In today’s briefing:
- Japan Watch: The pros and cons for Ueda
- US Equities Outlook: Time for a Reality Check
- A Key US Macro Indicator Rose the Most Since Covid but Still Points to 20% Downside in Equities
- EM by EM #14 7 EM Charts for the “Central bank Bonanza”
- The Week That Was in ASEAN@Smartkarma – Ace Hardware’s Spike, Erajaya’s Ramp-Up, and Leader Energy
- Wheat explodes after Russia threatens to attack grain shipments // Dollar-Commodities Divergence
- Sterling U-Turn
Japan Watch: The pros and cons for Ueda
- The JPY market is one big roller-coaster at the moment as the market constantly tries to sniff out potential clues on when the Bank of Japan will catch up to the rest of the G10 central banks with a tighter policy.
- In this piece, we look at the pros and cons of moving already this Friday for the Bank of Japan, but let’s take a look at the current back-drop before we move to the actual policy decision.
- Markets started pricing in an elevated risk of a further increase to the yield-curve-control cap on Friday after a spike in wage data three weeks ago.
US Equities Outlook: Time for a Reality Check
- Easy comparisons contributed to lower US inflation in 2023 H1, but the backdrop in H2 is less favourable, thereby making the Fed wary of premature dovish policy pivots.
- Economic soft-landings have never been good for corporate profits, thereby helping to explain why analysts have set such a low bar for the 2023 Q2 reporting season.
- Glaring inconsistencies are embedded in the 2024 outlooks for corporate profits and Fed policy, notably resource utilisation in the US economy remains too elevated to quickly cull inflation pressures.
A Key US Macro Indicator Rose the Most Since Covid but Still Points to 20% Downside in Equities
- The US Truck Tonnage Index (TTI) ‘explains’ 95% of the level of US GDP. After a substantial increase in June, the TTI does not point to an immediate US recession.
- Given its robust relationship with US stock markets, we derive ‘fair value’ estimates for the Dow Jones Transportation and S&P 500 Index, revealing ample downside for both indices.
- In addition, a simple TTI-based investment strategy using these fair value estimates results in a superior Sharpe ratio, explained by higher returns and lower risk.
EM by EM #14 7 EM Charts for the “Central bank Bonanza”
- Main takeaways:We don’t like assets overly sensitive to USD strength The Carry currencies will start to lose tailwinds soonStill plenty of cheap opportunities in pockets of EM- we will likely add trades here in the coming days on our live Portfolio, see hereRead below for our overall perspective on EM’s in this week’s Central Bank BonanzaEurozone numbers keep going from bad to worst and funds keep stagging to their USD bear bets.
- Despite having burned our fingers on the timing we still think that markets will be in for quite an awakening in this space as the recessionary data keeps coming in.
- After the horrendous PMI prints in Germany in particular its perhaps worth zooming out into the bigger picture here:Chart 1: PMIs across the worldFirstly it is evident that a slowdown is occurring, particularly in the manufacturing sector, and there are indications that this trend is gradually affecting the services sector as well, especially in developed countries.
The Week That Was in ASEAN@Smartkarma – Ace Hardware’s Spike, Erajaya’s Ramp-Up, and Leader Energy
- The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia.
- The past week saw insights on Ace Hardware Indonesia (ACES IJ), after some strong SSSG, Erajaya Swasembada (ERAA IJ)post a management call, Leader Energy Holdings ahead of its IPO.
- There were also insights on Gamuda Bhd (GAM MK), eFishery in Indonesia, Astro Malaysia Holdings (ASTRO MK), Eco World Development (ECW MK), and Genting Bhd (GENT MK).
Wheat explodes after Russia threatens to attack grain shipments // Dollar-Commodities Divergence
Wheat futures soared as much as 9%, the biggest jump since 2012, as Russia threatened ships sailing to Ukrainian ports, escalating a conflict over exports from the key Black Sea region.
Russia’s defense ministry said that all ships headed to the ports from Thursday will be considered as potentially carrying military cargo.
It also said flag countries of vessels sailing to Ukraine will be considered as on Kyiv’s side in the conflict.
Sterling U-Turn
- The YoY inflation rate in the UK increased by 7.9%, which was better than the expected 8.2%.
- There has been some overreaction due to positioning, leading to impulse moves in UK rates, Yield Curve, EURGP and GBPUSD.
- The GBPUSD has experienced an impulse drop, but it awaits signals of a trend reversal.
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