Macro

In today’s briefing:

Buy to the Sound of Cannons
Trading the Panic

Buy to the Sound of Cannons

If a hot war were to break out, wars are intermediate-term bullish owing to an accommodative fiscal and probable monetary responses. Remember Rothchild’s words: “Buy to the sound of cannons…”
If war fears fade, investors face the more conventional challenges of central banks tightening monetary policy during a mid-cycle expansion – a choppy market after an initial relief rally.
In all cases, investors and traders should fade the war fears and take advantage of any price weakness to buy risky assets.

Trading the Panic

The U.S. equity market is undergoing the classic signs of a panic bottom and it is poised for a relief rally.
Not only is the market oversold, but also extreme fear is showing up in sentiment readings.
While it’s difficult to pinpoint the exact point of a bottom, the ability of the S&P 500 to hold above support on the 30-minute chart is constructive.

Before it’s here, it’s on Smartkarma

Jan 29

Macro: Olympics/ Bonds/ US-China/ China-Stans/ Graft and more

In today’s briefing:

Olympics/ Bonds/ US-China/ China-Stans/ Graft
Japanese Yen – Myths and Realities
Predicting the Impact of a Russia-Ukraine Conflict on Wall Street

Olympics/ Bonds/ US-China/ China-Stans/ Graft

By Diana Choyleva

China approved new rules to further connect the interbank and exchange bond markets, marking a step closer to unifying its fragmented $20 trillion bond market.
We expect US-China relations to remain fractious and difficult – with fewer major dramas, while China remains determined to keep the Stans sweet – and focused on stability and security.
Xi Jinping’s years-long anti-corruption campaign won’t slow down in 2022 as he told the Party’s top disciplinary watchdog to take a “zero tolerance” approach to corruption.

Japanese Yen – Myths and Realities

By Olivier Desbarres

Yen depreciated about 13% vs Dollar in 12 months to 4 January but has since rebounded about 1% in NEER terms. We expect trade deficit to stabilise in coming months.
“Safe-Haven” Yen also driven by capital outflows and global sentiment, as proxied by S&P 500. But perception that Yen is funding currency for EM has not held true since mid-2020.
Our near-term scenario, premised on lower US equities, is of modest Yen NEER appreciation. Monthly seasonality has historically been negligible in February.

Predicting the Impact of a Russia-Ukraine Conflict on Wall Street

By subSPAC

A new threat to financial markets may be on the cards, with a potential incursion of Ukraine by Russia.
While the probability of war remains slim at best, such an event could still lead to extreme movements across every sector in the market, including stocks, commodities and bonds.
Energy Markets could be the primary source of volatility if tensions between the two countries turn into conflict

Before it’s here, it’s on Smartkarma

Jan 28

Macro: Omicron Creates an Antifreeze Lake and more

In today’s briefing:

Omicron Creates an Antifreeze Lake
China: EM Active Fund Positioning Update. BABA Drives Allocations Lower
In an Environment of Rising Rates, Colombia 10y Local Rate Is a Good Short

Omicron Creates an Antifreeze Lake

Covid infection numbers keep hitting new extremes, and yet the threat has moved on from the lockdowns of 2020-21. The omicron variant is mild.
Future mutations probably won’t harden the response again. Political pressures in the UK broke the reaction function, and it is unlikely to return.
Covid’s growth impact should now be through supply shortages, mostly related to the lost potential during past restrictions, but China’s zero covid policy poses a risk.

China: EM Active Fund Positioning Update. BABA Drives Allocations Lower

By Steven Holden

China allocations fall to a 2-year low, driven by widespread closures in Alibaba Group (BABA US) New Oriental Education (EDU US), China Mobile (941 HK) and CNOOC Ltd.
Active GEM Managers head in to 2022 with Consumer Discretionary and Communication Services the key China sector exposures, though Industrial stocks stand out the main overweight.
On a stock level, the most widely held company is Tencent, held by 81% of the managers in our analysis and taking the crown from Alibaba Group in 2021.

In an Environment of Rising Rates, Colombia 10y Local Rate Is a Good Short

In the current environment of upside risks to global rates, it is appropriate to look for countries where one can position for rates to move higher with limited downside.
From this perspective, I like shorting long-end rates in Colombia ahead of the upcoming presidential election in May where a leftist candidate is leading in the polls.
The political risk premium should rise in Colombia using the increase in rates in Peru and Chile last year as guidance since both countries went through similar election-related political turmoil.

Before it’s here, it’s on Smartkarma

Jan 26

Macro: How To Trade This Market Eruption and more

In today’s briefing:

How To Trade This Market Eruption
A New Capital Spending Cycle Is Set to Boost Asian Exports
Malaysia: Imminent Political Realignments Raise Uncertainty over Electoral Outcomes
United Kingdom: Inflation Without Benefits
Value of Euro as a Hedge for EM Currencies in Times Like These

How To Trade This Market Eruption

By The Macro Compass

Markets have moved sharply year-to-date, and in one clear direction: short Cathie Wood and Bitcoin, long cyclicals (banks & oil)
There are good macro reasons for the downside move in high-beta, high-multiples but much less so for the long cyclical move to continue its upside move
My credit impulse metric suggests earnings and inflation are going to disappoint consensus

A New Capital Spending Cycle Is Set to Boost Asian Exports

By Manu Bhaskaran

There are good reasons to expect a revival in global investment: as the global economy recovers, confidence will return and unleash both pent-up demand as well as secular new demand.
The hard data on capital goods orders is beginning to support this view. Announcements by companies on capital spending plans also provide support.
Within Asia, Singapore, Taiwan, South Korea, and Malaysia are particularly likely to benefit from the capital spending upturn.

