In today’s briefing:
- 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 3
- What Growth Stock Price Action Reveals About Rate Expectations
- Charting Beyond the Sanguine Stock Market
- Liquidity Outlook Supportive for Risky Assets as Stubborn Yield Curve Inversion Requires Resolution
- [TW2] US Equities Stutter as Sentiments Ease in Election Heavy Year (W/E 5th Jan 2024)
- Will Relapse of Eurozone Inflation Propel Euro Against the Dollar?
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.
What Growth Stock Price Action Reveals About Rate Expectations
- A divergence has appeared between the top-down and bottom-up expectations of growth.
- The top-down consensus is a soft landing, while the bottom-up consensus is no landing, which could put upward pressure on inflation and interest rates.
- Investors need to closely monitor these developments as the market could be rattled by a transitory disinflation narrative and a higher-for-longer monetary policy response.
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
Liquidity Outlook Supportive for Risky Assets as Stubborn Yield Curve Inversion Requires Resolution
- The mechanisms that drive yield curve steepening in 2024 will have important implications for financial asset returns, notably lower short-term interest rates have historically favoured bonds versus equities.
- Yield curve steepening due to faster economic growth will be bullish for equities due to upward revisions to profit expectations across all sectors of the US equity market.
- Depletion of the Treasury’s General Account at the Fed and lower participation in the Reverse Repo Programme will boost financial accommodation in 2024, thereby supporting risky assets.
[TW2] US Equities Stutter as Sentiments Ease in Election Heavy Year (W/E 5th Jan 2024)
- US equities snapped a 9-week consecutive winning streak. The S&P 500 and the Dow Jones clocked their worst start to a year since 2016.
- Crude Oil Futures rallied 4.9% on fears of rising conflicts across the Suez Canal. All other major commodities closed lower during the first trading week of the year.
- Half the world population and one-third of the Countries vote in 2024. Seventy countries will hold elections. Portfolio managers must pay more attention to politics than before.
Will Relapse of Eurozone Inflation Propel Euro Against the Dollar?
- Eurozone is exposed to the risk of inflation relapse on continuing geopolitical risks. Potential energy and goods inflation will force the ECB to defer its rate cuts.
- Inflation rose 2.9% YoY reversing a 2-year low (2.4%) observed in November. Core inflation, softened to 3.4% marking its lowest point since March 2022.
- US headline job numbers look healthy. Details spell trouble. Payroll data was revised lower by 71k for Oct & Nov. Average work week contracted, and participation rate declined.
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