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. A ‘Back Seat’ Bond Yield Driver: US Treasury Is Forcing The Fed To End QT. US Yields To Re-Test 5¼%?
- ‘Stealth QE’ from the US Fed set to continue, but US Treasury is the ‘back seat driver’
- Treasury wrestling to cap near-term coupon supply to avoid rising yields, but Fed willing to let regional banks’ liquidity levels rise
- Rising public debt is the major bogey: pushed up by demographics and monetized by Fed and Treasury. 10-year yields will re-test 5¼%
2. Korean Government to Announce Specific Measures to Increase Value of Low PBR Stocks in February
- Choi Sang-Mok (Deputy Prime Minister and Minister of Strategy and Finance) stated that the Korean government will announce specific plans to increase the value of low PBR stocks this month.
- We provide a list of 97 stocks in KOSPI 200 that are trading below 1x P/B. They are trading at average P/B of 0.54x.
- We expect these low P/B stocks to continue to outperform the market in the next several weeks leading up to the government’s actual announcement.
3. Outlook 2024: Europe At A Crossroads
- Claims that the European Parliament elections in June are critical for the EU may be exaggerated.
- The election results, however, are considered the second most significant of 2024.
- The outcome could be crucial for the prospects of EU reform and enlargement.
4. US Liquidity & Debt Watch: Yellen to Decide the QT Tapering Timing Tomorrow
- Yesterday, the US Treasury revealed the issuance targets for Q1 and Q2.
- The net addition to marketable debt is $760 billion for Q1.
- While this is a substantial amount, it’s $55 billion less than the October estimate for Q1 ($816 billion).
5. New Zealand CPI Inflation 4.7% y-o-y (consensus 4.7%) in Q4-23
- New Zealand’s CPI inflation rate in Q4-23 was 4.7% year-on-year, marking a decrease from the previous quarter’s rate of 5.6%.
- The Q4-23 inflation rate is 1.05 percentage points below the one-year average.
- The 0.5% quarter-on-quarter rate annualises even lower, closely aligning with the target.
This insight is AI generated from publicly available sources.
6. Steno Signals #84 – The Red Sea troubles are spreading FAST!
- Happy Sunday folks and welcome to our flagship editorial!We have been banging the drum on the re-acceleration of goods inflation due to the Red Sea debacles for a while.
- Our Geopolitical Team highlighted the shipping risks as the largest risk to markets already on Oct 31 and we have been all over this story since – sadly watching the ever accelerating worsening by the week.
- The Suez has de facto been closed for containerships not sailing under Russian flag for a while, but the attacks over the weekend on the British tanker MV Merlin Luanda is potentially a sharp escalation of the situation as the tanker carried Russian oil.
7. War In 2024
- Investors have adapted to ongoing global conflicts such as the Russia/Ukraine war, the Middle East crisis, and China/Taiwan tensions.
- Despite this, they must remain cautious of less publicized war risks worldwide.
- These less visible risks are part of the turbulent times we currently live in.
8. Evergrande Nugget: Popping the World’s Largest Asset Bubble
- Monday, a Hong Kong court ordered the liquidation of Evergrande- whether the court ruling will be of much help to creditors remains to be seen as the court’s jurisdiction is separated from the bulk of Evergrande’s assets located in the Mainland.
- This ruling doesn’t come as a surprise to the markets, as Evergrande’s impending bankruptcy has been public knowledge for months.
- Beijing has displayed little inclination to rescue the world’s most heavily indebted real estate developer, burdened with an astounding $300 billion in total liabilities- a fact that has been reflected in the now-suspended Evergrande share price.
9. China Macro: Sector Positioning Update
- Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.
- Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.
- Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.
10. US: On Track for a Rate Cut in Jun’24 as Core PCE Inflation Eases MoM and YoY
- Real GDP grew 2.5% in CY23, helped by exports (+2.7%), PCE (+2.2%), government spending (+4.4%), and falling imports (-1.7%). Slower PCE and government-spending to reduce growth to ~1% in H1CY24.
- Core PCE inflation (the Fed’s target) eased to 2.93%YoY in Dec’23, the lowest in 33 months. More crucially, MoM annualized gains in core PCE averaged 1.85% in H2CY23.
- 13 months of M2 contraction, and deceleration in RGDP and core PCE, provide the perfect backdrop for a rate cut in Jun’24. Expect FOMC to hint at that this week.
