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. Korea M&A Reforms: Considering on Adopting Poison Pill in 2024
- On 4 February, numerous local media mentioned that there is an increasing probability of the Korean financial authorities introducing poison pill in order to improve corporate governance and M&A reforms.
- The main purpose of the poison pill would be to increase shareholder value, encourage the management to focus on investment and employment, and effectively defend itself against M&A attempts.
- Poison pill could have positive impact on companies with high levels of treasury shares and preferred shares. The uncertain outcome of National Assembly election in April remains a key risk.
2. Further Cracks Appearing in the US Economy
- Commercial Real Estate issues, the dog that didn’t bark in 2023, is back.
- Unlike March 2023, this cannot be fixed by liquidity injections alone.
- US employment data surprises on the upside. Further Government manipulation?
3. Where Are We In the Global Liquidity Cycle?
- January 2024 another strong month for Global Liquidity which hits US$171.7 trillion
- US Fed and China’s PBoC are in the forefront of adding liquidity
- Global Liquidity Cycle trough in October 2022. Next peak late-2025
4. Macro Regime Indicator: Time to Embrace a New Economic Dawn?
- The recent performance of the US economy prompts a reassessment of long-held market sentiments.
- As we witness an intersection of sturdy growth, moderating inflation, and evolving liquidity dynamics, investors and policymakers alike stand at a crossroads.
- This month’s ‘Macro Regime Indicator’ questions the endurance of the current (US) economic strength and its implications for inflation and asset allocation.
5. SLOOS Survey: The US Economy Is Re-Accelerating and Money Growth Is Back!
- The demand- and supply for money has bottomed out! That is the overwhelming conclusion from the quarterly survey on banking standards released by the Fed.
- The SLOOS improves further from Q4 to Q1, and especially the supply side has eased quite a bit and is almost back in neutral territory.
- The rebound in demand is underwhelming, but it also typically lags supply/financial conditions by another quarter, meaning that Q2 is the likely big rebound in loan demand.
6. Get Ready to Buy in May…
- The U.S. equity market is setting up for a price surge that begins in May, supported by positive election year seasonality and the rising likelihood of a May rate cut.
- We reiterate our belief that stock prices are likely to be choppy and trade sideways until May.
- The historical record shows that breadth thrusts, such as the one experienced off the October bottom, are long-term bullish, but need a period of consolidation and correction.
7. Positioning Watch – Spread-trades are the way to play the current environment
- Very interesting dynamics in markets lately, with the NFP report Friday shocking markets at first glance before sending them back into rally-mode, likely a signal that asset pricing will be more about underlying fundamentals and economic data rather than interest rates alone.
- Despite rate cuts being pushed back a bit by both data and central bankers, the US economy is going strong, and the “interest rates work with a lag” arguments have been swept away for now, which leaves us with good news actually being good news.
- This week’s positioning watch is chart-packed with short and concise text – Enjoy!EquitiesRetail Investors’ allocation towards stocks has remained fairly stable since 2022 and has retracted after the boom in late 2023, but despite having a high correlation with the performance in small vs big equities (Russell 2000 vs S&P 500), Large Cap has outperformed Russell 2000 and other small cap indices by MILES since 2022.
8. The Weekly Market Monitor – How China Is Pushing Stocks Higher Except at Home
- China is injecting liquidity into the markets, but ironically, with investors sick and tired of negative returns, much of this liquidity is finding its way everywhere except China.
- The downturn in commercial real estate is becoming a global phenomenon. A growing number of companies is grappling with bad real estate loans, leading to a sharp increase in provisions.
- The most recent Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reveals yet another trend that the recession is already behind us.
9. Portfolio Watch: NVDA or Bust?
- Hello everyone and welcome back to yet another assessment of our macro book- and as per usual accompanied by our current macro outlook!We knock on the door to a week with yet another US CPI release- this time revised:The revision we received today proved not to be the unpleasant surprise everyone feared given the 2023 revision and Waller & Powell both having flagged it and as a result, our expectations of a soft print remain unchanged- for elaboration see here.
- While it might feel like we’re repeating ourselves, our belief in the USD and US risk assets being the best options out there hasn’t budged.
- That said, we’ve been tossing around a few ideas and topics internally over the last week: Markets haven’t continued the dramatic price movements since last Friday’s (some might label it as “fake”, see here) NFP blowout, but it’s noteworthy that short-term expectations are significantly outstripping those further along the curve.
10. Steno Signals #85 – NFP Report Full of FAKE News?
- A week of bizarre front-end volatility has come to an end.
- From “higher for longer” to banking crisis 2.0 to inflation crisis 2.0 in a matter of five trading days.
What’s up and down? It’s time to cut through the BS.
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. A ‘Back Seat’ Bond Yield Driver: US Treasury Is Forcing The Fed To End QT. US Yields To Re-Test 5¼%?
- ‘Stealth QE’ from the US Fed set to continue, but US Treasury is the ‘back seat driver’
- Treasury wrestling to cap near-term coupon supply to avoid rising yields, but Fed willing to let regional banks’ liquidity levels rise
- Rising public debt is the major bogey: pushed up by demographics and monetized by Fed and Treasury. 10-year yields will re-test 5¼%
2. Korean Government to Announce Specific Measures to Increase Value of Low PBR Stocks in February
- Choi Sang-Mok (Deputy Prime Minister and Minister of Strategy and Finance) stated that the Korean government will announce specific plans to increase the value of low PBR stocks this month.
- We provide a list of 97 stocks in KOSPI 200 that are trading below 1x P/B. They are trading at average P/B of 0.54x.
