Daily Brief Macro: Positioning For Trump 2.0 and more

• The betting odds on a Trump victory in November have risen substantially, but the markets haven’t fully discounted such an outcome.
• Investors who want to position for Trump 2.0 should seek long inflation exposure (long gold/short bonds) and short globalization (long domestic producers/short transportation and logistics).
• Notwithstanding the growth outlook, equity returns may be more challenging as Trump 2.0 will see the S&P 500 at more lofty multiples than the P/E ratio of Trump 1.0.

• The media are universal in their belief that a second Trump presidency will produce higher inflation. Fed Chairman Powell would serve the remaining segment of his current term if elected. 
• A further reduction in corporation tax and making the 2017 personal income tax cuts permanent are key fiscal policy goals of President Trump if elected for a second term.
• Import substitution will raise inflation pressures unless there is supply-side transformation in the economy. Protectionism will reduce capital flows to the detriment of long-term interest rates and dollar exchange rate.

• The stock market recently underwent a Great Rotation. Leadership violently rotated from growth to value, and from NASDAQ stocks to small-cap stocks. 
• The reversal was accompanied by a sudden downdraft in the S&P 500. Is this the start of a correction?
• Even though breadth indicators are improving, which is bullish, we would not be so quick to buy any dip that appears.

• 24 days after his catastrophic debate, and 29 days before the Democratic convention, President Biden dropped out of the presidential race and endorsed VP Kamala Harris as the Democratic nominee. 
• The latest polls showed Trump leading Biden by 3pp in the average of polls, including big leads in all seven battleground states. Harris is marginally closer in match-ups against Trump. 
• Trump-Vance have momentum after RNC. To be competitive, Harris (if endorsed by DNC) would need to pick an exciting, moderate candidate (eg, PA governor Shapiro) and hew to the centre.

• John Greenwood, the Father of the Hong Kong Linked Exchange Rate System, has formed a model for debt crisis. And that framework is predicting monetary contraction in the U.S. economy.
• As leveraging goes down and the monetary conditions contract, the market can experience a sharp correction in stage 3.
• Since the monetary conditions in the U.S. easily find its way to Hong Kong through the Linked Exchange Rate System, There might be a rough outlook ahead for Hong Kong.

• Copper retreated by more than 5% due to China’s weak print on TSF. The plenum’s lack of concrete stimulus measures also did not help matters. 
• Check out our initiation, Copper Primer: What We Like About Copper And What to Play, where we provide our long-term bullish outlook on copper. 
• Also, see our initiation, Southern Copper: In a League of Its Own. The company reported a stellar Q2 FY24, beating the street estimates by 20%.

• Iron ore has remained rangebound between 95 and 130 USD/ton for three years, with cost-curve support kicking in on the higher cost curve at around 100 USD/ton.
• Last week, quarterly operational updates released were for Vale, BHP, Kumba, and Mount Gibson. Except for BHP, all companies were disappointed due to provisional pricing impacts and mix changes.
• Read our recent production preview Fortescue Metals Group (FMG AU): High Dividend Yield of 9%, What to Expect From Q4 FY24, to be declared on the 25th of July. 

• Today, I am going to address three main topics of concern for investors given the current conflicting signals from the US economy.
• These are the key questions I will address, and I will summarize both the pros and cons of each viewpoint, including my own bottom line: Is liquidity no longer improving, but rather at risk of weakening in the coming months? Is the economy accelerating rather than slowing? Is the commodity complex heavily undervalued or overvalued?
• The equity rotation paired with the sharp sell-off in Tech has had me thinking, and we therefore need to litmus-test every corner of our current thesis. Follow along below.

• Shift to the right in favor of Trump accelerated after assassination attempt
• Republican momentum challenging expectations for a divided Congress
• Gold and oil likely to benefit under GOP control, with potential increase in demand and production respectively

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