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 #109 – What if We Are All Wrong on Liquidity, Rates and Commodities?
- Today, I am going to address three main topics of concern for investors given the current conflicting signals from the US economy.
- These are the key questions I will address, and I will summarize both the pros and cons of each viewpoint, including my own bottom line: Is liquidity no longer improving, but rather at risk of weakening in the coming months? Is the economy accelerating rather than slowing? Is the commodity complex heavily undervalued or overvalued?
- The equity rotation paired with the sharp sell-off in Tech has had me thinking, and we therefore need to litmus-test every corner of our current thesis. Follow along below.
2. Trump Trades and the JAPAN Market Are Like Oil and Vinegar
- Japan’s markets have again failed to break to new highs creating a potential for a double-top pattern.
- Trump’s policies which target lower interest rates and a weaker dollar will put pressure on Japan’s markets as can be seen from the high correlation between the JPY and TPX.
- Sectors such as trading companies, autos and semiconductors could see the most pressure under a Trump presidency.
3. The One Burning Question of the Great Rotation
- The stock market recently underwent a Great Rotation. Leadership violently rotated from growth to value, and from NASDAQ stocks to small-cap stocks.
- The reversal was accompanied by a sudden downdraft in the S&P 500. Is this the start of a correction?
- Even though breadth indicators are improving, which is bullish, we would not be so quick to buy any dip that appears.
4. South Korea Plans To Lower Inheritance Taxes
- On 25 July, the South Korean government announced that it plans to lower highest bracket inheritance taxes from 50% to 40%.
- This is a significant move since excessively high inheritance taxes has been one of the key reasons for poor corporate governance in Korea.
- A reduction in the highest bracket inheritance taxes from 50% to 40-45% is likely sometime in 4Q24 to 2025 which should help to improve corporate governance in Korea.
5. Positioning For Trump 2.0
- The betting odds on a Trump victory in November have risen substantially, but the markets haven’t fully discounted such an outcome.
- Investors who want to position for Trump 2.0 should seek long inflation exposure (long gold/short bonds) and short globalization (long domestic producers/short transportation and logistics).
- Notwithstanding the growth outlook, equity returns may be more challenging as Trump 2.0 will see the S&P 500 at more lofty multiples than the P/E ratio of Trump 1.0.
6. False Breakouts and Breakdowns – The Nikkei, Gold, Copper and the JPY
- Gold has signalled a false breakout and is likely to tread water for a couple of months.
- More strength ahead for the Japanese Yen and weakness for the Japanese markets?
- Copper signals further lows to come unless it rallies soon
7. EM Fixed Income: Goldilocks and the US election
- EM assets are being compared to other asset classes ahead of the US elections, with a general presumption that EM will be more negatively impacted by a Trump presidency.
- EM currencies have experienced some risk premium in the lead up to the elections, particularly in Latin America, but overall EM markets have not shown significant underperformance due to US election concerns.
- Valuation models that consider fundamental drivers do not indicate any significant risk premium being priced into EM assets for the US elections at this time.
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8. The Week At Glance: A look at US Cycle indicators. You sure consensus is right?
- Welcome to the “Week at a Glance,” where we examine the key releases and themes for the week ahead through the lens of macro trading.
- China has reduced the 7-day repo rate by 10 basis points, following up with a cut in the loan prime rate.
- This move mirrors the strategy from June 13, 2023.
9. Business Cycle Watch: Why Sweden’s Resurging Momentum is a Must Watch
- In this brief update on the business cycle, we will present a comprehensive overview of the current economic situation in Sweden.
- The Riksbank initiated its first rate cut in May, and we anticipate additional cuts throughout the autumn.
- This makes Sweden an ideal “live-studio” for observing the effects of early rate cuts on the economic cycle.
10. Trading Trump 2.0
- Donald Trump’s running mate, JD Vance, discussed economic policy during his nomination speech.
- Further investigation provides some insight into what these policies might look like in practice.
- However, understanding the specifics of a potential ‘Trump Trade’ policy remains difficult.