- We expect these low P/B stocks to continue to outperform the market in the next several weeks leading up to the government’s actual announcement.
3. Outlook 2024: Europe At A Crossroads
- Claims that the European Parliament elections in June are critical for the EU may be exaggerated.
- The election results, however, are considered the second most significant of 2024.
- The outcome could be crucial for the prospects of EU reform and enlargement.
4. US Liquidity & Debt Watch: Yellen to Decide the QT Tapering Timing Tomorrow
- Yesterday, the US Treasury revealed the issuance targets for Q1 and Q2.
- The net addition to marketable debt is $760 billion for Q1.
- While this is a substantial amount, it’s $55 billion less than the October estimate for Q1 ($816 billion).
5. New Zealand CPI Inflation 4.7% y-o-y (consensus 4.7%) in Q4-23
- New Zealand’s CPI inflation rate in Q4-23 was 4.7% year-on-year, marking a decrease from the previous quarter’s rate of 5.6%.
- The Q4-23 inflation rate is 1.05 percentage points below the one-year average.
- The 0.5% quarter-on-quarter rate annualises even lower, closely aligning with the target.
This insight is AI generated from publicly available sources.
6. Steno Signals #84 – The Red Sea troubles are spreading FAST!
- Happy Sunday folks and welcome to our flagship editorial!We have been banging the drum on the re-acceleration of goods inflation due to the Red Sea debacles for a while.
- Our Geopolitical Team highlighted the shipping risks as the largest risk to markets already on Oct 31 and we have been all over this story since – sadly watching the ever accelerating worsening by the week.
- The Suez has de facto been closed for containerships not sailing under Russian flag for a while, but the attacks over the weekend on the British tanker MV Merlin Luanda is potentially a sharp escalation of the situation as the tanker carried Russian oil.
7. War In 2024
- Investors have adapted to ongoing global conflicts such as the Russia/Ukraine war, the Middle East crisis, and China/Taiwan tensions.
- Despite this, they must remain cautious of less publicized war risks worldwide.
- These less visible risks are part of the turbulent times we currently live in.
8. Evergrande Nugget: Popping the World’s Largest Asset Bubble
- Monday, a Hong Kong court ordered the liquidation of Evergrande- whether the court ruling will be of much help to creditors remains to be seen as the court’s jurisdiction is separated from the bulk of Evergrande’s assets located in the Mainland.
- This ruling doesn’t come as a surprise to the markets, as Evergrande’s impending bankruptcy has been public knowledge for months.
- Beijing has displayed little inclination to rescue the world’s most heavily indebted real estate developer, burdened with an astounding $300 billion in total liabilities- a fact that has been reflected in the now-suspended Evergrande share price.
9. China Macro: Sector Positioning Update
- Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.
- Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.
- Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.
10. US: On Track for a Rate Cut in Jun’24 as Core PCE Inflation Eases MoM and YoY
- Real GDP grew 2.5% in CY23, helped by exports (+2.7%), PCE (+2.2%), government spending (+4.4%), and falling imports (-1.7%). Slower PCE and government-spending to reduce growth to ~1% in H1CY24.
- Core PCE inflation (the Fed’s target) eased to 2.93%YoY in Dec’23, the lowest in 33 months. More crucially, MoM annualized gains in core PCE averaged 1.85% in H2CY23.
- 13 months of M2 contraction, and deceleration in RGDP and core PCE, provide the perfect backdrop for a rate cut in Jun’24. Expect FOMC to hint at that this week.
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. Rising Liquidity And The Threat of 5% US Bond Yields
- US Treasury yields have resumed their uptrends and look set to retest 5%
- US Fed Liquidity continues to expand, following a 13% increase in 2023
- This is a ‘normal’ investment cycle for equities, credit and the economy, but it has been abnormal for bonds
2. Steno Signals #83 – A striking divergence between EUR and USD money trends
- Welcome to our flagship editorial!It is about this time of the year when we conclude that all year-ahead outlooks have already been blown to smithereens, but what is the major surprise this year?
- Back in mid-December, between 5-7% of respondents in the widely renowned fund manager betted on higher interest rates and/or inflation in 2024.
- This is the kind of consensus that only arises once we are leaning towards the mid-to-late innings of the recession, but the problem is that we are probably not even in a recession (in the US) yet.
3. Positioning Watch – How are markets positioned in inflation?
- Like we mentioned in the first positioning watch of the year, holders of risk-assets have entered a slightly more cautious stance, and the classic risk aversion dynamics seem to be back as inflation expectations have been on the rise yet again since December.
- The Fed now find themselves at an interesting crossroads as the inflation battle may turn out more difficult than anticipated, but the gifts have already been handed out, and markets are again pricing the Fed to be the most dovish central bank in 2024 (mispricing of central banks are apparently a market speciality).
- The chart below is also a clear proof of the market’s inability to be forward-looking.
4. Global Policy Isn’t Squeezing That Tight
- Surprising strength was broadly experienced across the flash PMIs for January. Demand growth is rebounding rather than slowing, prolonging inflationary excess demand.
- Unemployment rates should rise with below-potential growth, but they broadly remain below their pre-pandemic levels and have mostly stopped falling rather than risen.
- The failure of tight labour markets to loosen suggests global policy isn’t set far above a neutral level. That should postpone cuts and limit their future extent.
5. 29 Reasons to Be Bullish
- A bottom-up driven scan of stock charts shows over 29 stocks with bullish technical patterns consisting of uptrends or breakouts from multi-month bases with strong potential upsides.
