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: What if We Add a Rate Cut to This Fire..
- The cyclical rotation is slowly but slowly rolling and if central banks add rate cuts to this mix, we are staring directly into the melt up.
- Welcome to our weekly Portfolio Watch, where we assess the tradeable themes and discuss our portfolio composition.
- In this revamped version of the series, we will touch upon the developments in our Macro Alpha Portfolio and our Digital Assets Portfolio.
2. 3 Take-Aways from Li Qiang’s Speech
- Welcome to this week’s Great Game where we turn our attention to China.
- The Communist Party is annual National People’s Congress where Premier Li Qiang (Xi’s right hand man) delivered a very noteworthy speech on the Central Committee’s financial and political plans.
- Watching a speech from a Chinese politician is a very different beast from watching top US politicians address the masses.
3. February Themes and Thematic Portfolio Review
- A monthly review at 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
4. Positioning Watch – Are the unpopular bets back in town?
- Hello everyone, and welcome back to our weekly positioning watch! Equity markets continue their drift higher for yet another week, and it seems safe to say that markets are now more concerned about liquidity/growth than rates to reiterate ourselves, as equity markets have not attributed the U-turn in rates expectations any value whatsoever.
- As the growth and liquidity outlook still looks decent for the weeks/months ahead, we keep our long risk asset bias.
- The rates outlook looks to have a bigger impact in FX and especially the carry-heavy side of this asset class, and with the market likely going to up-hawk expectations even further if inflation picks up momentum, it could be time for a revival of the USD – FX volatility has at least started to pick up a bit of momentum (bullish USD).
5. Macro Regime Indicator: MORE liquidity is coming
- Greetings and welcome to this month’s Macro Regime Indicator.
- Financial markets have behaved pretty much just as we laid out in last month’s predictions.
- Sentiment remains strong and the US consumer continues to spend.
6. Nowcasting Nearly Half of Global GDP
- My hybrid nowcasting framework tracks the inflation-adjusted or real GDP growth rates of US, Euro Area and Japan
- My nowcasts for the individual G3 economies are prospectively diverging at the beginning of 2024
- But in aggregate, my nowcast suggests that G3 GDP growth is potentially tracking softer through the first-half of 2024 on average
7. How to Trade the YOLO and FOMO Market
- A YOLO and FOMO mania has gripped stock market psychology and it’s unclear when the mindset will reverse. Numerous warnings are appearing and the market can correct at any time.
- We are long-term bullish on stocks, but remain cautious near term.
- Despite our cautious short-term outlook, traders are advised against taking a short position until some tangible signs of a bearish reversal appear.
8. Monday Macro – a deep dive into stocks and bonds for the long run
- This week, I’m going to try and combine my three interests: 1. working out what the heck markets might do next,
- 2. figuring out how economic growth rates impact stock market returns (surely there must be some relationship or are they entirely unrelated), and
- 3. digging into the economic history record books to see what’s worked in the past in investment terms.
9. Are You Ready To Be A Contrarian Cigar Butt Investor?
- We review Warren Buffett’s shareholder letter and his pivot from deep value to QGARP investing.
- We offered two case studies to compare and contrast his approach: 1) Berkshire’s holdings in Japan, which was successful; and 2) China, a deep value opportunity that he ignored.
- We are agnostic in our opinion between the two approaches and believe both can offer alpha, but on different time horizons.
10. Commodity & Shipping Watch: Time to get back into the shipping bets?
- Negative roll yield killing BCOM returns, even as spot has performed OK
- We need to see some serious stimulus out of China for broad commodities to rally
- Macro data turning bullish in shipping and the Container output from Shanghai is showing signs of a STRONG rebound
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. Hong Kong Dollar Carry Trade and Its Influence on Hong Kong Market
- Hong Kong Dollar (HKD) Carry Trade (CT) is an good leading indicator of the directional trend of the Hong Kong Market
- Recently the HKD CT has been trending to a less positive/flat position
- Hong Kong Aggregate Balance will no longer provide cushion against HIBOR rising due to the HKD peg system
2. FSC Announces Corporate Value Up Reforms Details
- On 26 February, South Korea announced its long awaited Corporate Value Up reform plan details to improve shareholder returns of listed Korean companies.
- Due to the lofty expectations about these corporate reforms, there was some disappointment when the details actually came out. KOSPI declined by 0.8% today following these corporate reform details.
