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 #97 – 5 reasons why the CNY will be devalued next week and how to trade it
- I spent last week in Asia and even though I admittedly like to see my research as edgy and contrarian, I quickly realized that most PMs in the region agreed on my take on the imminent risk of a devaluation of the CNY.
- USD/CNH call options are popular/consensus in the Asian Macro PM space, but interestingly there is no consensus around the contagion from a devaluation of the USDCNY.
- The discussions I had pointed in all directions, meaning that a CNY devaluation holds the potential to turn into a macro earthquake, despite it already being a consensus position.
2. April 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
3. Corporate Value Up Program Guidelines Proposed by the FSC – Disappointing & Needs Improvement
- Some of the Corporate Value Up program’s initial guidelines proposed by the Financial Services Commission (FSC) were announced today.
- Overall, the initial guidelines were disappointing mainly because they lacked concrete figures with regards to tax incentives for companies that make significant improvements to their corporate governance.
- More concrete measures announced today included recommendations for overlapping parent company listing (split listing) and disclosure recommendations for the majority shareholder’s profit transfer to an unlisted private company (tunneling).
4. Portfolio Watch: No respite for Asian FX.. How to deal with it?
- Welcome to our weekly Portfolio Watch! We have had a strong week in our portfolio with a USD-reflationary lean, but we are starting to contemplate how to deal with contagion from a continued rise in USD versus Asian FX pairs, especially if the increasing latent risk of a major devaluation of the CNY comes into fruition.
- There is currently no respite for the Asian FX pairs as all major forward looking models point to a reacceleration of US inflation trends from the current plateau around 3.5% YoY.
- We will look at the devaluation risks in detail tomorrow in our weekly “Steno Signals”, but will pinpoint value pockets in markets already today in our Portfolio Watch.
5. NPS Changes Its Core Asset Allocation Method – First Time in 18 Years
- NPS announced today that it will change its core asset allocation method, which aims to increase its purchase of risky assets including stocks and alternative assets.
- Under the new system, the proportion of risky assets will increase to 65% of the NPS’ entire fund assets and the remaining 35% will be allocated to the safe assets.
- There is an increasing probability that a portion of the 24.6 trillion won (2.3% of AUM) could get allocated to risky assets including domestic equities.
6. Positioning Watch – Prepare for further action in JPY pairs
- Hello everyone, and welcome back to our weekly positioning/sentiment overview!Equity sentiment has soured a bit since we last spoke, with broad US traded ETF fund flows sent back into solid negative territory after a stunning start to the year.
- While most of it is due to the tax-season in April, the hawkish repricing of global central banks has also played its part in normalizing the über-bullish sentiment in US equities, with markets now also biting their nails as an ECB June cut is no longer a certainty.
- Chart 1: Rolling monthly US ETF fund flowsAfter a couple of weeks of outflows from XLE, the reflation bet is back on track with around 500 mn.
7. China Ups the Ante with Relaxation of Property Curbs
- Property restrictions removed in major cities, continuing the gradual process from the last 6-8 months
- A BIG signal to the market and the public with the relaxation of curbs in Beijing
- China’s factory output continues expansion and travel data positive for consumption
8. The Week At A Glance: ISMs, NFP, FOMC & QRA to put even more pressure on USD rates?
- The QRA announcement will be released in a few hours (on Monday) while the issuance details will be released on Wednesday.
- We generally don’t see any reasons to fear the Q2 issuance as a strong tax-season has been confirmed with the TGA standing at 941bn dollars, which is almost 200bn above the target range.
The TGA also printed above the target range going into Q2, making it unlikely that the US Treasury turns the heat on in the issuance pace. We see a small downgrade of the Q2 number (202bn) as the most likely.
9. Energy Cable: The recipe for another summer of exploding energy prices (in Europe)
- Energy markets in Europe still fragile. A hot summer and manufacturing rebound could set prices going.
- Manufacturing cycle is improving everywhere but in Germany. Cost-push inflation showing up in drilling now
- This week we want to talk about the ingredients needed for another summer of exploding electricity and gas prices.
10. Great Game – Could Biden Have Even More to Fear from Trump’s Trial?
- Welcome to this week’s Great Game where we will catch up on events in the Middle East and also cover the Trump trial that’s currently taking all the attention in the US Election race.
- Situation:Israel responded very lightly to the massive Iranian attack on April 13th and we haven’t heard any more from that conflict over the past week.
- As we predicted, Israel’s response was “next to nothing” and clearly acknowledged the de-escalatory nature of Iran’s strike. I know some took offense to that analysis, but it is genuinely our assessment and I think events since has reinforced that view.