- Bullish patterns are broadly based, primarily concentrated in technology and cyclicals, which argue for a continuation of the AI-related bull and an economic rebound.
- This bottom-up analysis also pointed to bullish macro conclusions about the economy.
6. Data Points to Continuing Signs of a Slowing US Economy
- US LEI release for December signals a weakening US economy
- The annual growth rate of US LEI is deeply negative
- December Taiwan Export Orders contract sharply indicating slower growth worldwide
7. China Property: In Hindsight On 2023 and 2022 Forecasts | “Draw The Line” 2024
- We look at the key annual macro-property data for 2011-2023 and review the past ‘group forecasts’ for new home sales in China in 2023 and 2022
- The views in 2023 proved more in line with the actual than in 2022 but NBS revisions to 2022 new home sales data (Mar-Dec) add some complications
- You can join this year’s ‘draw the line’ for new home sales, part of Real Estate Foresight’s 12th Annual China Property Outlook
8. Portfolio Watch: The Yellen Put
- Takeaways: Equities are currently a preferred refuge over bonds.
- US is still the place to be relative to peers– Recession risks have diminished lately, particularly in the US, but remain a concern in Europe
- It’s becoming increasingly clear that the Treasury is going to be front and center in 2024.
9. China Economics: Further Recovery Hinges on Painful Readjustments
- China’s slightly better-than-expected GDP growth for 2023 failed to dispel the gloom around its prospects.
- The drags on China’s growth will not ease until painful adjustments are completed.
- As that will take time, 2024 will remain difficult unless policy support is considerably strengthened.
10. Portfolio Watch: Aboard the train but starring at the emergency exit
- As we laid out last week our hands are up in the air long everything like we just don’t care- except bonds.
- The reason is that the existing regime we were left with late last year with liquidity stacking up and growth fueled by Bidenomics remains fairly accommodative for risk assets while the debt issuance the treasury is burdened with these days is keeping a floor on the yields.
- What we have been pondering of late is whether the enduring inflation risk we’ve flagged will be accompanied by a corresponding persistence in growth.
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. 44% of Korean Stocks Are Trading Below Book Value – FSC Wants to Improve This (Following Japan)
- FSC Chairman Kim Joo-hyun mentioned that too many companies in Korea are trading below book value and the FSC plans to implement changes to improve upon this issue.
- According to Korea Exchange, 1,111 companies out of total listed in KOSPI and KOSDAQ in Korea (2,538) are trading at below 1x book value (PBR) (liquidation value).
- According to the Capital Group, about 39% of companies in the TOPIX trade below book value, compared to just 5% for companies in the S&P 500 Index.
2. Global Liquidity And The US Fed Pivot
- Global Liquidity Cycle bottomed in October 2022. Cycle set to expand further to a peak in late-2025
- Federal Reserve liquidity already rising and driven over medium-term by need to monetize mandatory fiscal spending
- Global Liquidity set to rise by US$12-15 trillion in 2024
3. 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 4
- A shift in composition needed in a Japanese portfolio this year
- A weaker US and Japanese economy together with a stronger Yen will make sector allocation key.
- Some sectors to avoid or invest in during this next phase.
4. Positioning Watch – Where to Find Value Currently
- Hello everyone, and welcome back to our weekly positioning overview.
- We’ve been working on some new ways to look at positioning data across asset classes, and we’ll share some of the inaugural charts in today’s piece and will extend them, week by week.
- Markets have more or less traded sideways since the start of the year, as the risk-on party has taken a bit of a breather it seems, despite rate cut expectations becoming even more embedded after the hawkish US CPI surprise last Thursday – strange move, and we’ll be surprised if probabilities don’t reverse within the next couple of price data points.
5. Steno Signals #82 – Inflation strikes back and no one is prepared for it
- Happy Sunday and welcome to our flagship editorial on the Coronation day of King Frederik in Copenhagen.
- I guess it is somewhat telling for my lack of enthusiasm around the event that I am sitting here spitting out research instead of watching the Crowning.
- The US CPI report printed a tad hotter than expected last week, but smack dab at our expectations of a 3.9% YoY level in core terms.
6. US Interest Rates and the Dollar and Impact on Markets
- Recent US economic data has been mixed on the inflation/growth front.
- Fed dot plot and messaging at odds with market expectations.
- The extent of rate cuts is correct, but timing is likely not.
7. Don’t Fight the Fed (Or the Macro Trend)
- The global disinflation trend is continuing in an uneven manner and both the macro trend and Fed speakers are pointing toward a dovish Fed pivot.
- This argues for a bull steepening of the yield curve and a bullish backdrop for stock prices.
- However, investors should be aware that the lurking risk is the re-emergence of the transitory disinflation narrative, which could derail the bullish scenario.
8. Energy Cable: 4 Charts that Should Keep Largarde up at Night
- Takeaways: Price increases in goods likely to show up in Europe after the Summer
- Watch out for energy prices once we start to fill up for next heating season
- The recent turmoil in freight rates will likely exacerbate the divergence between US and the Eurozone
9. Taiwan Politics: New President Enters the Job with a Daunting In-Tray
- The DPP’s William Lai prevailed after a competitive three-way race for the presidency, but his party’s loss of a legislative majority has produced a divided government.
- China will likely maintain a hawkish stance given the results, but we expect no drastic moves given Beijing’s other domestic and foreign policy challenges.
- Lai enters office with a full in-tray, having to bolster Taiwan’s security relationships with Washington and other allies, in addition to domestic issues on energy and demographics.
