In today’s briefing:
- The Great Portfolio Rebalance Will Accelerate in 2024: Part 1 – China Wants Less US Debt
- War and Weather Choking Supply Chains and Risks Spooking Inflation
- Keep Buying the Japanese Yen
- Will We See A Santa Rally This Year?
- Five Things We Watch For In 2024
- EM by EM #35: China 2024: Keeping the Beast Alive
- UK: Discounts Drive Shock Price Drop
The Great Portfolio Rebalance Will Accelerate in 2024: Part 1 – China Wants Less US Debt
- 2024 will bring an environment of a grand-scale rebalancing of multi-asset portfolios. And the latest headline-making remarks on US government debt from China confirm this.
- China wants to diversify its foreign reserves further. With relatively stable foreign currency reserves, this suggests the selling of US Treasuries, which would be different from what we have seen.
- A significant part of the diversification of foreign reserves will likely end up with gold. China has been, by far, the biggest buyer of gold over the last two years.
War and Weather Choking Supply Chains and Risks Spooking Inflation
- Panama Canal and Suez Canal are critical corridors underpinning global trade. >50% of containers from Asia into America cross either through Panama or Suez.
- Affected by El Niño, Panama Canal’s capacity has shrunk to 25/day crossings & risks falling to 18/day by February next year from an average of 36/day given shrinking water levels.
- Given Europe’s higher sensitivity to geopolitics, European Natural Gas & Crude Oil prices have reacted more wildly and have jumped sharply relative to US Gas and Oil prices.
Keep Buying the Japanese Yen
- While the Bank of Japan didn’t change monetary policy -it just delays the inevitable.
- Rate differentials have only one way to go and will benefit the JPY.
- Position now for a strong JPY as the market anticipates the change.
Will We See A Santa Rally This Year?
- The stock market is overbought and sentiment models are reaching bullish extremes. However, price momentum is strong, indicating long-term bullish outlooks.
- Similar overbought conditions have resolved with short-term pullbacks in the past.
- Investors who are under-invested should wait for weakness for a better long entry point.
Five Things We Watch For In 2024
- We’ll start today’s 5 things with a look at the central bank outlook for in 2024, then we’ll address the troubles for OPEC.
- We move over to talk about China and afterwards Ukraine for some geopolitics.
- Finally, we’ll end this year’s last 5 things with a crypto outlook.
EM by EM #35: China 2024: Keeping the Beast Alive
- Foreign confidence remains a massive issue for investment and equity pricing.
- Efforts for diplomatic damage control seem to be a cheap option when contrasted to the domestic issues related to adding more leverage to the system as an alternative.
- Domestic confidence is arguably even lower with households seeing little light at the end of the tunnel. We can see why they won’t.
UK: Discounts Drive Shock Price Drop
- UK CPI inflation crashed 0.5pp under the consensus to hit 3.94%, with the RPI at 5.3% (35bps and 26bps below our sub-consensus view). Such a large undershoot is historical.
- Unusually early discounting behaviour appears to be responsible for much of the miss. This frontloading makes the disinflationary shock unlikely to be sustained.
- Failure to extend sales further beyond norms would allow the median to rebound. Pressures from high wage increases continue to drive excessive hawkish pressures.
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