In today’s briefing:
- EM by EM #37: The Taiwan election & the Trade war
- Portfolio Watch: Chasing ships and fading narratives
- A Pause That Refreshes the Uptrend
- U.S. Debt Watch: Biden Lost $17B the First Day of 2024
- Positioning Watch – Risk aversion is back?
- Steno Signals #81 – Fed member promises that QT is effectively already over
- USD-flation Watch: Still not softening as much as Europe
- CrossASEAN Ground Zero – GoTo’s Sustainability Verified, 2W EVs, and the Stormy Year Ahead
- Scandi-flation Watch: Finally a bit of respite?
- US Employment Data Confirms a Weakening Economy
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.
Portfolio Watch: Chasing ships and fading narratives
- Hello everybody, and welcome back to our weekly Portfolio Watch!
The Hamas attack on October 7th coincided with a material repricing and a crash in oil prices, marking the peak in inflation expectations and the subsequent collapse of oil prices as 2023 came to an end.
Given our contrarian nature, we were far from convinced by this swift market move. We believed it was only a matter of time before reality would set in, and it appears that 2024 has indeed brought a harsh awakening for complacent optimists.
A Pause That Refreshes the Uptrend
- The stock market is poised for a period of consolidation or pullback after a powerful breadth thrust.
- We remain bullish on equities as such episodes of strong price momentum have usually led to higher prices 6–12 months ahead.
- In the short term, we advise against traders trying to short this market as downside risk is probably limited.
U.S. Debt Watch: Biden Lost $17B the First Day of 2024
- The U.S is at risk of a partial government shutdown beginning Jan. 19th of departments responsible for Agriculture, Energy/Water, Military Construction/Veterans Affairs and Transportation.
- However, investors need not be overly concerned. Both Democratic and Republican leadership are incentivized to get a deal done, so even if a partial shutdown were to commence, it will be short lived with little impact on markets.
- Republicans are keen on securing funding for the U.S-Mexico border and improve their image as a party that can actually govern. Democrats, meanwhile, need to eliminate the 1% across-the-board cut to non-discretionary spending imposed on Jan. 1st. These factors provide ample motivation for lawmakers to get spending bills done.
Positioning Watch – Risk aversion is back?
- The latter half of 2023 was all about the soft (perfect) landing narrative, which made markets party like there was no tomorrow.
- It almost looked like people forgot about risks, but positioning data has turned a bit at the end of December / start of January, which hints at a risk aversion comeback.
- Could 2024 be the year when asset prices are no longer determined based on interest rates alone?
Steno Signals #81 – Fed member promises that QT is effectively already over
- Quote of the week:“So, 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. In my view, we should slow the pace of runoff as ON RRP balances approach a low level.”– Lorie Logan, FOMC member at the annual meetings of the International Banking, Economics and Finance Association and the American Economic Association.
The above quote was delivered on Friday in a speech by Dallas Fed president Lorie Logan and it may prove to be the most important quote by a central banker in 2024 so far.
Effectively, the quote is a promise that QT is already history as the impact of Fed policy on liquidity / bank reserves will remain neutral to slightly positive from here, which is essentially what we have told clients for a while now.
USD-flation Watch: Still not softening as much as Europe
- The inflation release on Thursday is the most important release of the week and we find consensus to be decently aligned with the underlying trends in US inflation.
- Core inflation is trending around 0.3% MoM in the US and we see no reason for a sharp change in that trend given our price observations and models, and we only see a minor hawkish tilt in our models compared to consensus, but expect the MoM core inflation to print accurately above 0.3%.
- The consensus change for the MoM core inflation is very close to 0.25% given the expectation of 3.8% YoY inflation.
CrossASEAN Ground Zero – GoTo’s Sustainability Verified, 2W EVs, and the Stormy Year Ahead
- CrossASEAN Ground Zero is a new thematic weekly product that will focus on key Southeast Asian digital themes and technology trends with a core focus on Indonesia.
- This week is focused on GoTo’s sustainability credentials and the recent scientific validation of its emission targets.
- 2024 will also see a ramp-up of Indonesia’s 2W EV charging infrastructure to power growth in numbers. We also look at key themes in 2024 for the digital economy.
Scandi-flation Watch: Finally a bit of respite?
- Welcome to our Scandi inflation watch.
- Based on public demand, we will release our SEK and NOK inflation views on a running basis as well.
- December is typically a seasonally weak inflation month in Norway with declines in Clothing and Footwear prices, Food prices- and health prices.
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.
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