Macro

• Some chartists have recently become excited over the commodity outlook. Setting aside the headline-driven rise in oil prices, the long-term chart of many commodities looks bullish.
• The latest spike in commodity prices should be interpreted as an exhaustive move as it is a supply shock that should resolve with demand destructive in the coming months.
• To the extent that investors hold or overweight energy and mining stocks, consider rotating into long-duration Treasury bonds in anticipation of a bond market rally as the economy slows.

• This cycle is very different from the experience of most investment managers. Reported inflation is a 40-year high and inflationary expectations are rising and war-related supply shock is creating uncertainty.
• The FOMC meeting begins on March 15, or the Ides of March, and the results could be the source of further market volatility.
• Traders will have to weigh the constructive signals from technical and sentiment indicators against the risk of further escalation in the war.

• Ukraine is a major negative for the World, but is may be eclipsed by China and Oil? 
• China shows no signs of easing her policy and every sign of maintaining a tight monetary stance. Stability is the watchword.
• But don’t forget higher oil prices. US$130/ bbl oil could smash Global Liquidity lower by up to 30%. This isn’t bullish!

• Geopolitical tensions have undermined confidence in risky assets and reduced liquidity in funding markets. The Fed would normally respond to these, but policy settings are still about to be tightened.
• The freezing of Russian central bank assets lowers global liquidity by reducing the supply of dollars in the FX swap market.  Normally, the Fed will respond via currency swap lines.
• Funding in commodity markets based on Russian-originated collateral has been impacted by  sanctions, which produce similar outcomes to protectionism. Stagflation is the major challenge for central banks in 2022. 

• In Depth: The winners and losers of China’s credit easing 

• Leaders from China, France and Germany press for settlement to Russia-Ukraine war

• Chinese metal giant faces heavy losses on wild nickel ride

• The ECB announced an even more aggressive tapering of its asset purchases than we expected as it delivered a welcome return to explicitly state-dependent policy.
• High inflation is hurrying policy towards the exit. We expect inflation to exceed the staff forecast again, encouraging the ECB to end net purchases with June’s EUR 20bn. 
• Rate hikes “some time” later probably won’t be long, with our forecast for the first now three months earlier at Sep-22. Excessive core pressures are pushing global action.

• The ECB announced an even more aggressive tapering of its asset purchases than we expected as it delivered a welcome return to explicitly state-dependent policy.
• High inflation is hurrying policy towards the exit. We expect inflation to exceed the staff forecast again, encouraging the ECB to end net purchases with June’s EUR 20bn. 
• Rate hikes “some time” later probably won’t be long, with our forecast for the first now three months earlier at Sep-22. Excessive core pressures are pushing global action.

• The NPC session at the Two Conferences saw the release of the 2022 Government Work Report, NDRC Work Report, and the Budget Work Report.
• The financial derisking being the second economic priory (behind stability)
• Property policy will be focused on promoting long-term rental housing and supporting genuine home demand

• In line with my view, the US dollar remains strong, with the invasion of Ukraine by Russia providing additional safe-haven bids and putting pressure on EM currencies. 
• Among EM currencies, the worst hit are Central European currencies as the war has created headwinds to growth in the region especially due to the spike in energy prices.
• Authorities in the eurozone and Central Europe have taken steps to mitigate the impact on their economies but the proximity to the war means that some risk premium will remain.

• In Depth: China’s pension insurers told to stop pursuing quick and risky profits

• China Meheco links up with Pfizer to market Covid pill

• China must address gender imbalance to tackle demographic crisis, Nobel laureate says

• Yoon Suk-Yeol was elected the new President of South Korea on 10 March.
• As the next President of South Korea, Yoon will certainly try to increase much needed housing supply and this will certainly benefit the major construction companies in Korea.
• Another major sector that will likely benefit as a result of Yoon becoming the President is the nuclear industry.

• Sanctions: Sanctions on Russia sound alarm for Chinese banks

• Paxlovid: China Meheco confirms Pfizer talks on selling Paxlovid in China

• Fund: Caixin Explains: Why China’s creating a financial security fund. 

• Active EM Managers underperformed their benchmark by -1.58% in February.
• Performance was correlated to fund style and market cap focus, with Value beating Growth and Small/Midcap beating Large/Mega.
• Given the net overweight in Russia heading in to the crisis, it was the key driver of the underperformance, but there could be more to come.

• Key point 3

Unemployment rate in Jan 2022 stayed at 4.2% (Dec 2021: 4.2%), the second lowest monthly figure in the pandemic-era since 3.9% in Mar 2020, and hovered at 4.2%-4.3% range since Oct 2021. Monthly jobless rate is anticipated to slowly trend lower as progress in domestic economic opening is tempered by heightened global uncertainty from Russia-Ukraine war. Keep our full-year average unemployment rate forecast of 4.0% (2021: 4.6%).

• The market is somewhere in a transition period from an equity downtrend and realization of an economic growth slowdown.
• Investors need to keep in mind that the Fed cycle remains the dominant driving force in stock prices.
• Use rallies to reduce equity weights and overweight defensive sectors in their equity portfolios and slowly increase their weights in high-quality large-cap growth as duration plays.

• The U.S. stock market is poised for a counter-trend relief rally in the context of an intermediate-term downtrend.
• Investment-Oriented accounts should stay cautious and take advantage of any market strength to reduce equity weights.
• Traders can position for a possible rally, which is often brief but violent in bear markets.

• Upward revision to crude oil price forecast
• Higher oil-related revenue and fuel subsidy cost
• Small net positive fiscal impact

Expect USD100/bbl crude oil price average this year following the Russia-Ukraine war. Every USD10/bbl increase in crude oil price raises oil-related revenues by MYR7.5b and fuel subsidy cost by MYR6.1b, giving net positive fiscal impact of MYR1.4b or 0.4% of GDP. Budget 2022 assumed USD66-67/bbl. Our estimate is USD100/bbl results in MYR25.1b lift to Government revenue and MYR20.4b increase in fuel subsidy cost, thus net fiscal impact of MYR4.8b or 0.3% of GDP.

• Global Liquidity is already falling from 2021 peaks. Not set to bottom until late-2023
• Central Bank tightening is reinforcing this decline. More to come
• Ukraine Crisis will not deflect the downtrend. More likely reinforces it

• Chinese People’s Political Consultative Conference (CPPCC) start on 4th March and The National People’s Congress will start Saturday.
• The meeting discussing a range of topics from a sanctions bill and COVID policy to China-Lithuanian relation.
• Chinese government is confidence in achieving steady economic development in this year.