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. Rising Liquidity And The Threat of 5% US Bond Yields
- US Treasury yields have resumed their uptrends and look set to retest 5%
- US Fed Liquidity continues to expand, following a 13% increase in 2023
- This is a ‘normal’ investment cycle for equities, credit and the economy, but it has been abnormal for bonds
2. Steno Signals #83 – A striking divergence between EUR and USD money trends
- Welcome to our flagship editorial!It is about this time of the year when we conclude that all year-ahead outlooks have already been blown to smithereens, but what is the major surprise this year?
- Back in mid-December, between 5-7% of respondents in the widely renowned fund manager betted on higher interest rates and/or inflation in 2024.
- This is the kind of consensus that only arises once we are leaning towards the mid-to-late innings of the recession, but the problem is that we are probably not even in a recession (in the US) yet.
3. Positioning Watch – How are markets positioned in inflation?
- Like we mentioned in the first positioning watch of the year, holders of risk-assets have entered a slightly more cautious stance, and the classic risk aversion dynamics seem to be back as inflation expectations have been on the rise yet again since December.
- The Fed now find themselves at an interesting crossroads as the inflation battle may turn out more difficult than anticipated, but the gifts have already been handed out, and markets are again pricing the Fed to be the most dovish central bank in 2024 (mispricing of central banks are apparently a market speciality).
- The chart below is also a clear proof of the market’s inability to be forward-looking.
4. Global Policy Isn’t Squeezing That Tight
- Surprising strength was broadly experienced across the flash PMIs for January. Demand growth is rebounding rather than slowing, prolonging inflationary excess demand.
- Unemployment rates should rise with below-potential growth, but they broadly remain below their pre-pandemic levels and have mostly stopped falling rather than risen.
- The failure of tight labour markets to loosen suggests global policy isn’t set far above a neutral level. That should postpone cuts and limit their future extent.
5. 29 Reasons to Be Bullish
- A bottom-up driven scan of stock charts shows over 29 stocks with bullish technical patterns consisting of uptrends or breakouts from multi-month bases with strong potential upsides.
- Bullish patterns are broadly based, primarily concentrated in technology and cyclicals, which argue for a continuation of the AI-related bull and an economic rebound.
- This bottom-up analysis also pointed to bullish macro conclusions about the economy.
6. Data Points to Continuing Signs of a Slowing US Economy
- US LEI release for December signals a weakening US economy
- The annual growth rate of US LEI is deeply negative
- December Taiwan Export Orders contract sharply indicating slower growth worldwide
7. China Property: In Hindsight On 2023 and 2022 Forecasts | “Draw The Line” 2024
- We look at the key annual macro-property data for 2011-2023 and review the past ‘group forecasts’ for new home sales in China in 2023 and 2022
- The views in 2023 proved more in line with the actual than in 2022 but NBS revisions to 2022 new home sales data (Mar-Dec) add some complications
- You can join this year’s ‘draw the line’ for new home sales, part of Real Estate Foresight’s 12th Annual China Property Outlook
8. Portfolio Watch: The Yellen Put
- Takeaways: Equities are currently a preferred refuge over bonds.
- US is still the place to be relative to peers– Recession risks have diminished lately, particularly in the US, but remain a concern in Europe
- It’s becoming increasingly clear that the Treasury is going to be front and center in 2024.
9. China Economics: Further Recovery Hinges on Painful Readjustments
- China’s slightly better-than-expected GDP growth for 2023 failed to dispel the gloom around its prospects.
- The drags on China’s growth will not ease until painful adjustments are completed.
- As that will take time, 2024 will remain difficult unless policy support is considerably strengthened.
10. Portfolio Watch: Aboard the train but starring at the emergency exit
- As we laid out last week our hands are up in the air long everything like we just don’t care- except bonds.
- The reason is that the existing regime we were left with late last year with liquidity stacking up and growth fueled by Bidenomics remains fairly accommodative for risk assets while the debt issuance the treasury is burdened with these days is keeping a floor on the yields.
- What we have been pondering of late is whether the enduring inflation risk we’ve flagged will be accompanied by a corresponding persistence in growth.
