In today’s briefing:
- Is Stagflation in Our Future?
- BoJ Risks Major Credibility Test, While Fed and ECB Send Different Signals About Peak Rates
- Has the VIX Lost Its Use As A Fear Gauge?
- Positioning Watch: Higher for longer vs Lower for longer?
- Steno Signals #66: Buckle up for the energy crisis 2.0
- Taking a Stab at Monitoring the Macro Pulse of China
Is Stagflation in Our Future?
- Stagflation is not our base-case scenario, but a review of market leadership shows that stagflation risk is rising and needs to be monitored carefully.
- In addition, stagflation could be exacerbated by disgruntled electorates turning to populist governments, which have shown to depress economic growth.
- Investors can hedge against a stagflation scenario with a barbell exposure to commodity producers, U.S. megacap growth stocks, and value and high-quality outside the U.S.
BoJ Risks Major Credibility Test, While Fed and ECB Send Different Signals About Peak Rates
- The Bank of Japan’s (BoJ) credibility could be tested as it exits its negative interest rate policy (NIRP) and yield curve control (YCC) due to political pressure.
- The European Central Bank strongly hinted that the peak in short-term interest rates may have been reached. Markets seem to be betting on a spring decline in Eurozone interest rates.
- The latest Federal Open Market Committee’s (FOMC) meeting confirmed a higher for longer policy stance in 2024, although the FOMC will allegedly receive more dovish voting members.
Has the VIX Lost Its Use As A Fear Gauge?
- In this era of increased 0DTE option trading, VXST is a more useful sentiment indicator, and readings are indicating a fear spike.
- The S&P 500 has become sufficiently short-term oversold that a relief rally is imminent.
- However, oversold markets can become more oversold and market internals could be supportive of one final sentiment flush before a durable bottom can be seen.
Positioning Watch: Higher for longer vs Lower for longer?
- Hello everyone, and welcome back to our weekly weekend Positioning Watch.
- The Central Bank bonanza week has come to a close, with only a few localized surprises in policy decisions.
- It appears that only a handful of bold (or perhaps desperate) governors are willing to stand up to the market’s pressure these days.
Steno Signals #66: Buckle up for the energy crisis 2.0
- Is there another major energy crisis in the making and how does it differ from the crisis in 2021/2022?
- We have long held the view that the tightness in energy markets would lead global macro trends from one extreme to the other with relatively short 18-24 month cycles and here we are probably on the verge of another extreme again.
- The impulse from input costs in necessities (read mainly energy costs) will dictate the cycle trends and after an outright landslide in input costs over the past 12 months, we are now edging higher fast again.
Taking a Stab at Monitoring the Macro Pulse of China
- While it is desirable to gain more insights on China, it is also crucial to view it through a differentiated lens
- This is partly because of the country’s multifaceted policy environment and its complex relationship to overall economic activity
- My approach is to harness the proprietary China Credit Impulse Measure (CIM) to extract statistical relationships and unearth macro clues
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