10. Japan Taking a Trip Down Tightening Lane? Sure!
- Many economists expect the Bank of Japan, after systematically refusing to adjust its extremely loose monetary policy will be the only country to raise interest rates in 2024.
- If the Bank of Japan decides to raise interest rates, at the same time, global tightening momentum wanes, betting on a stronger yen is a sure thing.
- But with inflation dropping, the Manufacturing PMI below 50, consumer spending and real wages declining, the window for tighter monetary policy is closing rapidly, and hence a long yen position.
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. 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 3
- Risk-Reward now skewed towards reward in the Hong Kong market.
- Barbell strategy with both high-beta and lower volatility dividend stocks.
- Some initial ideas included to add or start a portfolio incorporating HK stocks.
2. KOSPI Superperformance Stocks (2019-2023)
- In this insight, we analyze the top 10 performing stocks in KOSPI in each of the past five years (2019-2023) as well as for this entire period.
- The top 10 performing stocks in KOSPI were up on average 310% in 2023, sharply outperforming KOSPI which was up 19%.
- There are some important takeaways from a review of the top 10 performing stocks in each of the five years in KOSPI, including market cap, sector rotation, and turnarounds.
3. EM by EM #37: The Taiwan election & the Trade war
- A victory for Lai in the upcoming election has the potential to significantly elevate geopolitical risks.
- Should Taipei fail to maintain a satisfactory relationship with Beijing threats of retaliation will fuel derisking going forwardThe Taiwan election could reignite another round of cold trade sanctions between the United States and China.
- Given the current hawkishness of the Biden administration, it’s unlikely that this stance will be softened in the upcoming U.S. election.
4. Simple Math – Why Rates Must Fall!
- The divergence among (bond) investors is rapidly increasing. One group expects yields to rise further, while the other expects yields to go down and remain low. I’m in the latter.
- To maintain debt sustainability, real yields must remain below real GDP growth. But with declining potential GDP growth, this is not the case currently, and this includes the US.
- In the Eurozone, the real yield – real GDP picture is distorted because the ECB must aim monetary policy at the weakest link, Italy.
5. What’s next in the Red Sea and Taiwan?
- Welcome to the second Great Game of the year.
- What an action-packed start to 2024 we’ve had in geopolitics, and the coming weeks are looking no less eventful.
- This week, we take a look at the status in the Red Sea as well as Taiwan and give our prediction as to what the coming weeks will bring.
6. Vietnam: Resilient Economic Growth Driven by Friend-Shoring & Bamboo Diplomacy
- Vietnam’s GDP expanded by 5.05% in 2023, lower than the government’s official target of 6.5%
- Chinese President Xi Jinping’s first visit to Vietnam in six years aims to strengthen ties between the two communist nations.
- China and the US vying for cooperation with Vietnam in developing rare earth minerals essential for energy transition.
7. US Employment Data Confirms a Weakening Economy
- The December US Employment report shows a weaker outlook than the headline suggests.
- A loss of over 1.5 million full-time jobs in December.
- Excluding government jobs, an exceptionally low number of new full-time jobs were created over the last year.
8. USD Liquidity Watch: Trading the end of QT
- Welcome to another edition of our USD Liquidity Watch series.
- The investment bank consensus is now (finally) converging towards our long-held view that the US Treasury is effectively behind the liquidity steering wheels at the Fed.
- Lorie Logan of the FOMC said on Friday that “… given the rapid decline of the ON RRP, I think it’s appropriate to consider the parameters that will guide a decision to slow the runoff of our assets.
9. Charting Beyond the Sanguine Stock Market
- The upcoming US elections and eventual Fed pivot may sway the stock market positively
- But the different states of the US business cycle can prospectively instigate different equity market outcomes
- Hence, it is important to monitor the roughly coincident or almost contemporaneous risk of a recession in the US for potential clues
10. Central Banks’ Policy Pivot Impact on Developed Markets
- Throughout 2023, the global developed economy was at the forefront of tackling rising inflation that has been gathering steam since mid-2022.
- The majority of developed G20 countries saw their central banks raise policy rates at record pace to tame rampant price increases.
- Rapid tightening and the potential of an upcoming pivot has resultantly upended stability in growth prospects for the upcoming year.
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. 5 Things We Watch – Freight Rates, Positioning, Liquidity, EUR-flation, Growth
- Welcome to the first 2024 edition of our ‘5 Things We Watch’, where we as always try to dissect global macro trends, how we see the world and how we trade it.
- The overall consensus this year seems to be locked in on a soft landing in the US, but in our view, risks of tail-end events are increasing, making macro more important than ever in order to navigate financial markets in 2024.
- Freight rates on routes with destinations in the Mediterranean (both shipments from Middle East and China) have generally been on the rise
2. Suez Watch: Massively Rising Container Freight Rates, While Dry Bulk, LNG and Crude Rates More Muted
- Takeaways upfront: No container shipping through Suez towards Europe and price increases ahead; Energy and dry bulk shipping is still alive; Expect transportation and apparel to see price increases in Europe; Hedging 2024 portfolios with long Shipping bets and/or long Energy bets make increasing sense.
- Happy New Year everyone! Things are escalating in the Red Sea as shipping giants such as Maersk and Hapaq-Lloyd haven’t been convinced by the military efforts in the Red Sea and have now completely avoided transporting goods from Asia to Europe through the Red Sea.
- That can be seen in prices which have seen one-way traffic the last week. Freight rates are up >100% this week, and we hear from sources that Maersk is now suggesting an all-in rate of USD 6000 TEU.
