In today’s briefing:
- Indonesian Strategy – Election Race Hots Up Amidst Profits Recovery
- 3 Reasons Why Stocks Should Rally Into Year-End
- The Term Premium Red Herring
- US Financial Markets Face Headwinds Due to Rising Term Premium in US Treasuries
- Portfolio Watch: The Art of Resisting Panic
- Probing the Evolving Inflation Debate
- Rates Watch: Are we all still chasing that cutting cycle too early?
Indonesian Strategy – Election Race Hots Up Amidst Profits Recovery
- Indonesia’s election race is about to begin with the Presidential candidates announcing running mates on 26th October and with campaigns that could boost consumer demand.
- The Indonesian economy should see GDP growth above 5% in 2023 and 2024, with inflation already under control at 2.28% in September. FDI remains positive although may slow before elections.
- We explore the prospects for different sectors with a positive view on banks, retail, consumer staples, property, and Astra International as a market proxy, with some opportunities in tech.
3 Reasons Why Stocks Should Rally Into Year-End
- The financial markets are recovering from a very oversold condition and extreme positioning. The recovery has already sparked a minor risk-on rebound.
- The rally should continue owing to supportive market structure, positive risk appetite, and supportive sentiment.
- Bullish momentum should continue to spark a FOMO stampede for risk into year-end.
The Term Premium Red Herring
- The turnaround from the recent bond market tantrum was mainly attributable to excessive bearishness rather than to fundamental factors.
- Bearish sentiment was also evident in the equity market. S&P 500 breadth, as measured by the percentage of stocks above their 50 dma, fell below 10% in the recent sell-off.
- Recent episodes of similar breadth wipeouts saw the stocks rally until this indicator reached at least 80%, indicating further upside in the coming weeks
US Financial Markets Face Headwinds Due to Rising Term Premium in US Treasuries
- Strong US labour demand suggests Fed tightening has been insufficient to restore price stability. Uncertainty about the US economic policy outlook has produced a rising term premium for US Treasuries.
- The falling term premium on US Treasuries after the global financial crisis boosted liquidity in the riskier segments of the capital structure, while any reversion will have adverse implications.
- Fears of profligate fiscal policy conduct can boost the term premium, a fear which has arguably raised longer-term Treasury yields in recent weeks along with Fed policy conduct fears.
Portfolio Watch: The Art of Resisting Panic
- The world has seen significant changes since the last release of Portfolio Watch, marked by the tragic events in the Middle East.
- To add some context, it is perhaps helpful to refresh the six key takeaways before the Hamas incursion into Israel on Saturday.
- 1) We are on the sideline on Bonds but it is starting to look juicy 2) Yield curve steepener is good risk reward 3) We’re bearish on equities 4) We don’t wanna bet against the USD 5) Credit spreads are bound to widen 6) We think banks are starting to look detached from fundamentals
Probing the Evolving Inflation Debate
- The debate will become increasingly more complicated as actual inflation continues to exceed the Fed’s goal
- Hence, it is useful to go beyond the routine analysis of the raw data to extract additional inflation markers and indicators
- My longer-term inflation outlook will be informed by my ongoing scrutiny of the incoming data via the lens of the unique markers and indicators
Rates Watch: Are we all still chasing that cutting cycle too early?
- In light of the firmer than expected CPI report from the US, we have re-visited our curve views across major currencies.
- We find the following to be decent risk/rewards:USD-EUR spreads can widen further due to diverging inflation outlooks.
- We see value in March-2024 spreads.
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