- Many investors are likely to take a “wait and see” attitude to see if real, material, positive changes will be announced in 2Q/3Q, before committing additional capital into Korean equities.
3. The Week Ahead – US Core PCE, Euro Area Flash Inflation and Japan CPI
- Global equities finished the week on a high note, with Nvidia’s strong earnings boosting markets, especially in Japan.
- European yields rose due to strong PMIs, while the dollar weakened and the euro and pound strengthened.
- In the US, core PCE inflation is expected to be strong, with potential temporary factors contributing to the high readings.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
4. Positioning Watch – Commodities Are Finally Moving
- Hello everyone, and welcome back to our weekly positioning watch! We have been all about the possibility of a cyclical rebound with the US economy showing great signs at the moment, and China is also potentially looking to beat the fairly bearish expectations (and why barely anyone has been net long cyclicals in all asset spaces).
- This leaves markets with a great divergence, as Europe is yet to show the same signs of momentum, and inflation expectations (between USD and EUR) are also starting to diverge, but positioning has not followed accordingly.
- Let’s rerun our current trades to kick things off: Equities: Long Materials and Long Korea (as a China proxy).
5. NPS to Invest 11 Trillion Won in Low PBR/Value Stocks in Korea?
- NPS is in discussion to invest nearly 11 trillion won in low PBR/undervalued Korean stocks.
- Korea Exchange is in discussion with NPS to create a new index tracking low PBR/undervalued stocks in Korea in efforts to boost government’s efforts to boost the local stock market
- This index is tentatively named Korea Value-Up Index and institutional investors are expected to use it as one of the benchmark indices for equity investments.
6. Steno Signals #88: Anyone left willing to bet on rate cuts in H1?
- It seems like no one is willing to add bets on rate cuts in H1 after even the doves from the ECB and the Fed have been hard to convince of spring action lately.
- G3 central bankers have been on parade with messages around the risks of easing prematurely after watching the cocktail of 1) higher freight rates, 2) sticky wages and 3) easing financial conditions, especially in the US.
- We have seen front-end back paddling in rates space ever since New Years accordingly and the almost bizarre uniformity in views and positioning has been blown into pieces in a matter of weeks.
7. The Weekly Market Monitor – Please Give a Warm Welcome to BITCOIN
- Bitcoin rose nearly 20% this week, and the impact of spot Bitcoin ETFs is huge, but with a twist.
- This week’s US personal income data provides yet another chart showing that the recession is already behind us. But will the US consumer keep spending?
- That new The Economist cover does not bode well for stocks, but the moving average does. Yet, sentiment remains in Frenzy.
8. How the Rise of ‘Pod Shops’ Is Reshaping the Way Markets Trade
- Recent market volatility with large moves in individual stocks
- Multistrategy hedge funds may be impacting these market movements
- Goose Hollow Capital founder Krishna Kumar discusses the workings of pod shops and their impact on stock trading
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
9. Money Watch: Trillions of USDs Are Waiting to Be Unleashed
- Money trends were abysmal for most parts of 2022 and the early parts of 2023, but we are starting to see interesting trends arising in the global money growth with clear geographical divergences.
- Japan, China and the Euro zone have reported January M1, M2 and M3 developments and while trends remain benign in JPY and CNY, the money trends in EUR are re-worsening.
- A gap seems to be opening between USD and EUR money trends, which rhymes well with our strong thesis of a growing inflation gap between the US and the Euro zone.
10. Macro Nugget: Trillions of USDs waiting to be unleashed
- If we look at M2 trends (narrow money + time deposit / MMFs and similar assets), the broad USD measure remains a staggering 18% above trend with M2 nominally trending almost 4 trillion USDs above a long-term trajectory.
- The similar trend in EURs is much less extraordinary with M2 currently 7% above trend, which translates to a little more than 1 trillion EURs nominally.
- There is still a large excess of USDs in the systemSo where are those excess USDs parked?
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. Easy Money to Low PBR Stocks in KOSPI 200 Is Now Over – What’s Next?
- There are 92 stocks in KOSPI 200 that are trading at less than 1x PBR. These 92 stocks are up on average 6% YTD.
- Among these 92 stocks, 40 of them are trading at below 0.5x PBR. These 40 stocks are up on average 8.2%.
- In this insight, we argue that the “easy money” of making money by increasing capital allocation to low PBR stocks in Korea is nearly over in the near term.
