1. The 2024 Liquidity BOOM?
- US policy makers signal the peak in Fed Funds rates and to imply rates cut cuts as soon as March 2024
- Fed Liquidity has risen by a whopping US$534 billion or 16.6% since the start of 2023
- These moves are consistent with our long held view that the Global Liquidity cycle bottomed in October 2022 and is expanding towards a new peak in 2025.
2. 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 2
- Risk reward favours a shift in allocation between these markets.
- Hong Kong washed out from a sentiment, valuation and positioning perspective.
- Minimal investor expectations and continual disappointment have set the stage for a rally in 2024.
3. 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.
4. Positioning Watch – Buy everything seems to be consensus
- Hello everyone, and welcome back to our weekly positioning watch following the surprisingly dovish FOMC meeting last Wednesday, which smells of a slight policy mistake given what we have been writing about forward-looking price and wage indicators over the past weeks now starting to tick upwards again.
- Despite a couple of Fed members trying to retrace after the meeting, pushing back on rate-cut expectations, market positioning has turned VERY bullish over the past week, and oh boy has equity markets positioned themselves for a binary outcome.
- The USDs parked at money-market funds have taken the spotlight since the FOMC meeting, as inflows in MMFs have continued despite 3-month T-bill yields reaching what looks to be a top after Powell’s remarks Wednesday.
5. Steno Signals #78 – Santa Powell Handing Out Gifts Even to the Naughty!
- Powell invited for a yuuuge risk asset party this week by allowing the market to continue to chase the narrative of material rate cuts in 2024.
- This is (again) reminiscent of the 2006-2007 pause when the Fed allowed financial conditions to ease materially in the run-up to the recession.
- During a hiking cycle, loads and loads of USDs are parked in cash-like setups due to a sudden better relative yield premium in almost risk-free structures.
6. Sentiment Nugget: Central Bank Divergence Into Year-End
- Into year-end we have noted a number of key shifts in what Central Bank language is actually telling us from a quantitative point of view.
- We regularly track and update our measure of positivity/negativity of Bank language contained in statements, outlooks and speeches on a scale of -1 to +1 in our DataHub for premium subscribers.
- There you can access full histories and dig deeper into the underlying drivers.
7. Mint Macro Roundup: BoJ Maintains Loose Policy Yet Yen Remains Strong
- BoJ stuck to its ultra-loose monetary policy at its policy meeting on 19/Dec. It continues to maintain an extremely dovish stance to encourage economic growth.
- Governor Ueda stated that the prospects of inflation declining sustainably to target and wages rising and propping up demand remain high.
- Yen initially weakened following continued easing however it has recovered losses and stands 1.7% stronger than its level before Fed’s dovish stance on 13/Dec.
8. Interest Rates and Oil: Crossroads Ahead
- US retail sales and inflation rates are retreating, and industrial activity is slowing.
- Europe’s economic decline is accelerating compared to the US.
- Oil prices are dipping in anticipation of weaker demand amidst a slowing economy signal.
9. Avoiding a Lost Decade: China’s Real Estate Adjustment Reaches Critical Juncture in 2024
- Japan endured years of economic stagnation due to an impaired banking system following the bursting its real estate bubble and some commentators currently fear a repeat experience in China.
- Despite the potential for debt swaps with local government, regional banks will bear the brunt of loan restructuring to local government financing vehicles via higher loan-loss provisions.
- The main of objective of central government in 2024 will be stabilising home sales in Tier-1 cities via easier policy measures. Bank lending to private property developers will remain tight.
10. 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.
Weekly Top Ten Macro and Cross Asset Strategy
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