3. Charting Beyond the Near-Term Fed Pause
- The initial phase of Fed easing, from pre-Volcker to post-Greenspan, can differ, particularly on the magnitude
- Historical Fed pivots, from hiking to easing, tend to be sensitive to the state of the economy
- The extent of initial Fed easing around historical downturns was at least double the size when compared to episodes with no imminent recessions
4. Macro Regime Indicator: Liquidity is everything in January
- New month, new regime, which means a new asset allocation for the month ahead.
- The turn of the calendar once again calls for us to assess our outlook for the 3 main variables of interest: Liquidity, inflation and growth and feed them into our Regime Model and Asset Allocation tool that spits out the Sharpe Ratio optimizing portfolio given the assumptions about the variables of interest.
- Remember that you can feed the model with your own forecasts to see which baskets to put your eggs in.
5. A Bull Market With Election Year Characteristics
- Long-Term models are signaling the revival of a long-term equity bull.
- But the market may be vulnerable to some choppiness in the next few months.
- The intermediate-term outlook for stocks continues to be bullish and we expect a positive year for the S&P 500 in 2024.
6. EUR Inflation Watch – The ECB forecast is OFF by >1.5%-points for Q1
- The smallest German state, Saarland, sneaked out its preliminary December inflation this morning and it was another soft surprise.
- Saarland CPI increased a tad less than 0.1% on the month, which is below 0.2% in seasonally adjusted terms.
- This is if anything a SOFT print relative to consensus expectations and as Saarland CPI explains 78% of the variability in the nationwide German CPI, it leaves a 0.1% MoM inflation print most likely for the German CPI.
7. China Property And The Demand For Commodities Puzzle
- China’s crude steel production data behaved differently in the 2021-2023 downturn relative to new home sales and new starts, compared to the prior cycles.
- The 40% drop (12M vs prior 12M) at the low point for new starts compares with around 10% for the crude steel.
- In this note, we outline a few possible explanations, with some twists.
8. What the Politics of 2024 Tell Us About 2025
- What does the political and economic landscape of 2024 mean for investors in 2025 under a Biden oe a Trump administration?
- A Biden White House is more predictable using conventional economic analysis. Much depends on whether the Fed can achieve a soft landing of the economy.
- The effects of a Trump White House will be more difficult to predict. The only certain investment bet under a Trump administration may be to buy volatility.
9. Regional Economics: Episodic Stresses, Not Prolonged Crises for Asia in 2024
- While there will be economic and geopolitical shocks, we believe that these will cause episodic stresses, not lasting damage to the region’s growth or stability.
- Monetary policy, China’s economic performance, and geopolitical conflict will shape the economic outlook for the region, while government policy responses may provide economic upsides.
- Thus, we think that the Asia-Pacific region will exhibit commendable economic resilience and modestly improved growth compared to 2023.
10. EA: Inflation Springs as Energy Fades
- EA inflation undershot expectations for the fourth consecutive month but smashed the downtrend with a 0.5pp rise to 2.9% for Dec-23.
- The run of downward surprises means Dec-23 inflation is 0.8pp lower than expected in Oct-23. However, it is close to expectations a year earlier.
- Fading energy price disinflation drove the upside move in a timely reminder that all the EA’s other special aggregates remain well above 2%, discouraging ECB rate cuts.
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. 5 Things That Could Wrongfoot Consensus in 2024
- The overwhelming consensus for 2024 continues to be a soft landing in the US with interest rates coming firmly down while growth continues on autopilot, which leaves a very decent, almost goldilocksy, outlook for risk assets.
- But what if we don’t end in a soft landing, but rather one of the tail-end scenarios of either 1) a boom driven by easier financial conditions, which would force the Fed to push back a bit on rate cuts or 2) a recession, which would imply rates much lower than what consensus currently is.
- We have chosen 5 “likely unlikely” scenarios for 2024, which are not as unlikely as current market pricing indicates.
2. 2024: Bold Predictions
- We may see a US recession, followed by eight or more Fed rate cuts, a boost in liquidity, and hence another blockbuster year for risky assets.
- In addition, we may see some credit rating downgrades of some major economies, emphasizing the question of how attractive (government) bonds are in a long-term multi-asset portfolio.
- 2024 may accelerate the Great Portfolio Rebalancing, seeing investors move out of traditional asset classes (bonds) into scarce and under-owned asset classes (gold, bitcoin.)
3. EM by EM #36: What Goldman got wrong about China in 2023
- Main conclusions up-front:It’s getting harder to disentangle politics from price movements in China, with the government becoming more involved in the equity market.
- In stark contrast to their U.S. counterparts, Chinese banks are grappling with the weight of growing savings from consumers and businesses.
- This surge is impacting their profitability, while the real estate sector’s challenges continue to linger.
4. Positioning Watch – How are markets positioned ahead of a turbulent 2024?
- The year has generally speaking been a forecasting challenge for most to say the least, and not a lot of people forecasted the ending that we’re left with, but how does the current price action and massive inflows into both equities and bonds leave us for 2024?
- Sentiment has been EXTREMELY bullish in Q3 and Q4 based on our z-score sentiment model but almost solely built on equity momentum, which is rarely a good sign.
- Both option ratios, credit-spreads and market breadth have turned bearish in Q4, which should leave markets vulnerable after the boost from positive liquidity trends dwindles during Q1 2024.
5. Bond Market Monitor: Time to Invest in EM Bonds
- Here we are checking our thesis on the bond markets we reconfirmed as bullish back in September.
