1. 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 1
- Risk reward favours this shift in allocation between these markets.
- Japan will suffer from base effects on economic data and earnings this year as JPY move reverses.
- Year end Positioning could provide attractive entry points for both legs.
2. The Psychology of Money: A Book Review
- In this insight, I review a fantastic book written by Morgan Housel called The Psychology of Money (published in 2020).
- “The most important part of every plan is planning on your plan not going according to the plan.”
- Three parts of the book were particularly outstanding including letter to author’s son, the story of Rick Guerin, and how mice helped the Russians to defeat the mighty German army.
3. Foreign Investors Allowed to Begin Buying Korean Stocks Without Prior Authorization on 14 December
- On 13 December, the FSS announced that foreign investors will be allowed to start purchasing Korean stocks without prior authorization starting this week.
- The revised Capital Market Act will start to be implemented on 14 December repealing the time consuming and inconvenient pre-registration system for foreign investors.
- As a result of the Korean government making this change regulatory change, one of the beneficiaries is likely to be Interactive Brokers Group, Inc (IBKR US).
4. Steno Signals #77 – Oil Demand Is ALL TIME HIGH
- Happy Sunday and welcome to our weekly flagship editorial from Steno Research.
- It has been an incredibly odd week in the economic calendar and our thesis of a strong year-end for USD key figures has so far been proven right, which especially after the NFP report re-ignited the USD and front-end USD rates, which has been our bet against especially European peers.
- Most recent economic key figures from the US have not surprised positively to the extent we saw through the autumn, while Chinese key figures have woken up and made a decent comeback relative to expectations over the past months.
5. 5 (+1) Central Banks We Watch – Fed, ECB, BoE, Norge’s Bank, BoJ & BCB
- It’s central bank week once again, and that of course calls for us to share our thoughts ahead of the biggest meeting over the next week with Powell being the first to take the stage on Wednesday, expecting to hawk up the rhetoric a bit whilst keeping the Fed funds upper band steady at 5.5%.
- The ECB has recently claimed the title as the most dovish central bank in G10 after markets have added roughly 20 bps of cuts in 2024 to market pricing, and markets now price in approx.
- 115 bps of cuts in 2024.
6. Central Bank Review: Powell, a Genius or a Madman? 2024 Looks like a Year of Fat Tails
- USD markets felt almost EM like for a couple of hours after Jay Powell and the committee allowed markets to chase the cutting narrative by communicating three expected cuts in the dot plot for 2024.
- I am not always convinced that the dot plot is a wise guidance tool as policy makers likely judge that a dot signaling three cuts relative to market pricing (ahead of the meeting) hinting of more than four cuts net/net should lead to a hawkish surprise.
- The opposite of course happened since narrative chasers in markets rather look at the sequential move than the nominal forecast.
7. Great Game – Climate, Chips and Corruption!
- Welcome to your weekly geopolitical update from the Great Game! With a relatively quiet week in global affairs, we have time to dive into a couple of issues that we’ve been looking at over the past weeks.
- But let’s start at the main stage with the current COP28 summit that’s about to wrap up.
- Will “majlis” sit-downs save the climate?
8. In A Bitcoin Frenzy; Long BTC Miners & Short BTC
- BTC’s phenomenal +57% surge since September is propelled by key forces—ETF euphoria, a robust “Risk On” asset bull run, regulatory clarity, and the imminent BTC halving.
- While BTC maintains resilience, mining firms, exemplified by Valkyrie Bitcoin Miners ETF (WGMI), have seen a 30% underperformance over the last 3 months.
- Mining firms that have scaled up hash-rate over the past year and built up BTC holdings to support outperformance to BTC. However, ample cash reserves are vital.
9. Rate Cuts: How Much? How Quick? How Real?
- Western central bankers have made it amply clear that rate cuts are not a given. They remain data dependent. And the data is sending mixed signals.
- Meanwhile markets are opting for selective hearing and are pricing sharp rate cuts soon. Inflation is hard to tackle in general. The last mile gets nasty. Are markets ready?
- Base effects have contributed to the rapid slowdown in inflation. When these base effects fade, the false sense of safety could crater leading to a very different inflation narrative.
10. Positioning Watch – Are markets ready for Powell Wednesday?
- With Powell taking the stage on Wednesday, likely turning more hawkish in his rhetoric after weeks of financial conditions easing, we have had a look at if we are starting to see signs of markets reversing their ultra-bullish positioning.
- In general markets have taken a bit of a breather from a positioning perspective after the historically bullish sentiment seen throughout November, and people are now starting to hedge their longs based on recent option volumes, with the aggregate US intraday put-call ratio now back solidly above 1.
- Looks like traders are starting to hedge their equity bets going into the central bank bonanza this week.
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