This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Global Commodities: The art of keeping up with yesterday and avoiding tomorrow
- Output hikes announced in fourth quarter
- Various commodities including copper, natural gas, and grain oilseeds have experienced sharp declines
- Oil prices influenced by economic indicators, strong underlying demand, and declining global visible oil inventories
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
2. Korea Exchange Plans to List Additional 39 Stock Futures and 6 Stock Options
- On 12 September, the Korea Exchange announced that it plans to list additional 39 stock futures (27 KOSPI and 12 KOSDAQ) and 6 stock options on 4 November.
- With these listings, the stock options will also be available for most of the top stocks in the stock market, including Samsung Biologics and Samsung Life Insurance.
- Given that shorting of stocks is still essentially banned in Korea, the use of stock futures and options are likely to be increasingly used by investors to improve risk management.
3. Don’t Shoot the Piano Player
- The undulating prospect of a 25bps or 50bps cut at the September Fed meeting coupled with a foggy future rate path is weighing on market sentiment
- The state of financial market conditions–broadly and narrowly defined–may abruptly influence the outcome of upcoming Fed meeting/s, or vice versa
- My weekly estimate of market leverage in the US hedge fund sector in total, which remains elevated at this time, warrants more attention
4. Positioning Watch: Markets Are Positioned for Softness (in Rates)
- Hello everyone, and welcome back to our weekly positioning watch.
- A lot is happening in markets ahead of what could be a significant turning point in sentiment, with the August CPI report landing in our inboxes at 14:30 CPH time.
- The debate between Harris and Trump seems to have set the tone in markets leading up to the event, with the USD selling off as markets agree that Trump is likely the more bullish of the two on USD.
5. EM Watch: The Non-Feasible Return of the EM Carry Case Amidst a Global Slowdown
- Welcome to our weekly EM Watch, where we examine Emerging Markets (with a particular focus on China) through the lens of Western investors.
- It’s been a rough month for anything linked to China, including industrially sensitive commodities.
- According to one of the most reliable live gauges of Chinese energy demand—the Singapore Gasoil-Dubai Crude Crack Swap—we are still on a slippery slope toward weaker demand from China.
6. Steno Signals #116 – Here comes the dash for USD cash!
- Happy Sunday, folks—if you can stay upbeat in the current market environment, that is.
- We have had September 100% spot on, and the developments late on Friday support our notion that a dash for USD cash will arrive through the month.
- The USD started rebounding alongside the sell-off in commodities and risk assets, following Waller’s appearance during the FOMC Q&A.
7. EM Watch: China was WEAKENING even before the decline in Western demand
- Since July, US macroeconomic momentum has weakened substantially.
- We are now back on a negative trajectory for cyclical growth, with signs of fading momentum in some service sectors, including leisure and hospitality.
- In the spring, we observed a significant build-up of orders relative to inventories as manufacturers sought to bypass the latent pressure from trade tariffs by front-loading activity.
8. China Equities: More of the Same
- We are strategically underweight China Equities in global and EM equity baskets, due to the structural slowing of growth and low EPS prospects.
- Event risk around the U.S. presidential election will also start to be considered.
- Further targeted policies from China authorities could cause intermittent trading driven short-covering, but aggressive game changing policy would be required to sustain a rally.
9. How to Trade the Seasonal Weakness
- The stock market is due for a period of sloppiness and corrective action in the next two months
- However, macro and technical indicators do not point to a major market top.
- We have outlined a number of bullish tripwires for traders to take advantage of a pending sale on stock prices and buy the dip.
10. US: Harris Wins the Presidential Debate Hands Down, but Impact on Race Still Mild
- In possibly the only Trump-Harris presidential debate, VP Kamala Harris clearly won, according to polls/focus groups conducted by FoxNews and CNN, as well as the vast majority of commentators.
- Harris largely remained focused on centrist positions, and was able to bait Trump into angry outbursts and digressions away from his key talking points. The economy remained her Achilles Heel.
- Weakness on the economy, and the failure to highlight her “freedom” theme, meant that Harris didn’t score a slam dunk. The race is a dead heat, Harris a nose ahead.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Best Of: How Dubai is reshaping the global oil trade
- Correspondent Tom Wilson visited Fujairah, a booming port city in the UAE where oil trading has exploded in recent years
- Western sanctions on Russian oil exports have led to a redirection of global energy flows, with the UAE emerging as a major energy trading hub
- Switzerland has historically been a top location for commodity traders due to its banking secrecy and political neutrality, but the rise of UAE as an oil trading hub is shifting the balance of power in oil markets
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
2. Tactical Trading – Time to Sell Japan Again
- Act II of the drama begins and continues from where it left off in early August
- Sentiment has changed – bad news really is bad news
- With >100 basis points of cuts already priced in before year end…
3. Corporate Value Up in Korea – Focus On Reducing Outstanding Shares and Comparison to M7
- In this insight, we compare the outstanding shares changes in the Korean stock market (KOSPI and KOSDAQ) relative to M7 (Magnificent 7) companies.
