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. UK Inflation Excess Survives Reweighting
- Updated inflation basket weightings can shift the inflation outlook without any new fundamental shock. The seasonal and trend outlook is unaffected by the 2025 update.
- Although our forecast is broadly unchanged, this still mitigates the risk that reduced weights on energy and sanitation utilities dampen the surge in April and July forecasts.
- This outcome further emboldens our confidence in our above-consensus forecast. We also note that the average import intensity is now weighted near historic lows.
2. BoE Dove Beaten Into Submission
- The BoE unsurprisingly held its policy rate at 4.5% in March, preserving its gradual easing path after resilient recent data. Only one MPC member dissented for a 25bp cut.
- Catherine Mann did not carry the extra 25bp of easing she supported from February to March. Her hyperactive vote relied on so little spurious evidence it was swiftly falsified.
- Core members emphasise the lack of a predetermined path, raising the hurdle to a May cut, but this remains the most likely outcome, even if it may require a rapid reversal.
3. EU: Defence Spending
- The EU is dealing with two crucial deadlines related to defence spending.
- The Commission is set to present its full loans-for-arms proposal to a divided European Council on 20 March.
- On 24 March, the ‘old’ Bundestag will step down, making it more difficult to ease Germany’s debt brake.
4. UK: Tight Jobs Market Persists Into 2025
- Unemployment remained at 4.4% in January amid rapid employment growth. Recent data suggest that the unemployment rate will likely decline over the next few months.
- Regular wage growth adhered to its 0.4% m-o-m trend. The headline is near 6%, leaving no progress over the past year. Financial sector bonuses weigh temporarily on total pay.
- Doves can temporarily dismiss this inconvenient resilience as unreliable noise, but the obvious risk is that it’s genuine and monetary stimulus has already become excessive.
5. Unloved Stocks in Asia Ex-Japan
- Bank Of China Ltd, Celltrion Inc and Li Auto top the list as the largest index constituents held by less that 5% of active Asia Ex-Japan funds.
- Unloved stock numbers increase after China A-share inclusion in 2018/19 and further amplified by post-2020 restrictions on select Chinese military-linked firms.
- Select funds do own sizeable positions in these stocks. Are they the ultimate contrarian trades?
6. Asian Equities: The Currency Tailwind – Where Would FII Flows Gravitate?
- The USD is moderating, not just against developed market currencies, but also against Asian currencies. Usually, Asian currency revival is a lead indicator of acceleration of FII flows in Asia.
- Our analysis of cumulative FII sales as proportion of market cap shows that Korea and Indonesia are oversold. India is almost there, but not quite. HK/China is still under-owned.
- Taiwan and Thailand, despite large FII selling over an extended period, are still not oversold. Both markets face risks from the tariff war and could face more FII selling pressure.
7. EM Fixed Income Focus: See no evil, hear no evil: EM is not yet pricing a lot of growth downside
- Discussion about concerns regarding a U.S. recession or growth slowdown
- Analysis of historical mentions of recession in news media compared to current levels
- Evaluation of EM credit market sensitivity to recessionary risks and market moves so far
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8. Indonesia’s Middle-Class Squeeze a Long Time Coming
- Recent reports that the Indonesian middle class has shrunk should not have come as a surprise, given long-running sluggishness in household consumption and poverty.
- The problem goes beyond the pandemic dislocations: misguided reliance on extractive commodities sectors and a restrictive stance on foreign investments are primary culprits.
- Further squeezes on the middle class jeopardize Indonesia’s economic and political stability. Unfortunately, the government shows little sign of making the needed pivots.
9. Steno Signals #189 – The Perception Vs. Reality of Inflation: A Growing Divide
- Happy Monday from Copenhagen! We have a six-month stopgap funding deal in place in the U.S. until September, but no new debt ceiling legislation.
- So, despite a shutdown being avoided, we are not yet talking about a new mountain of debt.
- This is why I think the late-Friday reaction in bond yields was somewhat overdone.
10. The Drill: China to the commodity rescue?
- Welcome to our weekly editorial on everything Geopolitics and Commodities.
- Industrial metals (and precious metals) have performed very well this year, and we’ve thankfully been part of (parts of) this ride.
- With new signs emerging of a stimulus targeting consumption patterns in the economy, Wall Street’s takeaway has been that China has regained significant momentum.
