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. 5 Things That Could Wrongfoot Consensus in 2024
- The overwhelming consensus for 2024 continues to be a soft landing in the US with interest rates coming firmly down while growth continues on autopilot, which leaves a very decent, almost goldilocksy, outlook for risk assets.
- But what if we don’t end in a soft landing, but rather one of the tail-end scenarios of either 1) a boom driven by easier financial conditions, which would force the Fed to push back a bit on rate cuts or 2) a recession, which would imply rates much lower than what consensus currently is.
- We have chosen 5 “likely unlikely” scenarios for 2024, which are not as unlikely as current market pricing indicates.
2. 2024: Bold Predictions
- We may see a US recession, followed by eight or more Fed rate cuts, a boost in liquidity, and hence another blockbuster year for risky assets.
- In addition, we may see some credit rating downgrades of some major economies, emphasizing the question of how attractive (government) bonds are in a long-term multi-asset portfolio.
- 2024 may accelerate the Great Portfolio Rebalancing, seeing investors move out of traditional asset classes (bonds) into scarce and under-owned asset classes (gold, bitcoin.)
3. EM by EM #36: What Goldman got wrong about China in 2023
- Main conclusions up-front:It’s getting harder to disentangle politics from price movements in China, with the government becoming more involved in the equity market.
- In stark contrast to their U.S. counterparts, Chinese banks are grappling with the weight of growing savings from consumers and businesses.
- This surge is impacting their profitability, while the real estate sector’s challenges continue to linger.
4. Positioning Watch – How are markets positioned ahead of a turbulent 2024?
- The year has generally speaking been a forecasting challenge for most to say the least, and not a lot of people forecasted the ending that we’re left with, but how does the current price action and massive inflows into both equities and bonds leave us for 2024?
- Sentiment has been EXTREMELY bullish in Q3 and Q4 based on our z-score sentiment model but almost solely built on equity momentum, which is rarely a good sign.
- Both option ratios, credit-spreads and market breadth have turned bearish in Q4, which should leave markets vulnerable after the boost from positive liquidity trends dwindles during Q1 2024.
5. Bond Market Monitor: Time to Invest in EM Bonds
- Here we are checking our thesis on the bond markets we reconfirmed as bullish back in September.
- Declining inflation, as indicated by the November US Personal Consumption Expenditure (PCE) deflator, could lead to the 2% inflation target in 2024
- A rate cut and a peak of a rate hike cycle plots a scenario where fixed rate bonds will be the asset class of choice in 2024.
6. Hamas Rejects Ceasefire – Here’s Why It’s Actually Great News
- Welcome to a quick Holidays edition of Great Game – your weekly geopolitical update!
- Yesterday, reports emerged that Hamas and Islamic Jihad had rejected an offer of a permanent cease-fire brokered by the Egyptians with the aid of Saudi Arabia and Qatar.
- Reportedly, the deal would have involved a mass release of hostages, a permanent ceasefire and the formation of a transitional government in Gaza without the direct persecution or condemnation of Hamas and Islamic Jihad.
7. Steno Signals #79 – A Christmas present full of USD Liquidity from Powell and Yellen!
- Happy Sunday and welcome to a short and sweet version of our flagship editorial!
- Liquidity conditions have improved markedly over the past couple of months, and we are about to enter a QE-like liquidity environment unless trends reverse soon, which they are unlikely to.
- Liquidity has been improving at a $200bn a month pace since early November due to a pamphlet of tricks from BOTH the Fed and the US Treasury, and through the past weeks another sneaky “liquidity adding” factor has popped up! This is of major relevance to the overall risk sentiment.
8. Mint Macro Roundup: Inflation Cools in US, UK, & Japan Accentuating Central Bank Policy Divergence
- Inflation across the US, UK and Japan slowed sharply on the back of declining goods prices.
- Rapidly cooling inflation brings into focus the diverging central bank policies – BoJ remains ultra-loose, Fed has turned dovish, while BoE continues to remain hawkish.
- Personal spending in the US remains strong, providing upside to economic growth in Q4, but also risk of higher inflation.
9. Is Coinbase Rally Running Out of Steam?
- Outperformance during rallies is usually followed by sharper corrections during downturns. Buy the rumour and sell the news is common in crypto markets.
- Coinbase is a top ranking performer. The crypto exchange stock is up a whopping 454% YTD outperforming BTC by almost 3x.
- While Coinbase may do well in a continued cryptocurrency bull market, it is worth considering whether the rally has already played out.
10. Credit Watch: Nothing in the credit impulse speaks in favour of a 2024 comeback
- The equity market has been celebrating over the past couple of months and it seems like the economic consensus is moving towards a soft landing or even a no landing / re-acceleration at lightning speed.
- Equities tend to trade closely connected to the cyclical components of the US economy with a strong correlation between ISM Manufacturing and annual returns in the S&P 500.
- Most recent trends partially represent a bet on a rebound in the economic cycle in 2024, which looks unlikely in most of our medium-term forward looking models.