- In Korea, there are more companies such as Samsung C&T, KB Financial, and KT&G that are actively reducing their outstanding shares and investors are rewarding them with higher share prices.
- Top 10 companies in KOSPI that reduced their outstanding shares (from end of 2019 to 5 Sept 24) experienced average share price increase of 116% on average in this period.
4. Steno Signals #115 – The head-fake business cycle strikes again
- Happy Sunday from Copenhagen.
- Almost exactly a year ago, we wrote about the “roadmap to a recession” and how the market wrongly anticipated a near-term recession going into 2025.
- We also labeled the increasing re-inflation and manufacturing momentum a head-fake during the spring as the credit growth never truly supported a comeback to the most cyclical parts of the economy.
5. August Themes and Thematic Portfolio Review
- A monthly review of how the markets and our themes are currently performing
- Analysing what went wrong and what went right in stocks and sectors
- Highlighting positions added or removed from the thematic investment portfolio
6. JAPAN: No Lifeguard on Duty, Swim at Your Own Risk
- BOJ sows confusion with hawkish and dovish statements regarding its tightening policy. On a USD-basis the Japan market failed again to break its long-term resistance indicating a “Dead Cat Bounce”.
- Auto and Semiconductor sectors pressured by US trade policies and Trading Companies are affected by JPY strength. US rejection of Nippon Steel Corporation (5401 JP)merger affects Japan steel sector.
- Higher domestic yields is a catalyst to reverse the large money flows from Japan during the Kuroda years.
7. China’s Volatile Consumption Sector
- China consumption patterns are divergent; slowing and becoming more volatile at a sub sector level.
- Less certainty over new employment and wage growth, plus wealth worries over housing are some of the causes.
- We forecast GDP to slow in H2 and be 4.0% in 2025.
8. China Hard Landing Scenario
- We see a 30% probability of a harder landing in China GDP growth in 2025, which we most likely be in the 3-4% region but could persist into 2026.
- A large than projected slowdown in consumption would be a key concern, alongside persistently moderate negative deductions from residential investment.
- Negative inflation would only worsen this situation, while China authorities appear reluctant to go beyond targeted extra policy support towards aggressive action.
9. India GDP Review: A Bearish Start to FY25
- India’s GDP growth slowed to 6.7% yr/yr in Q1 FY25, falling short of expectations, as reduced public spending during the election period weighed on economic activity.
- Strong private consumption and investment provided some support, but a decline in manufacturing growth and weak external trade dampened overall momentum.
- Looking ahead, easing inflation, improved farm output, and a rebound in government spending are expected to drive growth in the coming quarters.
10. The Week At A Glance: No one trusts the July job report, but should they?
- Happy Labor Day! In this article, we are going to look into a feisty week of economic releases from the US economy given the backdrop of our nowcasting slowing considerably into September again.
- Our congestion based data has remained at muted growth levels, while the taxation data is starting to re-weaken, which is interesting into an otherwise strong tax season in September.
- Chart of the week: The Macro Environment is weakening in the US. Looking at the week ahead, we are on growth, liquidity, and inflation watch, especially focusing on the US.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Gold: Fakeout or Generational Buying Opportunity?
- Gold has reached another all-time high at 2500, will history repeat itself? Is this another generational buying opportunity or a bull trap fakeout?
- We conclude that the upside breakout in gold prices has more room to run, though the market is extended and could pull back at any time.
- A long-term point and figure analysis of monthly prices using a 5% box and 3-box reversal shows a measured objective of 4406.
2. India to Become Next China?
- India’s rapid economic growth, coupled with China’s recent economic challenges, has fueled discussions about whether India can become the next global economic power, as China has done for decades.
- China and India, Asia’s two largest economies, have taken different economic paths in recent years.
- Analysts at UBS Global Research pointed out: “China’s post-epidemic economic recovery is weak, while India’s performance is strong.”
3. Steno Signals #114 – A Powell Put is Ueda’s Catastrophe
- Happy Sunday from Denmark!I’ve had a few days to digest Powell’s speech from Friday, and my takeaway is unequivocally dovish.
- Powell and the committee have signaled that they will not tolerate further cooling of the U.S. labor market without responding.
- This marks a full-blown shift in priorities, with inflation numbers now taking a backseat to labor market data going forward.
4. China Unlikely to Escape Middle-Income Trap Without Social or Political Reform
- As economic growth of China move to sub-5% level (a figure which may have been manipulated upward), the living standard of its lower-middle and lower class are hopeless to improve.
- Standing at USD12970 in 2023, the capita real GDP grows much slower than previous decade.
- This is the middle income trap which is experienced by other middle-income Asian countries as well, like Philippines, Thailand, and Malaysia.
5. EM Watch: 5 Charts on the Nosediving Chinese Indicators!
- China’s exports fired on all cylinders during the spring, but we are now starting to see signs of fading inventories in the US (and to some extent, Europe) again.
- We believe the front-loading of imports, with rising freight rates being a symptom of this, propelled the Chinese economy ahead of the feared tariffs implemented by the Biden administration and potentially increased under a Trump presidency.
