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 We Watch – Freight Rates, Positioning, Liquidity, EUR-flation, Growth
- Welcome to the first 2024 edition of our ‘5 Things We Watch’, where we as always try to dissect global macro trends, how we see the world and how we trade it.
- The overall consensus this year seems to be locked in on a soft landing in the US, but in our view, risks of tail-end events are increasing, making macro more important than ever in order to navigate financial markets in 2024.
- Freight rates on routes with destinations in the Mediterranean (both shipments from Middle East and China) have generally been on the rise
2. Suez Watch: Massively Rising Container Freight Rates, While Dry Bulk, LNG and Crude Rates More Muted
- Takeaways upfront: No container shipping through Suez towards Europe and price increases ahead; Energy and dry bulk shipping is still alive; Expect transportation and apparel to see price increases in Europe; Hedging 2024 portfolios with long Shipping bets and/or long Energy bets make increasing sense.
- Happy New Year everyone! Things are escalating in the Red Sea as shipping giants such as Maersk and Hapaq-Lloyd haven’t been convinced by the military efforts in the Red Sea and have now completely avoided transporting goods from Asia to Europe through the Red Sea.
- That can be seen in prices which have seen one-way traffic the last week. Freight rates are up >100% this week, and we hear from sources that Maersk is now suggesting an all-in rate of USD 6000 TEU.
3. Charting Beyond the Near-Term Fed Pause
- The initial phase of Fed easing, from pre-Volcker to post-Greenspan, can differ, particularly on the magnitude
- Historical Fed pivots, from hiking to easing, tend to be sensitive to the state of the economy
- The extent of initial Fed easing around historical downturns was at least double the size when compared to episodes with no imminent recessions
4. Macro Regime Indicator: Liquidity is everything in January
- New month, new regime, which means a new asset allocation for the month ahead.
- The turn of the calendar once again calls for us to assess our outlook for the 3 main variables of interest: Liquidity, inflation and growth and feed them into our Regime Model and Asset Allocation tool that spits out the Sharpe Ratio optimizing portfolio given the assumptions about the variables of interest.
- Remember that you can feed the model with your own forecasts to see which baskets to put your eggs in.
5. A Bull Market With Election Year Characteristics
- Long-Term models are signaling the revival of a long-term equity bull.
- But the market may be vulnerable to some choppiness in the next few months.
- The intermediate-term outlook for stocks continues to be bullish and we expect a positive year for the S&P 500 in 2024.
6. EUR Inflation Watch – The ECB forecast is OFF by >1.5%-points for Q1
- The smallest German state, Saarland, sneaked out its preliminary December inflation this morning and it was another soft surprise.
- Saarland CPI increased a tad less than 0.1% on the month, which is below 0.2% in seasonally adjusted terms.
- This is if anything a SOFT print relative to consensus expectations and as Saarland CPI explains 78% of the variability in the nationwide German CPI, it leaves a 0.1% MoM inflation print most likely for the German CPI.
7. China Property And The Demand For Commodities Puzzle
- China’s crude steel production data behaved differently in the 2021-2023 downturn relative to new home sales and new starts, compared to the prior cycles.
- The 40% drop (12M vs prior 12M) at the low point for new starts compares with around 10% for the crude steel.
- In this note, we outline a few possible explanations, with some twists.
8. What the Politics of 2024 Tell Us About 2025
- What does the political and economic landscape of 2024 mean for investors in 2025 under a Biden oe a Trump administration?
- A Biden White House is more predictable using conventional economic analysis. Much depends on whether the Fed can achieve a soft landing of the economy.
- The effects of a Trump White House will be more difficult to predict. The only certain investment bet under a Trump administration may be to buy volatility.
9. Regional Economics: Episodic Stresses, Not Prolonged Crises for Asia in 2024
- While there will be economic and geopolitical shocks, we believe that these will cause episodic stresses, not lasting damage to the region’s growth or stability.
- Monetary policy, China’s economic performance, and geopolitical conflict will shape the economic outlook for the region, while government policy responses may provide economic upsides.
- Thus, we think that the Asia-Pacific region will exhibit commendable economic resilience and modestly improved growth compared to 2023.
10. EA: Inflation Springs as Energy Fades
- EA inflation undershot expectations for the fourth consecutive month but smashed the downtrend with a 0.5pp rise to 2.9% for Dec-23.
- The run of downward surprises means Dec-23 inflation is 0.8pp lower than expected in Oct-23. However, it is close to expectations a year earlier.
- Fading energy price disinflation drove the upside move in a timely reminder that all the EA’s other special aggregates remain well above 2%, discouraging ECB rate cuts.