- Declining inflation, as indicated by the November US Personal Consumption Expenditure (PCE) deflator, could lead to the 2% inflation target in 2024
- A rate cut and a peak of a rate hike cycle plots a scenario where fixed rate bonds will be the asset class of choice in 2024.
6. Hamas Rejects Ceasefire – Here’s Why It’s Actually Great News
- Welcome to a quick Holidays edition of Great Game – your weekly geopolitical update!
- Yesterday, reports emerged that Hamas and Islamic Jihad had rejected an offer of a permanent cease-fire brokered by the Egyptians with the aid of Saudi Arabia and Qatar.
- Reportedly, the deal would have involved a mass release of hostages, a permanent ceasefire and the formation of a transitional government in Gaza without the direct persecution or condemnation of Hamas and Islamic Jihad.
7. Steno Signals #79 – A Christmas present full of USD Liquidity from Powell and Yellen!
- Happy Sunday and welcome to a short and sweet version of our flagship editorial!
- Liquidity conditions have improved markedly over the past couple of months, and we are about to enter a QE-like liquidity environment unless trends reverse soon, which they are unlikely to.
- Liquidity has been improving at a $200bn a month pace since early November due to a pamphlet of tricks from BOTH the Fed and the US Treasury, and through the past weeks another sneaky “liquidity adding” factor has popped up! This is of major relevance to the overall risk sentiment.
8. Mint Macro Roundup: Inflation Cools in US, UK, & Japan Accentuating Central Bank Policy Divergence
- Inflation across the US, UK and Japan slowed sharply on the back of declining goods prices.
- Rapidly cooling inflation brings into focus the diverging central bank policies – BoJ remains ultra-loose, Fed has turned dovish, while BoE continues to remain hawkish.
- Personal spending in the US remains strong, providing upside to economic growth in Q4, but also risk of higher inflation.
9. Is Coinbase Rally Running Out of Steam?
- Outperformance during rallies is usually followed by sharper corrections during downturns. Buy the rumour and sell the news is common in crypto markets.
- Coinbase is a top ranking performer. The crypto exchange stock is up a whopping 454% YTD outperforming BTC by almost 3x.
- While Coinbase may do well in a continued cryptocurrency bull market, it is worth considering whether the rally has already played out.
10. Credit Watch: Nothing in the credit impulse speaks in favour of a 2024 comeback
- The equity market has been celebrating over the past couple of months and it seems like the economic consensus is moving towards a soft landing or even a no landing / re-acceleration at lightning speed.
- Equities tend to trade closely connected to the cyclical components of the US economy with a strong correlation between ISM Manufacturing and annual returns in the S&P 500.
- Most recent trends partially represent a bet on a rebound in the economic cycle in 2024, which looks unlikely in most of our medium-term forward looking models.
1. The 2024 Liquidity BOOM?
- US policy makers signal the peak in Fed Funds rates and to imply rates cut cuts as soon as March 2024
- Fed Liquidity has risen by a whopping US$534 billion or 16.6% since the start of 2023
- These moves are consistent with our long held view that the Global Liquidity cycle bottomed in October 2022 and is expanding towards a new peak in 2025.
2. 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 2
- Risk reward favours a shift in allocation between these markets.
- Hong Kong washed out from a sentiment, valuation and positioning perspective.
- Minimal investor expectations and continual disappointment have set the stage for a rally in 2024.
3. Five Things We Watch For In 2024
- We’ll start today’s 5 things with a look at the central bank outlook for in 2024, then we’ll address the troubles for OPEC.
- We move over to talk about China and afterwards Ukraine for some geopolitics.
- Finally, we’ll end this year’s last 5 things with a crypto outlook.
4. Positioning Watch – Buy everything seems to be consensus
- Hello everyone, and welcome back to our weekly positioning watch following the surprisingly dovish FOMC meeting last Wednesday, which smells of a slight policy mistake given what we have been writing about forward-looking price and wage indicators over the past weeks now starting to tick upwards again.
- Despite a couple of Fed members trying to retrace after the meeting, pushing back on rate-cut expectations, market positioning has turned VERY bullish over the past week, and oh boy has equity markets positioned themselves for a binary outcome.
- The USDs parked at money-market funds have taken the spotlight since the FOMC meeting, as inflows in MMFs have continued despite 3-month T-bill yields reaching what looks to be a top after Powell’s remarks Wednesday.
5. Steno Signals #78 – Santa Powell Handing Out Gifts Even to the Naughty!
- Powell invited for a yuuuge risk asset party this week by allowing the market to continue to chase the narrative of material rate cuts in 2024.
- This is (again) reminiscent of the 2006-2007 pause when the Fed allowed financial conditions to ease materially in the run-up to the recession.
- During a hiking cycle, loads and loads of USDs are parked in cash-like setups due to a sudden better relative yield premium in almost risk-free structures.
6. Sentiment Nugget: Central Bank Divergence Into Year-End
- Into year-end we have noted a number of key shifts in what Central Bank language is actually telling us from a quantitative point of view.
- We regularly track and update our measure of positivity/negativity of Bank language contained in statements, outlooks and speeches on a scale of -1 to +1 in our DataHub for premium subscribers.
- There you can access full histories and dig deeper into the underlying drivers.
7. Mint Macro Roundup: BoJ Maintains Loose Policy Yet Yen Remains Strong
- BoJ stuck to its ultra-loose monetary policy at its policy meeting on 19/Dec. It continues to maintain an extremely dovish stance to encourage economic growth.