- We know that Chinese exporters have front-loaded exports of cars and other goods ahead of the tariff deadlines in both the US and Europe, and we are now seeing freight rates moderating alongside some concerning nowcasts out of China.
6. The Week At A Glance: The slippery slope of data revisions
- Happy Monday from Europe.
- Powell is cutting, Ueda is hiking and USDJPY is heading lower.
- It sounds like a tune we have heard before, and while we are NOT on imminent recession watch, we need to be aware of the potential slippery slope once the revised cat is let out of the bag.
7. China Consumption Disappoints
- China consumption patterns are slowing and becoming more volatile at a sub sector level. There is also less certainty over new employment and wage growth.
- China’s consumption is vital to growth when production is transitioning from old economy dependency on residential investment, steel, cement and other industries.
- We forecast GDP to slow in H2 and be 4.0% in 2025
8. Energy Cable: On the inventory build-up due to China-tariffs
- The Chinese rebound story is losing momentum fast, which has important implications for Western economies and assets, while the impact from freight rates on inflation might not be as large as previously feared.
- Take aways Beta from freight rates to goods inflation is lower than usual due to inventory building in the USChinese retail and IP down some 10% from the pre-pandemic trend China’s export of disinflation will force policy makers in the West to introduce tariffs and subsidies Greetings from a sunny Copenhagen.
- This week we’ll discuss freight rates and what inventory data tells us to expect going forward and then we’ll dive into some more data points on the weak Chinese economic outlook.
9. Real Estate: India/China Rotation Sparks Sector Growth
- Uptick in Real Estate positioning driven by a shift towards Indian Real Estate stocks, which has outweighed reductions in exposure to China & HK Real Estate
- Three names stand out: Phoenix Mills, Macrotech Developers, and DLF Limited, all of which have seen ownership rise to record levels.
- New positions in Indian Real Estate by Allianz and JKC have been offset by closures in Chinese Real Estate by LO Funds and SEB, among others.
10. How Different Is the Current Unemployment Behavior?
- A climb in the unemployment rate can be associated with recessions, especially when dominated by a negative change in employment
- But the recent rise in the unemployment rate through July does not seem to be consistent with the characteristics of prior recessions on balance
- Nevertheless, further increases in the unemployment rate need not be of the same breed
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Four Reasons To Be Tactically Bullish
- The U.S. stock market is poised for a period of continued strength.
- Four reasons to be tactically bullish on stocks: price momentum; a sentiment reset from bullish to caution; the historical bullish record of VIX spikes; and positive internals.
- We continue to favour non-Magnificent Seven leadership for the next bull phase.
2. Energy Cable: China is killing the commodity super cycle
- Take aways: Low margins and high stock levels mean that China will export its excess metal capacity. Other commodities like crude and its derivatives look weak as well. Gold only strong performing commodity in China due to domestic economic weakness .
- Welcome to this week’s energy cable with a focus on the economic troubles in China and its impact on commodity prices.
- This week’s piece will have a lot of charts, therefore we’ll keep the text short.
3. The Week at a Glance: The USD in the (Jackson) Hole amidst Over 1 Million Jobs Disappearing?
- Welcome to our weekly “The Week At A Glance” publication, where we explore the most important key figure releases and tradeable themes for the upcoming week.
- We remain almost exclusively long on USD fixed income, and therefore, our attention is particularly focused on two key developments this week:
- The Jackson Hole Conference and Ueda’s Appearance in the Japanese Parliament. Revisions to U.S. Employment Data: The Bureau of Labor Statistics (BLS) will release first-quarter 2024 data from the QCEW on August 21, 2024, at 10:00 a.m. (ET).
4. VIX Went Cray Cray
- Recent market disruptions, including a dramatic rally in the yen and a significant increase in the VIX, have raised concerns
- The convergence of US and Japan CPI rates may have contributed to the narrowing of Fed BoJ policy spread
- The VIX’s large move on August 5, 2019, has sparked concerns about the stability of the S&P options market and the potential impact on global risk levels
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
5. Emerging Markets: Structural Shifts as Allocations Stabilise Among Global Funds.
- Emerging Market allocations are stabilizing among active Global equity funds.
- Country-Level shifts show China & HK allocations more than halving since 2022, while Taiwan has seen strong gains. India becomes the top country underweight.
- Alibaba has declined to record lows, Tencent ownership is stabilizing, and TSMC has reached new highs.
6. BUY/SELL/HOLD: Hong Kong Stock Updates (August 21)
- Hong Kong market showed defensiveness during early August selloff and the overall breadth of the market continues to improve.
- J&T Global Express (1519 HK) received upgrades after reporting strong 2Q24 results. Its SEA and China business showed growth in revenue and profitability.
- Galaxy Entertainment Group (27 HK) received an upgrade after revenue and EBITDA approached pre-COVID levels. FIT Hon Teng (6088 HK) is seeing improvement in AI server, AirPod, and EV segments.
