In today’s briefing:
- CX Daily: China’s Pension Growth Dwindles as Population Ages, Workforce Shrinks
- Risk-Adjusted Yields and High Correlation Make Equities Unattractive!
- 5 Things We Watch: China, Burdens & Beyond
- Out of the Box #16: Is the White House finally killing the Treasury put?
- European Epicentre to Shrinkage So Far
CX Daily: China’s Pension Growth Dwindles as Population Ages, Workforce Shrinks
- Pension /: China’s pension growth dwindles as population ages, workforce shrinks
- Fines /: Three banks fined $15.9 million for loan-related breaches
- Unverified List /: U.S. eases export restrictions on 27 Chinese entities
Risk-Adjusted Yields and High Correlation Make Equities Unattractive!
- The recent rise in interest rates is leading to a further shift in cross-asset valuation.
- The volatility-adjusted yields of equity-related asset classes have become even less attractive than those of bond-related asset classes.
- The case for bond investments becomes even stronger when considering that the correlation between equity and bond returns is remarkably high, diminishing diversification benefits.
5 Things We Watch: China, Burdens & Beyond
- Happy Wednesday folks and welcome to this week’s edition of our ‘5 Things’!These past weeks have been all about China, but we intend to keep a wider scope in this fast-moving world of global macro.
- Read along for a brief on the 5 things grasping our attention this week.
- The topics of particular interest this week:The burden of higher rates Increased fragility in energy marketsWhy European inflation will be below 2% before New Year’s The current situation and outlook for US real estateA weaker Yuan, its effect on Chinese imports and implications for global markets1) Burden of higher interest rates (in full here)The weakest are the most vulnerable: The Matthew principle is in full effect both among companies and consumers in this cycle.
Out of the Box #16: Is the White House finally killing the Treasury put?
- Fiscal Policy & COVID support: As followers of our Out of the Box series would know, I have openly stated that my current base case is a recession at the start of 2024.
- This a bold claim given how many have been wrong-footed on recession calls lately and considering how much the US keeps outperforming expectations.
- To be sure, I am not predicting the end of the world but a rather ordinary recession.
European Epicentre to Shrinkage So Far
- The flash PMIs broadly disappointed expectations by a significant margin in August, led by the manufacturing sector but also knocking services closer to stagnation.
- Despite mounting market concerns about China, Europe (inc UK) appears to be the continental epicentre. Japan was a bright spot in August, and ASEAN grew through July.
- Monetary tightening is probably part of the story but does not appear to be the global differentiator. Potential changes in unemployment will eventually indicate tightness.