People’s Bank (PBoC) forced to tighten domestic monetary conditions to help Yuan, despite COVID-19 lockdowns
Tighter Chinese Liquidity hurts World economy, reinforcing recession threat and hurting commodity markets

Bearishness, Begone!

The balance of upside and downside risks have begun to normalize.
Signals from global commodity and equity markets are showing that the upside potential and downside risk of owning equities have become more balanced.
However, downside risks remain in the form of a China slowdown and further risks from the Russia-Ukraine war.

Warning: The Market Is Massively Fighting the Fed

Asset markets have gone risk-on in the wake of the FOMC meeting, but the market may be getting ahead of itself.
The stock market advance has begun to take on a FOMO tone and could run further, but risk levels are rising.
The Treasury and energy markets could be the guide to changes in risk appetite.

Bulls & Bears: Near-Term and Short-Term View on Oil Prices

By Vandana Hari

Crude price movements have been almost entirely dictated by sentiment in the broader financial markets since around mid-June.
Prices rose in the week to July 29 as part of a broader relief rally in risk assets. The rally is exhausted but may help resist sharp downswings for now.
For the mid-Aug to mid-Sep period, we are mildly bullish.

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Jul 31

Daily Brief Macro: Is The US Fed Tightening Into A Big Recession? and more

In today’s briefing:

Is The US Fed Tightening Into A Big Recession?
Corporate America Faces Stiffer Headwinds as Demand Outlook Falters and Higher Input Costs Persist

Is The US Fed Tightening Into A Big Recession?

By Michael J. Howell

Latest FOMC meeting sounded ‘surprising’ dovish, but this is less surprising if we consider the US Fed is only six months away from a probable policy pivot
Evidence seems to confirm the US and World economies are already in recession. This will get worse because a major Global Liquidity shock has already been delivered
This looks like a bear market rally. Bears have two down-legs, split by an often vicious spike. Effects of a bigger recession on 2H, 2022 profits needs to be discounted

Corporate America Faces Stiffer Headwinds as Demand Outlook Falters and Higher Input Costs Persist

By Said Desaque

The Fed’s baseline policy outlook suggests a tougher operating environment for Corporate America. Investors should focus on downside risks to corporate profits, particularly in those sectors with limited pricing power.
Weakening demand is the main source of risks for US corporations, particularly in consumer discretionary sectors. Capital spending will not be immune to softer economic conditions.
Elevated energy prices could remain a source of input cost pressures into 2023. The US labour market remains tight. Upward pressure on wages is likely to persist until 2023 H2.

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Jul 29

Daily Brief Macro: CX Daily: Weeks After Hong Kong Offering and more

In today’s briefing:

CX Daily: Weeks After Hong Kong Offering, Miniso Shares Tank on Short-Seller Attack
France: Europe’s High Conviction Holding
The Crazy Market Rally Explained

CX Daily: Weeks After Hong Kong Offering, Miniso Shares Tank on Short-Seller Attack

China and Indonesia leaders vow to deepen relations
Analysis: Dutch carmaker Stellantis NV (STLA US) and state-owned Guangzhou Automobile Group (2238 HK) go their own ways
Weeks after Hong Kong offering, Miniso (MNSO US) shares tank on short-seller attack

France: Europe’s High Conviction Holding

By Steven Holden

Global equity managers are positioned at their highest ever overweight in French equities
France is the 4th largest country allocation globally and the largest in the European Union. Versus the benchmark, only the Netherlands has more funds positioned overweight.
Sanofi and Cap Gemini SA have benefited from fund rotation this year, with the percentage of funds invested in each name rising by 4.1% and 3.3% respectively

The Crazy Market Rally Explained

By The Macro Compass

Despite admitting that economic growth is clearly slowing down, the Fed just hiked by another 75 basis points and reiterated the path of least resistance from here is well represented by the Dot Plot: more hikes ahead – all the way to Fed Funds at 3.75%!
And yet, markets have staged a humongous rally led by the most valuation intensive and risk sentiment driven asset classes: Nasdaq and Crypto.
So, what the heck?! It all boils down to how one single sentence Powell pronounced was able to affect the probability distributions investors were projecting for different asset classes.
Does it sound complicated? Bear with me: it’s not!

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Jul 28

Daily Brief Macro: Infrastructure Development in Asia: A Reset on the Horizon and more

In today’s briefing:

Infrastructure Development in Asia: A Reset on the Horizon
“V” For ? Thoughts on Central Banks
CX Daily: Four Chinese Laws That Can Help People Protect Their Personal Information

Infrastructure Development in Asia: A Reset on the Horizon

By Nigel Chiang

Governments are learning lessons from previous policy failures, enabling a reset to be on the horizon as they developed project pipelines to streamline the assessment and delivery of proposed projects.
A similar recalibration of the once-vaunted Belt and Road Initiative (BRI) is also underway as China’s infrastructure agenda has come under a cloud
Geopolitics will also feature in infrastructure financing, evinced by the G7’s USD600bn-PGII initiative.