7. China Is One Step Closer to Its ‘Event Horizon” in the Property Market
- The latest policy proposal is one step closer but still incremental
- Incremental steps taken so far have been ineffective in the short-term
- The ideal solution would be full intervention by the Central Government
8. US Rates Strategy: July CPI, Jackson Hole, and Jittery markets
- Inflation rates are gradually slowing, with both headline and core inflation in line with expectations and at multi-year lows
- Housing prices showed more firming than expected, particularly in rental markets
- Markets are pricing in very soft core CPI inflation over the coming months, with expectations for gradual disinflation and a focus on wage growth by the Fed
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
9. Macro/Rates Watch: When the entire foundation rests on liquidity
- What a July we’ve had.
- The G3 central banks have now received plenty of labor market data that justifies cutting rates fairly aggressively.
- In our opinion, this is a tricky trend to resist, even if market pricing does admittedly seem aggressive.
10. Steno Signals #113 – Neither Inflation, Growth, Nor Liquidity is rising right now
- As most of you know, we remained upbeat on the cycle until around mid-July, as growth parameters continued to perform solidly in real-time, while inflation also posed a risk of re-acceleration.
- Our real-time tracking of the three main macro parameters is the cornerstone of our macro thinking, and through July and August, we have begun to observe a significant shift.
- The risk of rising inflation has collapsed, while growth momentum has also weakened substantially.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Portfolio Watch: We Dare to Say the Bottom Is In for Risk Assets
- We have successfully navigated our macro portfolio through yet another week of high volatility, especially following Monday’s (in hindsight) outlier event.
- Risk sentiment has turned, and recession fears are muted for now.
- With position squaring largely completed, equities have regained momentum.
2. Positioning Watch – Positioning Squaring in JPY is Complete
- This week likely marks the end of the positioning squaring phase, as multiple positioning gauges now signal that trades are no longer as extended as they were 2-3 weeks ago across various assets.
- This shift provides an opportunity to revisit our strategies and assess where macroeconomic trends might be steering global assets next, now that the worst of speculative activity has subsided.
- As we all know, the CFTC report is always a week behind in updating markets on positioning, making last Friday’s report particularly interesting.
3. Global FX: Weeks where decades happen
- Carry strategies experiencing drawdowns, wiping out YTD gains
- Market expected to stabilize after recent shocks, carry strategy appeal diminished
- Yen likely to take a breather, BOJ stance unchanged, market normalization ongoing.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
4. Modern Monetary Theory (MMT) Revisited
- The inflationary implications of Modern Monetary theory have finally been exposed in the aftermath of the COVID-19 pandemic after 2022
- The risks of inflation were underplayed due to prolonged disinflationary impulses stemming from decades of globalisation. Recent US practice of MMT could force the Fed to raise its inflation target.
- Japan pursued an MMT framework since 2013, but the continuation of quantitative easing and arrival of rising inflation is undermining the yen. The Eurozone faces the same predicament as Japan.
5. US Rates: July Morning turns into Cruel Summer
- Weak employment data led to a shift in Fed forecast, with projected rate cuts in September and November
- Rates have backed off from lows, with markets pricing in a less dovish path
- Treasury market in transition, with dealer balance sheets at bloated levels and auctions showing poor results due to lack of demand from traditional investors.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
6. Can Ukraine drive to Moscow?
- Welcome to this week’s Great Game! Once again, we’re focused on the two big wars going on – Ukraine and Gaza.
- What are the risks, what will hit markets and what’s the outlook?
- Last Tuesday, Ukraine launched an offensive into Russian territory in the Kursk and Belgorod Oblasts.
7. Steno Signals #112 – Liquidity is BOTTOMING
- Happy Sunday, folks!I hope you’ve enjoyed the weekend.
- After a bizarre week, starting with the rug-pulling in Japan on Monday morning, it was time for a well-deserved break over the past two days.
- We’ve encountered tons of questions about the size of the USDJPY carry trade, and here’s what we’ll say on the topic: Those claiming that the carry trade is 10-20 trillion USD have very little understanding of the netting of derivatives and/or the FX hedging policies of international investors.
8. EM Watch: The Chinese race towards 0% interest rates
- Welcome to our Weekly EM Watch, where we look at China and other large EM countries through the lens of Western macro investors.
- Over the past week, we received the latest quarterly update on Chinese foreign direct investments and the situation went from dire to abysmal.
- There is a net negative inward FDI flow, and despite a significant $190 billion surplus in customs goods and services, the basic balance, which comprises both the current account and FDI, recorded a substantial deficit of $30 billion for the first time.
9. Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 16 Aug 2024
- Japan’s Q2 economic rebound may be misleading due to annualized reporting; future slowdown is a concern.
- Political instability in Japan and Thailand, with both countries’ leaders stepping down amid economic challenges.
- We maintain a cautious market outlook, especially on Thailand’s struggling economy and currency.
10. Assessing the Damage: It’s Not Just the Carry Trade
- The recent disorderly risk-off episode can be attributed to the unwind of a series of trades that depend on a low-volatility and complacent environment.
- Historically, such unwinds have resolved in volatility spikes and higher equity returns soon afterwards
- The current environment is supportive of a quick market recovery, though the risk of a LTCM-style blowup could see a longer and more complex market bottom.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. The Carry Trade as Risk Driver
- Risk appetite is undergoing a cross-asset carry trade-driven panic and a bottom is near. The equity market is sufficiently oversold and poised for a relief rally.