2. Portfolio Watch – Have markets traded the cyclical rebound in advance?
- Welcome to our weekly portfolio watch, which today will be all about the (potential) upcoming rebound in the cyclical momentum.
- As always we share our trade thoughts and ideas and provide you with our current allocation.
- Yesterday’s PPI came in hot as we expected (0.6% MoM in core PPI vs 0.1% expected), which serves as an early sign of a reacceleration in inflationary pressures, which have been our base case since the continuation of the tensions in the Red Sea: It looks like the increase in US freight rates has started to impact producer prices.
3. The Week That Was in ASEAN@Smartkarma – BBNI’s Aspirations, Oceanagold IPO, and Thailand’s Recovery
- The past week saw insights on Bank Negara Indonesia (BBNI IJ), Bank Mandiri (BMRI IJ), OceanaGold Philippines, Sam Holdings IPO, and the most SET50 Index rebalance.
- There were also macro insights on Thailand with some optimism, Vietnam as it starts to recover, Malaysia with lingering concerns, and the Philippines, as the BSP keeps rates on hold.
- 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.
4. Positioning Watch – Low FX volatility provides cheap leverage for a rebound in manufacturing
- Hello everyone, and welcome back to our weekly Positioning Watch.
- Markets were caught on the wrong side of expectations last week with PPI coming in substantially hotter than expected, but equity sentiment has remained decent outside of some profit taking in Tech, as the cocktail of better liquidity conditions and a brightening economic outlook is likely to prevail – and positioning provides very decent opportunities to trade the potential comeback for cyclical assets.
- As this week’s chart of the week we present to you what looks to be the theme of Q1 2024, and the reason why right now is not a good time to be contrarian: momentum is king, and “go with the flow” currently performs WAY better than cherry-picking the good old value stocks.
5. Indonesia Politics: Prabowo Wins, But Does Indonesia?
- Ex-General Prabowo Subianto got third-time lucky in his bid for the presidency. We caution, however, that things will not be “business as usual” under the erratic strongman.
- Contrary to his campaign rhetoric of providing “continuity Jokowi”, we argue that Prabowo will not pursue several positive aspects of the Widodo agenda with the same vigour.
- Short-Term political intrigue and long-run degradation in governance are material risks given the election results and preceding developments, These are due cause for worry.
6. Energy Cable: All the upside left in Henry Hub
- Greetings from a rainy and cold Copenhagen.
- Since we haven’t talked about natural gas for a while we will start out here before turning to crude.
- Last week saw Henry Hub making lows last seen during the first wave of Covid in the spring of 2020.
7. Great Game – Asian elections and Ukraine outlook
- Welcome to this week’s rundown of international events and the impact on your portfolio.
- There is still some time to go on my cease-fire prediction from last week, so let’s focus on some other topics that we’re talking about right now.
- As a new addition to our offering, we’re experimenting with video editions of certain articles as many of you have requested.
8. US CPI Inflation 3.09% y-o-y (consensus 2.9%) in Jan-24
- The US CPI inflation rate for January 2024 exceeded expectations, slowing down to 3.09% y-o-y, marking the lowest growth since June 2023.
- The US Core CPI inflation rate stayed at 3.9% y-o-y.
- This rate was 0.2pp above consensus expectations, further supporting the hawkish surprise.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
9. India Politics: Opposition Coalition Fractures, Boosting Modi’s Chances
- The opposition INDIA coalition is facing severe setbacks in their efforts to form a united front against prime minister Modi and the ruling BJP.
- While the BJP was always the favourite to win the next elections, the fragmentation of opposition forces opened a wider path for a landslide majority win.
- How Modi uses his political capital in such an event will be pivotal to whether India can take advantage of its current position in the world.
10. The Weekly Market Monitor – The 34-Year Wait Is Over!
- First, Japan entered a recession, and a week later, the Nikkei hit an all-time high after 34 years. Any idea why this is?
- The Institute of International Finance (IIF) has updated its global debt chart. Be aware that it does NOT show the true underlying trend.
- You are only allowed to trade Chinese equities if you are going to buy them. China will have a serious long-term issue in attracting fresh capital.
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. USD inflation review: Powell has to invent a new measure..
- This is another heavy-hitting US inflation report and frankly the worst in a while.
