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. Korean Government Announces Corporate and Dividend Tax Incentives Under Corporate Value Up Program
- The Korean government announced corporate tax incentives for companies that actively increase capital returns to shareholders and also dividend tax incentives and as part of the Corporate Value Up program.
- For companies that provide shareholder returns, a 5% corporate tax amount on the increase will be deducted and the tax burden on increased dividends of the company will be reduced.
- For dividends under 20mn won, the tax rate will be reduced from 14% to 9%. Investor can choose lower rate (25% or comprehensive tax rate) for dividends exceeding 20mn won.
2. Steno Signals #106 – The cycle is improving. Not weakening.
- We spent most of last week examining cycle leads and lags as we continue to observe solid signs of re-acceleration in economies with low duration profiles and high sensitivities to interest rates and exports.
- The Riksbank in Sweden, the BoC in Canada, and partially the ECB in Europe have all cut interest rates amidst an already improving cyclical environment.
- We are already starting to see the positive ripple effects.
3. Union Budget 2024- What to Expect?
- All eyes will be on the upcoming Union Budget 2024 in July, marking the first of Modi Government 3.0.
- Job creation, tackling agriculture woes including farmers income and sustaining expenditure on infra are expected to be the core deliverables.
- Moreover, fiscal deficit is expected to continue its improvement run. Capital gains tax would not be touched but GST network could broaden.
4. Three Risk-Off Signals Offset by One Risk-On Signal?
- The three risk-off signals include the decline in the Bitcoin price, decline in the copper price, and the first day share price performances of recent Korean IPOs.
- These three risk-off signals are offset by one major risk-on signal which includes the U.S. Junk Bond-Treasury Yield spread.
- An important risk-off signal is the first day share price performances of major Korean IPOs after listing. We have started to see some weakness on this signal in July.
5. Japan Watch – Why BoJ Will NOT Intervene Anytime Soon
- Recently, numerous JPY pairs have breached the levels where the BoJ / MoF intervened in April/May, prompting markets to wonder if (and when) authorities might step in again to support the Yen.
- The reaction in USDJPY post key events/meetings has been consistently uniform for the past 12-18 months.
- Markets build up a hawkish narrative prior to the event, only to unwind positions when the news turns out to be less hawkish than anticipated.
6. QE With Chinese Characteristics: What It Will Look Like.
- PBOC announced that it will borrow and trade treasury bonds from primary markets.
- The central bank will use Open Market Operations to not only control and steepen the yield curve, but also improve market liquidity.
- Last week the 50-year bond dropped below the 2.5% yield which was the minimal threshold the PBOC indicated before defense.
7. Preview to the 3rd Plenum of Chinese Communist Party
- The 3 plenum July 15-18 will likely see some additional measures that will support or stimulate China economy. However, they are unlikely to be game changers.
- Major points to observe include unemployment and healthcare benefit boost, Hukou fine tuning, discussion about inheritance tax, and the 2-4 trillion Yuan of buying most unsold homes.
- Deepening of reform especially in boosting innovation and upgrading consumption will also be touched on, but there will seem no short-term effective measures.
8. Hong Kong: How Much GDP Is Deduced from the Northern Spending of Hong Kong Residents
- It is estimated that 0.8 million Hong Kong residents spend weekends at other Bay Areas
- These residents spend an average of HKD730 on a weekend in Shenzhen
- The value-added factor for food, alcoholic drinks, and tobacco as well as retail trade are both 0.12, which gives 3.64 billion HKD, or 3.5% in annual GDP
9. Non-Consensus Forecast: No Fed Rate Cut This Year
- We are against the majority opinion that Fed will cut rate in September meeting. Also majority forecast there will be 1-2 rate cuts this year but we forecast none.
- CORE PCE Price Index has been treading above 2% target, though it is on a decreasing trend two streaks on a roll and since Jan 2023.
- We believe instead of targeting at the static CORE PCE Index for one data point, the Fed will consider a dynamic series of data points, known as cumulative inflation targeting.
10. Response to Premier Li: Post COVID Chinese Economy
- In a recent forum, Chinese Premier Li Qiang is confident that Chinese economy was stagnant simply because of COVID. Now that COVID has gone, Chinese economy will eventually heal itself.
- We believe rather Chinese economy will still be bumpy after COVID, with three major arrows against Chinese Economy, namely property sector slump, local government debt, and weak private sector.
- Instead of the “self recovery” view of the economy proposed by Li, we believe government should more actively roll out fiscal and monetary stimulus.