- Barring some unexpected exogenous event, downside risk is limited at these levels.
- Expect a short-term relief equity rally into August, led by small caps and value stocks.
2. Market Watch: Forget about emergency cuts. Here is what the Fed will do next!
- Good evening from Europe.
- I will keep this analysis short and sweet as I know you are all trying to deal with these nasty markets and time is of the essence.
- We have thankfully made our way through this turbulence clearly in the money, but we are starting to see interesting counter-trends arising now.
3. Portfolio Watch – What can we trade in this weak labor environment?
- What a crazy day (week), starting August off with a somewhat disastrous NFP report.
- Private sector jobs are trending down, government payrolls are trending down, while manufacturing and goods-producing jobs actually improved in July despite the recessionary ISM manufacturing report.
- This is a clue that the manufacturing sector is rebounding, as we have been alluding to, which is something that will likely become relevant for markets in the coming months.
4. BOJ and Carry Trade: THE BUTTERFLY FLAPPED ITS WINGS
- The crowded JPY carry trade will not unwind quickly although future unwind episodes may not be as dramatic.
- The size of the carry trade is unknown, however its correlation to various asset classes is predictable.
- The largest question for global markets is whether the unwind of the JPY carry trade is a harbinger of tighter monetary conditions globally as markets decline and leverage tightens.
5. Quant Signals – Here is THE steepener to own in a cutting cycle!
- We have examined the quantitative data surrounding the cutting cycle to optimise the curve steepener trade for hit ratios, carry returns, and ‘max contributions.’
- This is the steepener trade you want to own in a cutting cycle!
- In our Saturday Portfolio Watch, we discussed the potential value in steepeners and promised to more thoroughly backtest the curve in order to find the optimal steepening expression in a cutting cycle environment.
6. The Week At A Glance: On Credit Watch While Liquidity Is Turning Nasty
- Welcome to our weekly “The Week At A Glance” publication, where we dig into the most important key figure releases and tradeable themes for the upcoming week.
- Everything is about assessing the USD economic cycle and the potential for rate cuts of the magnitude priced in after a crazy week last week.
- We ultimately have our doubts (especially as the labor market report on Friday was heavily impacted by the storm Beryl), but we are still waiting for potential triggers to bet on it.
7. Steno Signals #111 – More or less liquidity? More or less recession? More or less real?
- Happy Sunday! What a week, and what a few months we have ahead!
- To use the words of my friend Boris Kovacevic, “it’s like 2024 never happened.” Everything we learned about the re-acceleration of inflation in H1 and the “high for longer” narrative has just vanished into thin air over the course of a few days.
- While it is hard to disagree that a cutting cycle is commencing, it is still very much up in the air whether this is a normal cutting cycle.
- We spent last week examining returns in various asset classes around the commencement of cutting cycles, and the saddening truth is that it very much depends on the type of cycle.
8. 6 Major Signs of Market Downturn and Strategy for Outperformance Amid Market Convulsions
- In this insight, we discuss strategies for outperformance amid market convulsions and downturn.
- In particular, we highlight six reasons why it may be a wise move to position one’s portfolio more defensively (at least for the next several months).
- Warren Buffett slashed nearly half of his holdings in Apple, which was probably one of the main triggers of the tremendous market sell off in Asian markets on Monday.
9. Sajith Pai: Unpacking India – [Making Markets, EP.40]
- Sajeet Pai, a VC at Bloom Ventures, provides insights on the Indian market, discussing unique features like low levels of debt and lack of trust.
- India’s massive population presents challenges and opportunities for investors, with a large segment of the population having low per capita income.
- Cultural differences, such as the prevalence of cash on delivery in e-commerce, highlight the need for a nuanced approach when entering the Indian market.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
10. Asia Economics: The Market Panic Does Not Alter Medium-Term Trajectory
- Fears of a US recession and higher Japanese rates have sparked a market panic that may hurt Asian economies and markets in the very near term.
- However, the Asian region should weather the storm so long as the US avoids a recession, as we believe it will.
- Not all Asian central banks will follow the Fed in cutting rates. Improved growth in Asia and stable inflation yield a different set of tradeoffs than that facing the US.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Absolute Principles of Stock Investment (주식투자절대원칙) – A Book Review
- This insight is a book review of 주식투자절대원칙 (Absolute Principles of Stock Investment), which was written by a famous Korean retail investor called Park Young-Ok.
- Park tries to capture his 30+ years of investing wisdom. I thought this book was excellent, especially because Park included a lot of local flavor of his mindset in investing.
- This insight provides 11 major highlights of the book ‘Absolute Principles of Stock Investment.’
2. The Week At A Glance: Recession or not?
- We are likely approaching the point where the squaring party triggered by USDJPY is starting to impact market pricing and sentiment in nonsensical ways, as deleveraging is ongoing, even if the dust has settled a little.
- Markets are pricing a small “insurance premium” for the September FOMC meeting, leaving more than 25bp in the forward pricing despite a week of mostly hawkish surprises last week.
