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. Steno Signals #107 – The 3 indicators you NEED to watch on recession risks
- Happy Sunday and welcome to our flagship editorial!The ISM Services report admittedly made for recessionary reading, and it is not because we have been blind to such risks.
- We just found the risk/reward in betting on them incredibly weak, and we continue to hold that view.
- We actually laid out exactly that roadmap to a recession in Q4 2023, and correctly forecasted that the re-acceleration in cyclical sectors such as Manufacturing would lead everyone to conclude that recession risks were off the table in 2024, with a major bull run in assets accordingly.
2. Positioning Watch – No recession betting in markets yet
- Hello everyone, and welcome back to our weekly positioning watch.
- Economic data from the US has been received by markets with a bit more skepticism after the recessionary ISM services report, and while the NFP report—judging by the markets’ reaction—made everyone from equities to fixed income happy, the overall picture of the US economy is still admittedly gloomier than we anticipated a few weeks back However, with increased access to real-time gauges of the economy, there is currently no reason to worry about a recession—or at least no reason to trade it.
- Recessions are always triggered by something; the economy almost never slow-drifts into one, which makes it impossible to time.
3. Macro Regime Indicator – Growth is the dark horse in July..
- Coming into June, we wrote that the biggest “risk” was that we moved towards a goldilocks scenario.
- While our portfolio returns have mostly mirrored that regime (outside of Crypto), we have to admit that the growth component of the equation has slowed somewhat relative to our model base case.
- We reassess the picture on a macro level and on a quant basis in this analysis.
4. CPI Review: Gung Ho summer! Risk-off fall?
- The inflation report provides a surprisingly soft set of data, aligning perfectly with the FOMC’s hopes, but not with their predictions.
- Back in June, the FOMC projected only one rate cut while hiking the inflation forecast to levels that now seem feasible to undershoot.
- This report, as soft as it gets, shows transportation services down by 0.5% for the month, and shelter prices have only increased by 0.17% MoM.
5. Portfolio Watch: Not worth betting on a recession (yet)
- We haven’t made significant changes to our portfolio in recent days due to a lack of conviction in the current market price action.
- However, we are not blind to the risks currently present in the US economic cycle.
- The job market is normalizing linearly, but the risk is that it normalizes linearly until it weakens exponentially.
6. Technically Speaking: Breakouts and Breakdowns in HONG KONG (July 10)
- Smoore International, China Communication Services and GDS have Bullish technical signals in a challenging market.
- After a 3 year run from the COVID lows, Samsonite has confirmed a Bearish technical signal.
- Hautai Securities hits an all time low and becomes a “Catch a Falling Knife” chart.
7. June Themes and Thematic Portfolio Review
- A monthly review of how the markets and our themes are currently performing
- Analysing what went wrong and what went right in stocks and sectors
- Highlighting positions added or removed from the thematic investment portfolio
8. Indonesia Economics: Signs of Moderating Growth
- Indonesia saw inflation return to target thanks to a further softening in food inflation. There are however upside risks from imported inflation due to the rupiah’s weakness.
- Demand-Side indicators suggest that the strong run of expansionary activity may be reaching its tail end; the latest PMI reading has only been marginally positive.
- Jakarta’s trade policy erraticism was on full display as ministers contradicted each other on a proposal to slap tariffs on China-origin goods.
9. Japan: Is the Balance Sheet Recession Over?
- Japan has suffered from a balance sheet recession, triggered by a sharp decline in asset value, since the 1990s.
- As the Nikkei treads new height, it raises the question of whther the balance sheet recession is over.
- Though some of the structural challenges remain, the balance sheet recession has improved in recent years.
10. US CPI Preview: Taking clues from China?
- We already addressed the US CPI report in our “Week at a Glance”.
- Tomorrow’s US CPI report is the make-or-break moment we’ve been waiting for.
- To keep the risk asset party alive, we need a soft outcome, and it looks like we might just get it.