- Governor Ueda stated that the prospects of inflation declining sustainably to target and wages rising and propping up demand remain high.
- Yen initially weakened following continued easing however it has recovered losses and stands 1.7% stronger than its level before Fed’s dovish stance on 13/Dec.
8. Interest Rates and Oil: Crossroads Ahead
- US retail sales and inflation rates are retreating, and industrial activity is slowing.
- Europe’s economic decline is accelerating compared to the US.
- Oil prices are dipping in anticipation of weaker demand amidst a slowing economy signal.
9. Avoiding a Lost Decade: China’s Real Estate Adjustment Reaches Critical Juncture in 2024
- Japan endured years of economic stagnation due to an impaired banking system following the bursting its real estate bubble and some commentators currently fear a repeat experience in China.
- Despite the potential for debt swaps with local government, regional banks will bear the brunt of loan restructuring to local government financing vehicles via higher loan-loss provisions.
- The main of objective of central government in 2024 will be stabilising home sales in Tier-1 cities via easier policy measures. Bank lending to private property developers will remain tight.
10. Keep Buying the Japanese Yen
- While the Bank of Japan didn’t change monetary policy -it just delays the inevitable.
- Rate differentials have only one way to go and will benefit the JPY.
- Position now for a strong JPY as the market anticipates the change.
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1. 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 1
- Risk reward favours this shift in allocation between these markets.
- Japan will suffer from base effects on economic data and earnings this year as JPY move reverses.
- Year end Positioning could provide attractive entry points for both legs.
2. The Psychology of Money: A Book Review
- In this insight, I review a fantastic book written by Morgan Housel called The Psychology of Money (published in 2020).
- “The most important part of every plan is planning on your plan not going according to the plan.”
- Three parts of the book were particularly outstanding including letter to author’s son, the story of Rick Guerin, and how mice helped the Russians to defeat the mighty German army.
3. Foreign Investors Allowed to Begin Buying Korean Stocks Without Prior Authorization on 14 December
- On 13 December, the FSS announced that foreign investors will be allowed to start purchasing Korean stocks without prior authorization starting this week.
- The revised Capital Market Act will start to be implemented on 14 December repealing the time consuming and inconvenient pre-registration system for foreign investors.
- As a result of the Korean government making this change regulatory change, one of the beneficiaries is likely to be Interactive Brokers Group, Inc (IBKR US).
4. Steno Signals #77 – Oil Demand Is ALL TIME HIGH
- Happy Sunday and welcome to our weekly flagship editorial from Steno Research.
- It has been an incredibly odd week in the economic calendar and our thesis of a strong year-end for USD key figures has so far been proven right, which especially after the NFP report re-ignited the USD and front-end USD rates, which has been our bet against especially European peers.
- Most recent economic key figures from the US have not surprised positively to the extent we saw through the autumn, while Chinese key figures have woken up and made a decent comeback relative to expectations over the past months.
5. 5 (+1) Central Banks We Watch – Fed, ECB, BoE, Norge’s Bank, BoJ & BCB
- It’s central bank week once again, and that of course calls for us to share our thoughts ahead of the biggest meeting over the next week with Powell being the first to take the stage on Wednesday, expecting to hawk up the rhetoric a bit whilst keeping the Fed funds upper band steady at 5.5%.
- The ECB has recently claimed the title as the most dovish central bank in G10 after markets have added roughly 20 bps of cuts in 2024 to market pricing, and markets now price in approx.
- 115 bps of cuts in 2024.
6. Central Bank Review: Powell, a Genius or a Madman? 2024 Looks like a Year of Fat Tails
- USD markets felt almost EM like for a couple of hours after Jay Powell and the committee allowed markets to chase the cutting narrative by communicating three expected cuts in the dot plot for 2024.
- I am not always convinced that the dot plot is a wise guidance tool as policy makers likely judge that a dot signaling three cuts relative to market pricing (ahead of the meeting) hinting of more than four cuts net/net should lead to a hawkish surprise.
- The opposite of course happened since narrative chasers in markets rather look at the sequential move than the nominal forecast.
7. Great Game – Climate, Chips and Corruption!
- Welcome to your weekly geopolitical update from the Great Game! With a relatively quiet week in global affairs, we have time to dive into a couple of issues that we’ve been looking at over the past weeks.
- But let’s start at the main stage with the current COP28 summit that’s about to wrap up.
- Will “majlis” sit-downs save the climate?
8. In A Bitcoin Frenzy; Long BTC Miners & Short BTC
- BTC’s phenomenal +57% surge since September is propelled by key forces—ETF euphoria, a robust “Risk On” asset bull run, regulatory clarity, and the imminent BTC halving.
- While BTC maintains resilience, mining firms, exemplified by Valkyrie Bitcoin Miners ETF (WGMI), have seen a 30% underperformance over the last 3 months.
- Mining firms that have scaled up hash-rate over the past year and built up BTC holdings to support outperformance to BTC. However, ample cash reserves are vital.
9. Rate Cuts: How Much? How Quick? How Real?
- Western central bankers have made it amply clear that rate cuts are not a given. They remain data dependent. And the data is sending mixed signals.
- Meanwhile markets are opting for selective hearing and are pricing sharp rate cuts soon. Inflation is hard to tackle in general. The last mile gets nasty. Are markets ready?
- Base effects have contributed to the rapid slowdown in inflation. When these base effects fade, the false sense of safety could crater leading to a very different inflation narrative.