- Everything this week is about watching USDJPY price action again, as it has the potential to impact all assets.
3. The Tipping Point for China’s Debt
- Concentration of debt, asset prices, and fiscal deficit will determine the tipping point of China’s debt.
- If China does not continue to work on debt de-concentration, prop up its asset prices, or rein in fiscal deficit, China may as well face a debt crisis.
- To examine the conditions for China’s debt situation, it is vital to look at three key indicators of debt sustainability: concentration of debt, currency stability, and fiscal budget.
4. Technically Speaking, Breakouts and Breakdowns: HONG KONG (July 31)
- The energy, materials and tech sectors have lost momentum, while telecoms and utilities sectors lead the market. Consumer sectors are lagging. HSCI has dipped below its 200 day moving average.
- Hong Kong & China Gas (3 HK) breaks to the upside as investors seek safety and yield.
- PetroChina (857 HK) has broken down relative to the MSCI China index and Travelsky Technology Ltd H (696 HK) breaks down from a triangle formation but downside is limited.
5. Nowhere to Run to Baby, Nowhere to Hide! Part 3
- A lack of institutional investor interest in Hong Kong is a positive for once as the market is less influenced by international flows
- Investors are disappointed by the lack of short-term stimulus plans after the Third Plenum session
- What to do after the 17,500 level breached on the Hang Seng index?
6. Nowhere to Run to Baby, Nowhere to Hide! Part 2
- Are we witnessing a short-term carry-trade unwind or a trend change?
- A short-term bounce in the USDJPY will provide an opportunity to reposition
- Industrial metals take the brunt of the unwind in the commodity sector
7. How to Trade the Great Unwind
- U.S. equity investors saw a sudden and violent rotation from growth to value stocks and from large to small caps. The risk unwind is also evident in the currency markets.
- In the short run, some of our short-term equity indicators are oversold and flashed buy signals.
- Our base-case scenario calls for a short-term relief equity rally into August, led by small caps and value stocks.
8. Positioning Watch – Metals bets are finally being squared, but retail is piling in
- Markets remain focused on 2-3 rate cuts from the Fed, growth not rolling over fully, and inflation continuing its downward trajectory.
- There seems to be no way to change this narrative among market participants.
- The slightly hawkish PCE in the US and today’s relatively high German inflation print (in harmonized terms) had a hard time moving rates markets, which are currently pricing more than 2.5 cuts from the Fed and more than 2 cuts from the ECB by year-end, with Fed September pricing even showing a tiny lean towards 50 bps.
9. Heading Towards a Currency War? US and Chinese Policy Outlooks Suggest Trouble Ahead
- The US election campaign has taken significant twists in recent weeks, culminating with the removal of President Biden. Wall Street cannot be ambivalent about who wins in November, unlike 2020.
- The People’s Bank of China (PBoC) has unexpectedly lowered key lending rates, following disappointing Q2 economic growth. More aggressive interest rate cuts could happen once the Fed begins easing policy.
- Exchange rate movements in Q4 could be key to diffusing protectionist sentiment against China. Easier monetary policy in Europe and the US will force the PBoC to support China’s exporters.
10. Asset Allocation Watch – What to buy in the upcoming Fed cutting cycle?
- Markets are currently busy preparing for the upcoming cutting cycle from the Fed, expected to start in September.
- The simple playbook is often used when markets face a “high probability event,” and markets are now acting as if they know what’s ahead.
- A Fed cutting cycle is triggered by a recession; therefore, buy bonds, sell risk assets, and buy gold, etc.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Steno Signals #109 – What if We Are All Wrong on Liquidity, Rates and Commodities?
- Today, I am going to address three main topics of concern for investors given the current conflicting signals from the US economy.
- These are the key questions I will address, and I will summarize both the pros and cons of each viewpoint, including my own bottom line: Is liquidity no longer improving, but rather at risk of weakening in the coming months? Is the economy accelerating rather than slowing? Is the commodity complex heavily undervalued or overvalued?
- The equity rotation paired with the sharp sell-off in Tech has had me thinking, and we therefore need to litmus-test every corner of our current thesis. Follow along below.
2. Trump Trades and the JAPAN Market Are Like Oil and Vinegar
- Japan’s markets have again failed to break to new highs creating a potential for a double-top pattern.
- Trump’s policies which target lower interest rates and a weaker dollar will put pressure on Japan’s markets as can be seen from the high correlation between the JPY and TPX.
- Sectors such as trading companies, autos and semiconductors could see the most pressure under a Trump presidency.
3. The One Burning Question of the Great Rotation
- The stock market recently underwent a Great Rotation. Leadership violently rotated from growth to value, and from NASDAQ stocks to small-cap stocks.
- The reversal was accompanied by a sudden downdraft in the S&P 500. Is this the start of a correction?
- Even though breadth indicators are improving, which is bullish, we would not be so quick to buy any dip that appears.
4. South Korea Plans To Lower Inheritance Taxes
- On 25 July, the South Korean government announced that it plans to lower highest bracket inheritance taxes from 50% to 40%.