Malaysia: Imminent Political Realignments Raise Uncertainty over Electoral Outcomes

By Nicholas Chia

Malaysia is entering a period of greater political tumult. New parties are forming and new alliances taking shape. A big loser from this appears to be the Pakatan Harapan coalition.
The government’s image has taken a beating because of poor management of the terrible floods in December, alongside allegations of corruption against the head of the anti-corruption agency.
In the coming months, incumbent political parties will hold their annual meetings, offering a chance for leadership renewal. State elections in Johor will also provide more clarity moving forward.

United Kingdom: Inflation Without Benefits

By Olivier Desbarres

UK consumer demand remains modest, particularly for services, and will run into numerous headwinds in coming months, including an erosion in real earnings and tax and energy price hikes.
Sizeable bank deposits, which rose £259bn between February 2020 and November 2021, should provide a cushion to demand but are no panacea given wealthy households’ low propensity to spend.
This will not stop Bank of England hiking its policy rate further this year but this may do little to bring down cost-push CPI-inflation. Expect some Sterling volatility.

Value of Euro as a Hedge for EM Currencies in Times Like These

The US dollar has started appreciating again on the back of a safe-haven bid with risk aversion rising due to the Fed’s upcoming rate-hiking cycle and the Russia-Ukraine tensions.
Given my expectation of rising dollar volatility, I had recommended hedging a diversified EMFX portfolio with the euro. Indeed, the euro hedge has worked well over the past three months.
I continue to prescribe maintaining the euro hedge. If the dollar remains volatile, I don’t expect the low volatility of EM currencies – dragged lower by Asia – to persist.

Before it’s here, it’s on Smartkarma

Jan 25

Macro: Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – January 2022 and more

In today’s briefing:

Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – January 2022
Whatever Happens in Ukraine, China Is Not Going to Invade Taiwan Anytime Soon

Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – January 2022

In my monthly recap note, I provide a performance update of my weekly trade recommendations in emerging markets FX and rates.
Of the total of 31 trade recommendations made so far, I have recommended closing 21 of which 17 were in the money.
I also go over my open trade recommendations as well as those that I have closed recently.

Whatever Happens in Ukraine, China Is Not Going to Invade Taiwan Anytime Soon

By Manu Bhaskaran

Even if the US falters in a Ukraine crisis, China will not be emboldened to attack Taiwan as some fear.
China will move only when sure of victory, which is decidedly not the case now.
But China is likely to ramp up military, economic and diplomatic pressure on Taiwan.

Before it’s here, it’s on Smartkarma

Jan 24

Macro: Buy the Dip and more

In today’s briefing:

Buy the Dip, or Sell the Dead-Cat Bounce?
Rethinking the Hindenburg Omen
2022: False start for U.S. equities

Buy the Dip, or Sell the Dead-Cat Bounce?

The U.S. stock market is sufficiently oversold that a relief rally is likely in the short run.
Intermediate-Term, stock prices are still vulnerable to considerable downside risk.
The FOMC meeting in the coming week could prove to be a catalyst for volatility and greater clarity on market direction.

Rethinking the Hindenburg Omen

We are seeing signs of technical deterioration from a variety of sources, such as the Hindenburg Omen and a long-term Wilshire 5000 sell signal.
Our Trend Asset Allocation Model has been downgraded from risk-on to neutral.
Investment-Oriented accounts should exercise caution and de-risk their portfolios and shift to a neutral equity weighting position consistent with their investment policy target weights.

2022: False start for U.S. equities

By Market Radar

The year is just started but 2022 has not been good so far for U.S. stocks. The S&P 500, and especially the Nasdaq, are negative YTD, and among the worst indices on a global basis
Indeed the value rotation is still in place, and the performance gap between value and growth stocks is widening
I think that the current interest rate increase could be close to the peak

Before it’s here, it’s on Smartkarma

Jan 23

Macro: The Week That Was in ASEAN@Smartkarma – Indonesian Media and more

In today’s briefing:

The Week That Was in ASEAN@Smartkarma – Indonesian Media, Bank Mandiri, and Jardine Matheson.

The Week That Was in ASEAN@Smartkarma – Indonesian Media, Bank Mandiri, and Jardine Matheson.

