Daily Brief Macro: Steno Signals #107 – The 3 indicators you NEED to watch on recession risks and more

• Happy Sunday and welcome to our flagship editorial!The ISM Services report admittedly made for recessionary reading, and it is not because we have been blind to such risks.
• We just found the risk/reward in betting on them incredibly weak, and we continue to hold that view.
• We actually laid out exactly that roadmap to a recession in Q4 2023, and correctly forecasted that the re-acceleration in cyclical sectors such as Manufacturing would lead everyone to conclude that recession risks were off the table in 2024, with a major bull run in assets accordingly.

• Coming into June, we wrote that the biggest “risk” was that we moved towards a goldilocks scenario.
• While our portfolio returns have mostly mirrored that regime (outside of Crypto), we have to admit that the growth component of the equation has slowed somewhat relative to our model base case.
• We reassess the picture on a macro level and on a quant basis in this analysis.

• We haven’t made significant changes to our portfolio in recent days due to a lack of conviction in the current market price action.
• However, we are not blind to the risks currently present in the US economic cycle.
• The job market is normalizing linearly, but the risk is that it normalizes linearly until it weakens exponentially.

• Manganese ore, alumina, molybdenum, and chrome ore prices are up, while cobalt prices are down due to market surplus
• Precious metals like gold are well placed and resilient, with potential for record industry profitability
• Copper is still the best way to play the acceleration in global electrification, with potential opportunities in zinc and bulk commodities as well

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• A monthly review of how the markets and our themes are currently performing
• Analysing what went wrong and what went right in stocks and sectors
• Highlighting positions added or removed from the thematic investment portfolio

• US oil rig count stabilises at 479 as of the week ending on 5/July, after falling for five consecutive weeks.
• The US natural gas rig count rose by 4 to 101, yet it remains 34 rigs lower than the count from the same week last year
• Drilling activities in the US remain soft as upstream players prioritise shareholder returns over increasing output.

• The past week saw insights on Berli Jucker (BJC TB), Matahari Department Store (LPPF IJ), Sermsuk PCL (SSC TB), Barito Renewables Energy (BREN IJ), and Raffles Medical Group (RFMD SP).
• There were also insights on Yangzijiang Shipbuilding (YZJSGD SP), Thai Union Group (TU TB), and CrossASEAN Ground Zero which looks at Campina Ice Cream, Xurya, and Mayapada Hospital.
• 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 Southeast Asia.

• ISM vs Commodity Prices The latest ISM Manufacturing data came in lower than expected. It almost seems like economic momentum in the US is fading.
• But on the other hand, commodities that are most sensitive to change in economic momentum, namely copper and crude oil, remain in a sideways consolidation or in the case of crude are already breaking out to new short-term highs.
• That price action behavior opens up a gap between both metrics, and one thing is clear.

• Despite opinion polls, the ‘cordon sanitaire’ in France has successfully kept Marine Le Pen’s Rassemblement National from forming a plausible government.
• This outcome, however, comes at a high cost in the short-term.
• The medium-term implications of this political situation are also significant.

• Even as global manufacturing trade faces the prospect of “slow-balization”, trade in services shows no sign of peaking, providing an opportunity for emerging Asia.
• While advanced economies currently dominate world services exports, emerging Asian economies have opportunities to carve out niches in specific sub-segments. 
• Key to succeeding in this new arena are human capital, including proficiency in the English language, as well as a liberal stance towards foreign and domestic service exporters.