- The stickier components of the basket, including rents and transportation services came in smoking hot, and without substantial deflation in various core goods categories such as cars and apparel, this would have been an outright disastrous report for the Federal Reserve.
- While we had the core goods part of the equation right, we had the re-acceleration of core services wrong.
2. Elections Likely to Hand a Decisive Mandate to Strongman Prabowo
- Prabowo, a controversial ex-general accused of human rights abuses in Jakarta and East Timor during Suharto’s era, looks likely to win the presidential election, with Jokowi’s son Gibran as running-mate.
- Gibran’s presence has shifted the parliamentary polls by 10pp in favour of Prabowo’s party, Gerindra, likely making it the largest at the expense of PDI-P– winner of all previous elections.
- Post-Oct’24, policy is likely to become more mercurial, fiscally imprudent, growth- and inflation-oriented. Markets are likely to be turbulent after initial celebration of a decisive outcome. We urge caution.
3. How Investable Is China (Revisited)
- We reiterate our view that long-term investors in China are likely to face subpar returns coupled with high volatility.
- China hasn’t even tried to reverse the imbalances from long-standing past economic policies.
- Real-Time market signals indicate further weakness in China, which investors should avoid. In the short run, the Chinese stock market looks washed out.
4. Bubbles & AntiBubbles
- Keynes once said that markets can stay irrational longer than you can stay solvent.
- I love this quote because it speaks about the power of narratives, and my own humble readaption of that would be:‘‘Narratives can dominate macro longer than you can remain solvent’’.
- This is why today we are going to cover the two strongest narratives out there: China is doomed; AI is the new revolution and US tech will dominate forever.
5. Ugly CPI Report Leaves Powell Less Room to Sound Dovish
- Both US headline and core inflation came in higher than expected in January. Core inflation rose by 0.4% month-on-month, the strongest increase since last May.
- The real shocker, however, came from the Core Services excluding Housing CPI. The three-month annualized inflation rate spiked to 6.7%.
- Although we have one more CPI report before the next FOMC meeting, the chance of a (temporary) correction in risky assets has increased.
6. EM Fixed Income: Emerging Markets Outlook & Strategy for February
- The global backdrop for the start of the year is better than anticipated, with a broad-based upturn in PMIs suggesting steady or even growing global and emerging market growth.
- The US is experiencing some slowing in growth, but consumer demand is more solid, supported by strong labor markets and falling inflation.
- China’s GDP growth is expected to remain around 5.5% in the near term, but there are concerns about ongoing deflation, housing market weakness, and its impact on corporate revenues and private sector confidence. Outside of China, emerging markets in Asia and Latin America are seeing growth rebound, driven by improvements in consumer and industrial sectors.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
7. Steno Signals #86 – Trading the Relative Fed and ECB Balance Sheet Development
- I am sitting here on a Saturday evening (by the time of writing) waiting for the opportunity to say hello to the second junior analyst at home as my wife’s due date is approaching fast.
- In between the frightening thoughts on how to deal with not only one but two diaper-wearing boys at home (myself excluded), I keep pondering why I receive so many questions on the timing of the first rate cut.
- Is it really that important?
8. CPI Falls Again in China as Japanification Narrative Does the Rounds
- More deflation reported in China and the implications for markets
- Chinese authorities keep pushing liquidity into the system and focusing on the stock market
- Parts of the Chinese Economy not as bad as the doomsayers would have you believe
9. China Economics: “Japanification” in China and the New Low Growth Equilibrium
- After decades of being described as an “economic miracle”, powerful structural drags are threatening to throw China down a medium-run equilibrium of low growth.
- The economy will have to rely on weaker fundamentals in terms of demography, productivity and economic structure to carry it forward to the next stage of growth.
- Together with a more hostile global environment, China and the world will need to get used to structurally lower growth rates unless deep-seated reforms are completed.
10. The Week Ahead – Fed Meeting Minutes, Central Bank Meetings in Indonesia and Korea
- Global markets experienced a wobble following a stronger than expected US CPI inflation report, causing a spike in bond yields and a dip in equity markets.
- The US CPI report breaks the trend of positive data and has implications for the Fed’s rate cut decisions. While inflation is expected to moderate this year, it will take several data points to confirm this.
- The upcoming minutes from the January FOMC meeting will provide more details on the Fed’s thinking regarding rate cuts and adjustments to the pace of balance sheet rundown.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
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.