- This is a significant move since excessively high inheritance taxes has been one of the key reasons for poor corporate governance in Korea.
- A reduction in the highest bracket inheritance taxes from 50% to 40-45% is likely sometime in 4Q24 to 2025 which should help to improve corporate governance in Korea.
5. Positioning For Trump 2.0
- The betting odds on a Trump victory in November have risen substantially, but the markets haven’t fully discounted such an outcome.
- Investors who want to position for Trump 2.0 should seek long inflation exposure (long gold/short bonds) and short globalization (long domestic producers/short transportation and logistics).
- Notwithstanding the growth outlook, equity returns may be more challenging as Trump 2.0 will see the S&P 500 at more lofty multiples than the P/E ratio of Trump 1.0.
6. False Breakouts and Breakdowns – The Nikkei, Gold, Copper and the JPY
- Gold has signalled a false breakout and is likely to tread water for a couple of months.
- More strength ahead for the Japanese Yen and weakness for the Japanese markets?
- Copper signals further lows to come unless it rallies soon
7. EM Fixed Income: Goldilocks and the US election
- EM assets are being compared to other asset classes ahead of the US elections, with a general presumption that EM will be more negatively impacted by a Trump presidency.
- EM currencies have experienced some risk premium in the lead up to the elections, particularly in Latin America, but overall EM markets have not shown significant underperformance due to US election concerns.
- Valuation models that consider fundamental drivers do not indicate any significant risk premium being priced into EM assets for the US elections at this time.
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8. The Week At Glance: A look at US Cycle indicators. You sure consensus is right?
- Welcome to the “Week at a Glance,” where we examine the key releases and themes for the week ahead through the lens of macro trading.
- China has reduced the 7-day repo rate by 10 basis points, following up with a cut in the loan prime rate.
- This move mirrors the strategy from June 13, 2023.
9. Business Cycle Watch: Why Sweden’s Resurging Momentum is a Must Watch
- In this brief update on the business cycle, we will present a comprehensive overview of the current economic situation in Sweden.
- The Riksbank initiated its first rate cut in May, and we anticipate additional cuts throughout the autumn.
- This makes Sweden an ideal “live-studio” for observing the effects of early rate cuts on the economic cycle.
10. Trading Trump 2.0
- Donald Trump’s running mate, JD Vance, discussed economic policy during his nomination speech.
- Further investigation provides some insight into what these policies might look like in practice.
- However, understanding the specifics of a potential ‘Trump Trade’ policy remains difficult.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Investment Strategy Under Upcoming US Rate Cut
- In face of the recent speeches by several FOMC members, we are changing or non-consensus view of no rate cut this year to one rate cut in September
- Under rate cuts, several asset classes such as real estate stocks, gold, and other safe haven currencies will rise.
- However, we still believe there will not be continuous series of rate cuts in the remainder of this year such that various asset classes listed above will only rise modestly.
2. Launch of Korea Value Up Index in September
- Korea Value-Up index is finally expected to be launched in September 2024 which is likely to include at least 100 companies in KOSPI and KOSDAQ.
- There are expectations that Korea’s Value Up index could resemble JPX Prime 150 index which is a Japanese version of the value up index launched last year.
- We provide 70 stocks in Korea that could be included in the Korea Value Up index. These 70 stocks could outperform the market in the next several months.
3. The Hang Seng Index Is at a Critical Juncture
- In the short-term, meaningful policy reforms needed out of the Third Plenum
- Chinese data continues to be lacklustre as expected while markets tread water
- What can we expect from the Third Plenum to galvanise the next stage
4. Equity Watch: The Trump versus Biden Basket
- We’ve received loads of feedback from our clients regarding our Trump versus Biden basket.
- As a result, we will provide a detailed breakdown of both baskets and explain the rationale behind each.
- We are updating the baskets regularly based on the political proposals of the two candidates.
5. Steno Signals #108 – A messianic Donald
- Happy Sunday from Copenhagen after the atrocious assassination attempt in Pennsylvania late Saturday.
- Trump was apparently struck by some fragments but managed to raise his fist and greet his supporters in a strong show of defiance as he was escorted off the stage.
- This incident will undoubtedly dominate the campaign in the coming days and weeks, transforming his appearance at the upcoming Republican Convention into a near-messianic event.
6. The Week At A Glance: Another inflation shocker in the UK paired with a rebound in US retail sales?
- Morning from Europe! Remember that we release our “Week at a glance” publication instead of the “Something for your Espresso” every Monday before lunch-time.
- Our aim is to digest the release calendar in an actionable way and assess the risk/reward around the macro themes in the context of the economic release calendar.
- This week, we will focus on the US consumer (Retail Sales), UK inflation (CPI) and the EUR rates (ECB meeting).
7. Technically Speaking: Breakouts & Breakdowns: HONG KONG (July 17)
- China State Construction International and Sinopec Engineering have short term reversal patterns indicating profit taking from recent advances.
- China Resources Cement reverses downtrend with volume indicating some near term gains after reporting that 1st half profit was under pressure.
- Yum China continues to show downward pressure given the increasing competition in the retail food segment, while Nongfu Spring collapses on news about the safety of its products.
