In today’s briefing:
- A Sea Change in Global Liquidity: Why QT Is Dead?
- Global Liquidity Trends in 2023: Inflation Dynamics and Portfolio Duration Response Will Dominate
- Nigeria Goes to the Polls – What Will Happen if Obi Wins?
- Macro Watch – Why 50% of the Current Rebound Is Manufactured in a Spreadsheet
- Is There An Inflation Threat in Your Future?
- Could EM Weakness Unravel the Bull Case?
- EMEA Technology Rotation
- The Dollar Is Back
A Sea Change in Global Liquidity: Why QT Is Dead?
- Global Liquidity cycle bottomed around October 2022 based on our calculations, immediately following the UK gilt crisis. That is no coincidence!
- Central Banks are increasingly using their balance sheets to focus on financial stability. Expect more subtle forms of YCC in the future
- QT (quantitative tightening) is effectively dead. Central Banks are becoming active collateral managers. Investors must closely watch the MOVE not the VIX
Global Liquidity Trends in 2023: Inflation Dynamics and Portfolio Duration Response Will Dominate
- The sensitivity of liquidity to changes in monetary policy has increased since the adoption of quantitative easing in the aftermath of the global financial crisis (GFC).
- The importance of officially-sourced liquidity has increased since the GFC via central bank asset purchases, but privately-sourced liquidity still dominates the global pool.
- Investors’ willingness to extend duration risk with inflation still above desired levels could determine where significant amounts of global savings and liquidity will be allocated in 2023.
Nigeria Goes to the Polls – What Will Happen if Obi Wins?
- ONE WEEK until “The Most Important Election of the Year”. Young disenfranchised Nigerians hope that outsider, Peter Obi, can shake-up a Nigerian democratic system in decline.
- Investors should not let their future earnings rely on who they think is going to win the Nigerian election. Instead you should focus on the circumstances surrounding the election.
- The best outcome to hope for as an investor is a peaceful ballot with minimal controversy – albeit the current outlook is concerning.
Macro Watch – Why 50% of the Current Rebound Is Manufactured in a Spreadsheet
- Seasonal adjustments are all time high in January due to noise from Omicron in 2021/2022
- Around 50% of the cyclical upswing seen in January is driven by extraordinary adjustments
- Both inflation, retail sales and ISM Services printed higher than they should
Is There An Inflation Threat in Your Future?
- Is rising inflation becoming a problem again for central bankers?
- While the Fed may be on the verge of a pause, last week’s hot PPI report and slightly than higher-than-expected CPI print have raised doubts about a dovish pivot.
- Only two major central banks, the BoJ and the PBoC, are meaningful suppliers of global liquidity. The rest are raising interest rates and engaged in quantitative tightening.
Could EM Weakness Unravel the Bull Case?
- A review of the performance of the major regions shows that all regions have achieved golden crosses, but MSCI Emerging Markets is lagging and testing its 50 dma.
- Could EM weakness unravel the bull case? We find that EM equities have become a crowded trade based on the China re-opening narrative, which is showing signs of sputtering.
- We believe the China cyclical re-opening rebound may become a drag on EM equity performance, it is unlikely to derail the equity bullish impulse that just began in 2023.
EMEA Technology Rotation
- Global Fund managers are positioned at their highest ever net overweight in the EMEA Technology sector.
- EMEA Technology has been at the forefront of a broader diversification away from key sectors in the Americas region.
- ASML and SAP SE are prominent holdings among Growth and GARP investors, whilst Value funds prefer Nokia OYJ and Nxp Semiconductors
The Dollar Is Back
- Over the past year, what was good for the US dollar was bad for the stockmarket.
- The world’s reserve currency lubricates (or seizes up) financial markets.
- A weak dollar is bullish, and a strong dollar, bearish. The dollar was strong (the euro weak) until September, and that put downward pressure on stocks.
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