“V” For ? Thoughts on Central Banks

By Shyam Devani

As we prepare for the FOMC there are patterns to watch beyond the short term
The risk of lower yields still persists, especially given the curve inversion
As a consequence we are likely to see further gains in US equities

CX Daily: Four Chinese Laws That Can Help People Protect Their Personal Information

Four Chinese laws that can help people protect their personal information
Central bank to beef up digital yuan rules to address privacy issues
Finance veteran Zhao Peng set to become president of China Life’s publicly traded unit

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Jul 27

Daily Brief Macro: Indonesia: Bumper Trade Surplus and FDI Inflows Undergird IDR and more

In today’s briefing:

Indonesia: Bumper Trade Surplus and FDI Inflows Undergird IDR
Malaysia: Still Little Chance of a Much-Needed Political Renewal
CX Daily: Why The World Is Burning Up This Summer

Indonesia: Bumper Trade Surplus and FDI Inflows Undergird IDR

By Nicholas Chia

Indonesia is on the cusp of structural transformation as the industry policy is starting to produce results.
Inflows of foreign investment are bouncing up. Nickel-rich Sulawesi is now on par with West Java in terms of their respective regional shares of FDI.
The tailwind from commodity prices add to the current account buffers. The sizeable trade surplus in 2Q22 should also translate into a sizeable CA surplus (CAA estimate: 3.7%)

Malaysia: Still Little Chance of a Much-Needed Political Renewal

By Manu Bhaskaran

Deep divisions within the major political parties bode ill for such renewal. The once-dominant UMNO is riven with factional infighting.
But the rival Pakatan Harapan alliance is also beset with infighting and sharp differences over political strategy and so unable to regain popularity.
One thing seems likely – the incumbent government will be tempted to use Budget 2023, to be announced in October, to win voters over.

CX Daily: Why The World Is Burning Up This Summer

China’s leaders all inoculated with domestic Covid-19 vaccines, health official says
China Merchants Bank drops banking venture with JD.com
China expands cross-border cash-pooling trial for multinationals

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Jul 26

Daily Brief Macro: Lower Corporate Tax Rate in Korea Could Be an Extra Alpha Kicker and more

In today’s briefing:

Lower Corporate Tax Rate in Korea Could Be an Extra Alpha Kicker
The Week That Was in ASEAN@Smartkarma – Metrodata Electronics, Arwana, and Emperador in Singapore
CX Daily: Chinese Carmakers Jostle For An Edge In Autonomous Driving
The Commodity Report #61

Lower Corporate Tax Rate in Korea Could Be an Extra Alpha Kicker

By Douglas Kim

We believe that there is a relatively high probability that the Korean government will lower the highest corporate tax rate bracket from 25% to 22% starting next year.
A 3% change in corporate tax rate should result in about 4% higher net profit for Korean companies.
Among the top 30 companies in Korea, we believe the companies with the biggest impact on lowering their tax rates include LG Electronics, Naver, Kakao Corp, SK Innovation, and KT&G.

The Week That Was in ASEAN@Smartkarma – Metrodata Electronics, Arwana, and Emperador in Singapore

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 PT Metrodata Electronics, Arwana Citramulia,Emperador (EMI SP), Cocoaland Holdings, Total Access Communication, and Thai Life Insurance (TLI TB).
There were also insights in Thailand on Kasikornbank, PTT E&P, and Central Plaza Hotel as we enter results season plus SeaMoney (Sea Ltd (SE US)), and Adaro Energy.

CX Daily: Chinese Carmakers Jostle For An Edge In Autonomous Driving

Chinese carmakers jostle for an edge in autonomous driving
Nearly 9,000 people died in work safety incidents this year, ministry says
China banking regulator pushes smaller banks to dispose of bad loans

The Commodity Report #61

By The Commodity Report

The war premium for energy components disappears
High prices combined with slowing economic growth lead indeed to now visible demand destruction (see analysis by Pro Vision Macro below)
Lots of speculative positioning is getting washed out of the market

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Jul 25

Daily Brief Macro: A Powerful New Bull? Don’t Bet On It! and more

In today’s briefing:

A Powerful New Bull? Don’t Bet On It!
The Secret Lives of Corporate Insiders

A Powerful New Bull? Don’t Bet On It!

The tone of stock market action has become more constructive, but the jury is still out as to whether the latest advance is the start of a V-shaped bottom.
Fundamentally, we are monitoring the evolution of earnings estimates as the Q2 earnings season progresses.
From a technical perspective, durable advances are accompanied by strong price momentum, which the bulls haven’t demonstrated yet.

The Secret Lives of Corporate Insiders