10. Positioning Watch – Are markets ready for Powell Wednesday?
- With Powell taking the stage on Wednesday, likely turning more hawkish in his rhetoric after weeks of financial conditions easing, we have had a look at if we are starting to see signs of markets reversing their ultra-bullish positioning.
- In general markets have taken a bit of a breather from a positioning perspective after the historically bullish sentiment seen throughout November, and people are now starting to hedge their longs based on recent option volumes, with the aggregate US intraday put-call ratio now back solidly above 1.
- Looks like traders are starting to hedge their equity bets going into the central bank bonanza this week.
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1. Global Liquidity On The Rise: Is This Gold’s (And BitCoin’s) Breakout Moment?
- High street inflation could fall in 2024 and real interest rates stay high, but the gold price and BitCoin (BTC$) may still break higher
- Gold has a 1.5-1.6 times sensitivity factor to the growth in Global Liquidity. BitCoin is a whopping 5 times this! It is ‘exponential gold’
- Global Liquidity looks set to double in size over the next decade driven by soaring World debts. Alongside, the US dollar has been eclipsed as the marginal World reserve asset
2. FSS Provides Further Details of Korean Companies That Plan to Change Dividend Payout System in 2024
- FSS provided further details as to the number of Korean companies that plan to change their dividend payout system to their shareholders in 2024.
- There are 636 companies out of a total 2,267 listed companies in Korea (28%) that have confirmed that they will change their dividend payout system starting 2024.
- As listed companies set different voting rights and dividend record dates from the end of the year, investors need to check the dividend record date and dividend amount before investing.
3. The Fate of Quantitative Tightening: Not Solely in the Hands of the Fed
- The twin pillars that underpinned US monetary policy since the global financial crisis made policy normalisation difficult. Investors believe quantitative tightening (QT) ceases once the federal funds rate is lowered.
- Contrary to the fears encountered during the taper tantrum in 2013, QT has not dramatically tightened US financial conditions since 2017, thereby raising questions about whether any cessation is required.
- High levels of bank reserves do not guarantee financial stability, but elevated Treasury borrowing and lower repo market liquidity pose threats that could ultimately force the Fed to end QT.
4. Positioning Watch – Everything better turn out the way markets want it
- Hello everyone, and welcome back to our weekly positioning watch, where we dig into everything positioning and sentiment-related.
- This week will be all about equities and fixed income, which seems to be running the show at current junctures – just give the gold chart a look, which jumped some 2% on the back of pivot hopes and strong buying activity this morning during Asian hours, while sellers were nowhere to be seen, but fast-forwarding 10-11 hours, gold is now down somewhere near 0.2%.
- A huge turnaround in markets which smells a lot like a short-squeeze or tight liquidity in the Asian markets today.
5. Steno Signals #76: The Fed Has Lost Control of Liquidity Trends
- Happy Sunday from frosty Copenhagen and welcome to our flagship editorial! The underlying demand trends are not strong.
- Running credit card data has been weak in October/November, the credit impulse is worsening and there are signs of actual labour market softening around the otherwise sticky service sectors in the West, yet markets are partying like there is no tomorrow.
- What is causing this disconnect and could it continue into the year-end?
6. 5 Things We Watch – Liquidity, Bond positioning, Oil, Consumer spending & Rates
- We’ve spent the past 2 days in London, meeting clients and hedge funds, and there was a lot of support for the idea/notion that SOFR-Fed Funds spreads reveal that USD Liquidity is not ample and that the Fed will have to end QT early.
- The spread widening in SOFR – Fed Funds, caught a lot of attention over the past few days and it is interesting how swiftly the market jumps to the conclusion that it will lead to the Fed panic-ending QT already in Dec or January.
- Why are SOFR – Fed Funds spreads widening and how do we deal with it?
7. Mint Macro Roundup: Dissecting The Recent Jobs Data
- Nonfarm payrolls showed 199k jobs added, higher than October and above expectations; Unemployment fell to 3.7% but wage growth strong at 4% YoY.
- Earlier this week, JOLTs survey showed job opening slide 6.7% to 8.73 million, lowest in 2.5 years with jobs declining across industries.
- Job market observed to be loosening and on-track to achieving soft-landing. going forward, it’s vital to watch for job losses.
8. The Week That Was in ASEAN@Smartkarma – Indofood’s On Track, ROTI’s Rising, and BliBli’s Omnichannel
- The past week has seen insights on Indofood CBP Sukses (ICBP IJ), PT Nippon Indosari Corpindo (ROTI IJ), Global Digital Niaga (BELI IJ), OCBC (OCBC SP) and Vinfast (VFS US).
- There were also macro insights on the Philippines and Vietnam from Manu Bhaskaran and insights on Leader Energy IPO, Mkh Bhd, Vale Indonesia, Aneka Tambang, Bank Tabungan, and Medco Energi.
- 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 Southeast Asia.
9. India Politics: State Elections Show Favourable Political Winds for Modi
- Premier Modi’s BJP outperformed expectations by winning three state assembly elections, putting it in prime position for re-election in the 2024 general election.
- Modi’s personal appeal and welfarist policies will likely deliver dividends in the next elections. But a landslide win is far from guaranteed given the political dynamics.
- The government will thus avoid rocking the boat in terms of economic policy.
10. The Market Meaning of a Gold Breakout
- Gold bulls became very excited when gold tested resistance at the 2000–2100 level. We have been more interested in the drivers of gold strength than trying to forecast gold itself.
- Our analysis indicates that gold is rising on expectations of falling real rates, which also depresses the USD.
- These factors should be bullish for the price of risky assets. Specifically, we would focus on financials and other early market cycle groups.
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