Daily Brief Macro: US Rates: Slowly but Surely and more

• The Federal Reserve was expected to announce tapering of quantitative tightening (QT) in March and implement it in April, but recent minutes suggest a more relaxed approach with no urgency to start the process soon.
• SOFR rates have trended lower in January, easing concerns over upward pressure, and there is plenty of liquidity in the marketplace, with significant RRP and reserve balances.
• Forecasting for the Fed’s balance sheet evolution suggests a less volatile TGA balance and a shift in the relationship between t-bill issuance and RRP balances, leading to a more stable scenario for reserves in the near term.

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• Thai equities lack growth and innovation. Big corporations continue to have unfair advantages in terms of access to bank financing and business opportunities.
• Thailand is an aging society with rising income disparity and a stalling education system. Hence, we have questioned how Thailand will escape the middle income trap in the near term.
• We expect more disruptions and policy blunders which could impair Thai stock performance. We do not believe Thailand can correct its cause in the near term.

• The real-time market cap of gold is USD 15 trillion, not USD 13 trillion, as is often stated.
• This matters because I expect gold to gain on and outperform bonds within a multi-asset portfolio. In recent years, this has been the case.
• A real-time estimate of gold’s market cap also translates to a real-time Bitcoin price estimate as it functions as digital gold. In this piece, I show my base case scenario.

• The recent rally in Chinese stocks has been corrective in nature and was triggered by several factors: National Team Intervention: Authorities intervened to stabilise the market.
• Banning of Short Sales: Short selling was restricted to prevent excessive downward pressure.
• No Net Selling by Funds: Fund managers refrained from net selling.

• Russell was down almost a full percent last week, but consumer staples, MLPS, and shipping performed well
• Domino’s reported slightly lower earnings and showed signs of global headwinds, momentum slowing
• China looks like a good long bias opportunity for the second half of 2024, while consumer staples are poorly positioned for reaccelerating inflation

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• BTC faces a bullish outlook with tailwinds from ETF inflows and an upcoming halving. Early signs of a broader cryptocurrency market rally are underway.
• Gold prices remain pressured from investor rotation to other assets. Fading recession fears are eroding gold’s risk premium. 
• Cumulative ETF fund flows for bitcoin and gold ETFs highlight the diverging outlook with large inflows to bitcoin ETFs and outflows from gold ETFs. 

• PBoC’s 25bp LPR and 50bp RRR cuts in Feb’24 are likely to prove ineffective palliatives to deal with the massive overhang of unsold real-estate across China. 
• Challenge manifests in urban vacancy rates of 20% (>twice Japan’s at its bubble peak), real and potential liquidations of Evergrande and Country Garden, and bankruptcy of Zhongzhi shadow-banking group. 
• 3% FAI growth underpinned 5.2% RGDP growth in 2023 despite low base. RGDP growth in 2024 will be 4%, and less in the medium-term as FAI and non-Russia exports stagnate.  

• The flash services PMI’s bounce raised a risk that the Euro area’s stagnation might be ending. However, we still believe that is residual seasonality rather than substance.
• ESI survey data corroborate this sceptical assessment as they were broadly unchanged at levels below the historical average for most sectors and countries.
• Ongoing labour market resilience in the EEI and unemployment data sustains cyclical support for wage costs. Services and retail price expectations remain historically high.

• Embrace all types of stimulus, even if they look different from the past
• Experienced investor in Asian markets sees similarities in current sentiment to past market cycles
• Michael Fritzell, founder of Asian Century Stocks, shares his journey from journalism to finance and his passion for Asia and Chinese language and culture.

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