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. US Tariffs: No Fooling!
- The announcement of individual reciprocal tariff rates for US trading patterns on 2 April is a significant event for investors.
- This announcement is part of a drive to re-industrialise America.
- Despite its significance, this could merely represent the initial stages of a prolonged trade war.
2. The Week Ahead – In The Eye of The Storm
- The Fed, Bank of England, and BOJ all left rates unchanged with their own unique perspectives
- Market volatility continues with equities bouncing and the dollar rebounding
- Fed Chair Powell emphasized keeping options open and uncertainty in the economy, with no immediate rate cuts expected
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3. UK: Low CPI As Seasonal Sales Extend
- UK CPI inflation slowed by 15bps to 2.84%, rounding slightly under expectations. The services rate was surprisingly resilient, and January’s upside news broadly persisted.
- Downside news from clothing and core goods prices occurred because January sales extended broadly and unusually. Postponed Spring lines should drive a March rebound.
- Headline inflation outcomes are benign enough not to threaten the BoE’s likely cut in May, but ongoing resilience still makes that the final move in our forecast.
4. UK Fiscal Smoke Over Treading Water
- Attempts to recreate fiscal headroom after slippage rely on implausible and optimistic assumptions. Further tax rises and delayed prudence are likely in the Autumn budget.
- Replacing aid resources with capital defence spending helps loosen fiscal policy inside the budgetary rules. Policy changes are relatively neutral over the next few years.
- Without corrective action, the gross financing requirement path is £18bn a year higher than in the Autumn, and almost £50bn higher than last Spring, burdening gilt issuance.
5. PMI Spring Vibe Shifts
- A resurgence in the US and UK services PMIs seems inconsistent with renewed dovish pricing that assumes activity weakness. Vibes may be throwing surveys beyond reality.
- Labour demand growth seems to be trending close to supply, signalling monetary conditions close to neutral. That is broadly the story across a broad basket of countries.
- We still believe rate pricing is too dovish for the Fed and, to a lesser extent, the BoE. Noisy survey vibes and spurious assumptions of tightness are likely to be misleading.
6. Asian Equities: What if There’s a US Recession?
- US recession chatter is back. During past recessions, US declined less than Asia. Within Asia, select consumer staples, telecommunication, energy outperformed. Surprisingly, so did Korea and Taiwan tech, HK industrials.
- Asian equity drawdown was driven more by valuation derating than by earnings decline. During every US recession, all Asian currencies depreciated and FIIs sold almost all Asian markets.
- In the event of a US recession, we think Asia would outperform US. We like attractively valued domestic-focused sectors and stocks, unless a globally linked stock is egregiously undervalued.
7. Market Movers: Key Dates at a Glance (31 March- 6 April)
- Australia: RBA rate decision on 1 April. Expect no change.
- Japan: Nikkei 225 rebalancing effective 31 March at the close.
- US reciprocal tariffs will keep everyone on their toes on 2 April.
8. Asian Equities: India – What Would FIIs and DIIs Buy and Sell?
- We analyze FIIs’ and DIIs’ buying/selling trend across sectors and their sector-wise stances relative to benchmarks to assess which sectors they would buy or sell in the near term.
- FIIs and DIIs have bought consumer discretionary and healthcare secularly. They recently started buying financials and IT, after prolonged selling. They’ve also secularly bought industrials, barring the last two quarters.
- We conclude that both FIIs and DIIs shall continue to buy financials, industrials and consumer discretionary. They would also buy healthcare and sell materials, energy, IT and consumer staples.
9. How to Trade the Momentum Reversal
- Global equity markets saw a sudden reversal in risk appetite out of the Magnificent Seven.
- While risk appetite has recovered in the U.S. equity market and a relief rally will likely continue, the jury is still out on whether the stampede into non-U.S. will continue.
- Reiterate our view that any relief rally is unlikely to be sustainable. Investors may be better served by diversifying their U.S. exposure into non-U.S. equities for the coming market cycle.
10. Abroad and at Home, Asian Politics Set For a Tough Ride Ahead
- Washington’s apparent disengagement from its European partners is troubling Asian governments who are rethinking their own foreign policy and security strategies.
- So far, the region has not been targeted by the US administration. But their persistent trade surpluses and security arrangements expose them to potentially aggressive measures.
- Domestically, political stability has deteriorated in Thailand, the Philippines, and Indonesia, distracting governments from providing effective leadership in a riskier world.