8. Where US Stocks Are Heading Before Rate Cut
- To assess US equity direction before rate cut, we must first forecast the next rate cut. Our house forecasts that there will only be one rate cut during 2024.
- We believe S&P500, after hitting all-time high this week is due a 10% correction until the rate cut in September. Rate cuts are essential for S&P500 to tread new high.
- But we believe the rate cut is going to be one-off as the labor market remains bullish and inflation still comes off a tad higher than the Fed target.
9. China: Second Quarter 2024 GDP Growth
- China’s National Bureau of Statistics on Monday said the country’s second-quarter GDP rose by 4.7%.
- That’s slower than the 5.3% year-on-year GDP increase in the first quarter, and misses the 5.1% expectation.
- Retail sales for June missed expectations, while industrial production figures beat.
10. Great Game – Trump: Election or Coronation?
- We cover the Trump assassination attempt in other spaces, so in this we’ll focus on the political fallout and touch upon other relevant topics, including the Chinese Policy Plenary.
- Firstly some thought on Trump picking J.D. Vance as his running mate.
- As a staunch Trump supporter, Vance represents a more grassroots, anti-establishment figure compared to others like Nikki Haley.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Steno Signals #107 – The 3 indicators you NEED to watch on recession risks
- Happy Sunday and welcome to our flagship editorial!The ISM Services report admittedly made for recessionary reading, and it is not because we have been blind to such risks.
- We just found the risk/reward in betting on them incredibly weak, and we continue to hold that view.
- We actually laid out exactly that roadmap to a recession in Q4 2023, and correctly forecasted that the re-acceleration in cyclical sectors such as Manufacturing would lead everyone to conclude that recession risks were off the table in 2024, with a major bull run in assets accordingly.
2. Positioning Watch – No recession betting in markets yet
- Hello everyone, and welcome back to our weekly positioning watch.
- Economic data from the US has been received by markets with a bit more skepticism after the recessionary ISM services report, and while the NFP report—judging by the markets’ reaction—made everyone from equities to fixed income happy, the overall picture of the US economy is still admittedly gloomier than we anticipated a few weeks back However, with increased access to real-time gauges of the economy, there is currently no reason to worry about a recession—or at least no reason to trade it.
- Recessions are always triggered by something; the economy almost never slow-drifts into one, which makes it impossible to time.
3. Macro Regime Indicator – Growth is the dark horse in July..
- Coming into June, we wrote that the biggest “risk” was that we moved towards a goldilocks scenario.
- While our portfolio returns have mostly mirrored that regime (outside of Crypto), we have to admit that the growth component of the equation has slowed somewhat relative to our model base case.
- We reassess the picture on a macro level and on a quant basis in this analysis.
4. CPI Review: Gung Ho summer! Risk-off fall?
- The inflation report provides a surprisingly soft set of data, aligning perfectly with the FOMC’s hopes, but not with their predictions.
- Back in June, the FOMC projected only one rate cut while hiking the inflation forecast to levels that now seem feasible to undershoot.
- This report, as soft as it gets, shows transportation services down by 0.5% for the month, and shelter prices have only increased by 0.17% MoM.
5. Portfolio Watch: Not worth betting on a recession (yet)
- We haven’t made significant changes to our portfolio in recent days due to a lack of conviction in the current market price action.
- However, we are not blind to the risks currently present in the US economic cycle.
- The job market is normalizing linearly, but the risk is that it normalizes linearly until it weakens exponentially.
6. Technically Speaking: Breakouts and Breakdowns in HONG KONG (July 10)
- Smoore International, China Communication Services and GDS have Bullish technical signals in a challenging market.
- After a 3 year run from the COVID lows, Samsonite has confirmed a Bearish technical signal.
- Hautai Securities hits an all time low and becomes a “Catch a Falling Knife” chart.
7. June Themes and Thematic Portfolio Review
- A monthly review of how the markets and our themes are currently performing
- Analysing what went wrong and what went right in stocks and sectors
- Highlighting positions added or removed from the thematic investment portfolio
8. Indonesia Economics: Signs of Moderating Growth
- Indonesia saw inflation return to target thanks to a further softening in food inflation. There are however upside risks from imported inflation due to the rupiah’s weakness.
- Demand-Side indicators suggest that the strong run of expansionary activity may be reaching its tail end; the latest PMI reading has only been marginally positive.
- Jakarta’s trade policy erraticism was on full display as ministers contradicted each other on a proposal to slap tariffs on China-origin goods.
9. Japan: Is the Balance Sheet Recession Over?
- Japan has suffered from a balance sheet recession, triggered by a sharp decline in asset value, since the 1990s.
- As the Nikkei treads new height, it raises the question of whther the balance sheet recession is over.
- Though some of the structural challenges remain, the balance sheet recession has improved in recent years.
10. US CPI Preview: Taking clues from China?
- We already addressed the US CPI report in our “Week at a Glance”.
- Tomorrow’s US CPI report is the make-or-break moment we’ve been waiting for.
- To keep the risk asset party alive, we need a soft outcome, and it looks like we might just get it.