This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. EM Watch: China is preparing something BIG!
- The below chart of ours have made the rounds in recent days and weeks as China seems to be preparing for something big given the heavy restocking efforts in Copper space.
- As the price trends are diverging in copper versus steel and iron ore, the strategic initiatives of China are becoming increasingly evident in price action across the commodity complex, but we are yet to fully understand and accept the ramifications for global rates.
- We have read plenty of bad takes on why China is building up copper reserves and the most obvious reason seems to be neglected by many.
2. Technically Speaking: The Early Bird Gets the Worm, China Retail Buys Hong Kong
- Hong Kong market is at historically cheap valuations. So what’s new?
- Capitulation bottom in late January/early February dramatically reduced shorts and now long positioning starts.
- China retail buying is taking a cue from China’s government buying programs and SOE company directives.
3. Israel-Iran War Coming?
- Welcome to this week’s Great Game, where we cover current geopolitical events relevant to your portfolio!
- Situation: Israel attacked the Iranian embassy in Damascus, Syria, killing several high ranking Republican Guard officers, and the whole region is now anticipating the Iranian response.
- Meanwhile, Israel and Hamas are making little progress in their truce talks in Cairo while Israel has withdrawn from smaller areas in Southern Gaza amidst heavy diplomatic pressure from the US.
4. Positioning Watch – Reflation bets are back in
- Hello everyone, and welcome back to our weekly positioning/sentiment overview.
- The mood in equity markets is still good, with major indices stabilizing at levels far above all time highs despite taking some time to swallow hawkish comments from Fed officials.
- Markets seemingly don’t care about the repricing of Fed rates until they hear it from Powell’s mouth or until they get a feeling of true pivot (on the pivot).
5. 5 Things We Watch – Rates Pricing, Liquidity turning, Labor Market, Commodities & China
- Hello everyone, and welcome back to our weekly ‘5 Things We Watch’, where we provide 5 of the things we keep an eye out for in global macro in a short and concise format.
- This week we are watching out for the following 5 topics within global macro: Rates Pricing, Liquidity Turning, Labor Market, Commodities, China.
- The market went into the year expecting 7 cuts in total from the Fed, which has now been narrowed down to less than two, all while equity markets have continued their drift higher as the economy is doing better than expected paired with benign liquidity conditions.
6. Yen Weakness Not Solely Due to Bank of Japan as Corporates Play a Critical Role
- The weak yen could be a legacy of aggressive quantitative easing (QE), whereby the BoJ became the largest holder of government bonds, forcing traditional buyers overseas.
- Overseas cash hoarding by Japanese affiliates is being cited as another reason for yen weakness. Superior growth opportunities outside of Japan are a reason for the lack of cash repatriation.
- Japan’s exporters currently face formidable competition with China, making a strong yen an unattractive option during a period of higher cost pressures, notably for labour.
7. Indonesia Economics: Disinflation Setbacks Tie Central Bank’s Hands Tighter
- The latest figures show headline inflation inch further away from the central bank’s target, showcasing the difficulties caused by volatile food inflation worldwide.
- In addition to sticky inflation, fiscal policy uncertainty also lurks in the background; the new government has many big-ticket manifesto pledges that need to be funded.
- Still-Strong growth, sticky inflation, and depreciationary risks to the rupiah will cause Bank Indonesia to delay rate cuts, possibly for the whole year.
8. Energy Cable: Melt UP in commodities upcoming?
- Take aways: Booking profits in crude, staying long in broader metals. Crude predicting ISM to turn in 6-9 months time. Sluggish German IP ahead. Last week, we reached our profit level in crude oil, leading us to exit the trade successfully.
- Our outlook remains bullish on commodities, spurred by what we perceive as a reflation head fake.
- This optimism has prompted us to enter a long proxy-position in the Bloomberg Commodity Index (BCOM), as we observe the rally widening across the commodity complex (Chart 1).
9. Gold and Goldilocks
- This week’s ‘CPI Print’ has caused something of a panic in the bond markets and has left the ‘Pivot’ Pundits struggling versus the ‘No Cuts’ crowd, some of whom are now doubling down and even talking about rate rises.
- Traders in other markets are looking across with some degree of concern, long wary of the ability of the bond markets to trigger problems elsewhere.
- So too are the politicians, keen for their particular narrative on the economy to win them votes, but concerned that they need the markets (and by extension the Fed) to support their cause.
10. Looking For Inflation In All The Wrong Places
- Conventional inflation hedge vehicles have exhibited subpar performance despite rising concerns over persistent inflation that will delay the Fed’s rate cuts.
- That’s because 1970s-style “bad inflation” is not present and “good inflation”, which is a by-product of an economic recovery and stronger growth expectations, is becoming dominant narrative.
- Market expectations are shifting from a soft-landing to a no-landing outcome, which should be bullish for cyclical stocks and neutral to bearish for bonds.