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 Surya Citra Media Tbk (SCMA IJ) which looks undervalued plus on Bank Mandiri Persero (BMRI IJ) and its differentiated digital strategy.
We also discuss Grab (GRAB US)‘s move on Bank FAMA, BFI Finance Indonesia (BFIN IJ)‘s potential marriage with Bank Jago (ARTO IJ), and Jardine Matheson (JM SP)

Before it’s here, it’s on Smartkarma

Jan 22

Macro: Why Are World Markets Falling? and more

In today’s briefing:

Why Are World Markets Falling?
Fed Unperturbed by Equity Market Declines as Housing Cushions the Blow to Households’ Net Worth
Light at the End of Long Eurozone Tunnel?
Money/ COVID-19/ Babies/ Agents/ Taiwan
UK: Retail Has a Pre-Christmas Hangover

Why Are World Markets Falling?

By Michael J. Howell

Global Liquidity is skidding and forcing risk asset prices lower
70% of World’s Central Banks are now running ‘tight’ monetary policies
Bond markets may have called this right. Viz the collapse in term premia

Fed Unperturbed by Equity Market Declines as Housing Cushions the Blow to Households’ Net Worth

By Said Desaque

US equity investors’ expectations have been fickle by failing to appreciate that there would be payback demanded by the Fed for their unprecedented policy easing during the COVID-19 pandemic.
The Federal Open Market Committee (FOMC) will be pleased to witness the recent correction in equity prices and will view price declines as a signal of policy credibility.
US equities remain vulnerable to liquidity contraction. Housing has also boosted households’ wealth, and the Fed would provide policy support if home and equity prices fell simultaneously.

Light at the End of Long Eurozone Tunnel?

By Olivier Desbarres

Covid-19 cases in most Eurozone countries remain at or near record levels and in many the death rate has risen in past five weeks.
Governments have thus maintained strict social distancing and travel rules which are weighing on Eurozone’s economic growth and Euro.
But United Kingdom, which has announced a loosening of rules, could be template for how things unfold in Eurozone and cheap Euro may eventually rebound.

Money/ COVID-19/ Babies/ Agents/ Taiwan

By Diana Choyleva

To shore up the cooling economy, Beijing cut its benchmark lending rate for the second consecutive month, while also lowering a mortgage reference rate.
China’s lockdowns and restrictions risk causing greater disruption to manufacturers and supply chains than during earlier waves of the pandemic, the FT reported.
China is effectively at the zero-growth stage, and the trend looks unlikely to be reversed, despite efforts to push a “Three Child” policy, and offer more support to new parents.

UK: Retail Has a Pre-Christmas Hangover

A two-month retail binge ended with a horrible hangover in Dec-21. More things fell and by further than expected, although the hospitality trade may not have suffered as much.
We maintain our Q4 GDP growth forecast of 1.0% q-o-q. Front-loaded Christmas spending will have temporarily weighed while implying a worse consumer trend.
The BoE already discounted a depressing winter, so realising that should not offset the hawkish pressures pushing it to another rate hike in Feb-22.

Before it’s here, it’s on Smartkarma

Jan 21

Macro: What to Expect of EM Rates When Expecting US Rates to Stay Volatile? and more

In today’s briefing:

What to Expect of EM Rates When Expecting US Rates to Stay Volatile?
EA: Core Trend Ripped Above 2%

What to Expect of EM Rates When Expecting US Rates to Stay Volatile?

The risk of US yields continuing to rise is high especially with inflation not having peaked yet, the Fed potentially reducing its balance sheet, and real rates still negative.
The high volatility in US rates does not bode well for EM rates due to their high correlation even though EM local debt is overall cheap based on most metrics.
Until the volatility in US rates subsides, it is best to focus on cross-country and curve trades in EM, with my preference for curve steepening trades in several countries.

EA: Core Trend Ripped Above 2%

EA HICP inflation was confirmed at 5.0% y-o-y for Dec-21, while the ex-tobacco index printed at 109.97 (HTRO: 109.98).
A leg down in Jan-22 should start a headline trend. The step-up in the core inflation impulse is more critical for us.
It implies upside and, for the first time since the sovereign debt crisis, it shows inflation settling near 2%.

Before it’s here, it’s on Smartkarma

Jan 20

Macro: Value Funds Move to Record Underweight in India and more

In today’s briefing:

Value Funds Move to Record Underweight in India
UK: Inflation Trend Is Not a Friend

Value Funds Move to Record Underweight in India

By Steven Holden

India moves to largest underweight country holding among EM Value managers. Current underweight the highest on record.
Among Value managers, India saw net fund outflows of $322m, the underweight increase by -1.92% and a further 7.7% of managers move to underweight over the last 6-months.
Reliance Industries (RIL IN) is the key underweight, whilst Bajaj Finance Ltd (BAF IN)Bharti Airtel (BHARTI IN) and Larsen & Toubro have been avoided by EM Value managers altogether.

UK: Inflation Trend Is Not a Friend

Another month of substantial upside inflation pressure creates broad-based income destruction. What started as base effects and built with narrow shocks (inc-energy) has increasingly become an awkward trend phenomenon.
That painful trend could continue causing upside inflation surprises until the brisk nominal expansion burns itself out. Second-round effects of inflation in wages are needed to extend it.
The BoE is likely to do its bit by hiking again on 3 February.

Before it’s here, it’s on Smartkarma