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. USD inflation review: Powell has to invent a new measure..
- This is another heavy-hitting US inflation report and frankly the worst in a while.
- The stickier components of the basket, including rents and transportation services came in smoking hot, and without substantial deflation in various core goods categories such as cars and apparel, this would have been an outright disastrous report for the Federal Reserve.
- While we had the core goods part of the equation right, we had the re-acceleration of core services wrong.
2. Elections Likely to Hand a Decisive Mandate to Strongman Prabowo
- Prabowo, a controversial ex-general accused of human rights abuses in Jakarta and East Timor during Suharto’s era, looks likely to win the presidential election, with Jokowi’s son Gibran as running-mate.
- Gibran’s presence has shifted the parliamentary polls by 10pp in favour of Prabowo’s party, Gerindra, likely making it the largest at the expense of PDI-P– winner of all previous elections.
- Post-Oct’24, policy is likely to become more mercurial, fiscally imprudent, growth- and inflation-oriented. Markets are likely to be turbulent after initial celebration of a decisive outcome. We urge caution.
3. How Investable Is China (Revisited)
- We reiterate our view that long-term investors in China are likely to face subpar returns coupled with high volatility.
- China hasn’t even tried to reverse the imbalances from long-standing past economic policies.
- Real-Time market signals indicate further weakness in China, which investors should avoid. In the short run, the Chinese stock market looks washed out.
4. Bubbles & AntiBubbles
- Keynes once said that markets can stay irrational longer than you can stay solvent.
- I love this quote because it speaks about the power of narratives, and my own humble readaption of that would be:‘‘Narratives can dominate macro longer than you can remain solvent’’.
- This is why today we are going to cover the two strongest narratives out there: China is doomed; AI is the new revolution and US tech will dominate forever.
5. Ugly CPI Report Leaves Powell Less Room to Sound Dovish
- Both US headline and core inflation came in higher than expected in January. Core inflation rose by 0.4% month-on-month, the strongest increase since last May.
- The real shocker, however, came from the Core Services excluding Housing CPI. The three-month annualized inflation rate spiked to 6.7%.
- Although we have one more CPI report before the next FOMC meeting, the chance of a (temporary) correction in risky assets has increased.
6. EM Fixed Income: Emerging Markets Outlook & Strategy for February
- The global backdrop for the start of the year is better than anticipated, with a broad-based upturn in PMIs suggesting steady or even growing global and emerging market growth.
- The US is experiencing some slowing in growth, but consumer demand is more solid, supported by strong labor markets and falling inflation.
- China’s GDP growth is expected to remain around 5.5% in the near term, but there are concerns about ongoing deflation, housing market weakness, and its impact on corporate revenues and private sector confidence. Outside of China, emerging markets in Asia and Latin America are seeing growth rebound, driven by improvements in consumer and industrial sectors.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
7. Steno Signals #86 – Trading the Relative Fed and ECB Balance Sheet Development
- I am sitting here on a Saturday evening (by the time of writing) waiting for the opportunity to say hello to the second junior analyst at home as my wife’s due date is approaching fast.
- In between the frightening thoughts on how to deal with not only one but two diaper-wearing boys at home (myself excluded), I keep pondering why I receive so many questions on the timing of the first rate cut.
- Is it really that important?
8. CPI Falls Again in China as Japanification Narrative Does the Rounds
- More deflation reported in China and the implications for markets
- Chinese authorities keep pushing liquidity into the system and focusing on the stock market
- Parts of the Chinese Economy not as bad as the doomsayers would have you believe
9. China Economics: “Japanification” in China and the New Low Growth Equilibrium
- After decades of being described as an “economic miracle”, powerful structural drags are threatening to throw China down a medium-run equilibrium of low growth.
- The economy will have to rely on weaker fundamentals in terms of demography, productivity and economic structure to carry it forward to the next stage of growth.
- Together with a more hostile global environment, China and the world will need to get used to structurally lower growth rates unless deep-seated reforms are completed.
10. The Week Ahead – Fed Meeting Minutes, Central Bank Meetings in Indonesia and Korea
- Global markets experienced a wobble following a stronger than expected US CPI inflation report, causing a spike in bond yields and a dip in equity markets.
- The US CPI report breaks the trend of positive data and has implications for the Fed’s rate cut decisions. While inflation is expected to moderate this year, it will take several data points to confirm this.
- The upcoming minutes from the January FOMC meeting will provide more details on the Fed’s thinking regarding rate cuts and adjustments to the pace of balance sheet rundown.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
