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. Announcement of Value-Up Index in Korea on 24 September
- The Korea Exchange is expected to announce its long awaited KRX Korea Value-Up index on 24 September. However, the actual launch of this index will begin on 30 September.
- It is expected to produce two types of indices including a basic price index (PR) and a total return index (TR) under the name of KRX Korea Value-Up index.
- In this insight, we also provide a list of 20 small cap stocks that could be included in the Korea Value Up index.
2. Steno Signals #117 – 25bp equals mayhem, while 50bp equals panic?
- After a major dash for cash at the start of September, markets regained some optimism last week (much to my surprise, in all transparency).
- A weak USD, soft USD rates, and soaring precious metals characterized the week, especially after Mr. Fed source #1, Nick Timiraos, wrote an article suggesting that a 50bp cut is in play.
- USD weakness is something we often observe when the Fed begins cutting rates, as they are perceived to be much more reactive and aggressive than their peers.
3. Just when I Thought I Was Out, They Pull Me Back In – Time for Another Tradeable Rally in the HSI?
- Sentiment, positioning and valuation provide a similar setup to January 2024
- External macro events leading to a better fundamental environment for China
- Foreign Investors’ disappointment in minimal fiscal stimulus provides an asymmetric opportunity
4. Portfolio Watch: Buy Bonds, Wear Diamonds (or Gold)?
- We’ve generally experienced a “softer” September than anticipated in terms of interest rates.
- The typical September issuance seasonality takes a back seat to the upcoming first Fed cut in this cycle.
- Nick Timiraos has hinted that some officials are seriously considering going big already next week, so we may be in for a ride.
5. The Week at a Glance – Is a 50bps Cut Good if Paired with Economic Weakness?
- Good morning from Copenhagen.
- It’s make-or-break this week with Powell taking the stage on Wednesday to reveal whether the rumors from Nick Timiraos about the Fed considering a 50bps cut were actually true after all.
- Markets have been desperately hoping for the 50bps cut, as evidenced by the price action where Fixed Income is being bought regardless of the economic news.
6. The Drill: The Party Seems Over In Freight Rates
- Take aways: Freight rates dropped for the first time since 2022, signaling a slowdown in factors driving rate increases.
- Trade tariffs may have minimal impact on the USD and inflation, with fiscal policies playing a larger role.
- A BRICS monetary union could create instability, while Trump’s policies may push the U.S. toward economic risks.
7. In China: THE SKY FALLING? In the US: TREES GROW TO THE SKY?
- China continues to be the outcast of the investment community even though its GDP is still projected to grow by 4.5% to 5% this year.
- China’s economy has substantial hurdles to overcome but is not in the dire situation portrayed by most commentators and not headed for “Japanification”.
- On the other hand, the US economy has steadied itself but is not in the “Goldilocks” period implied by the media.
8. US Rates: Schrodinger’s Cut
- The Fed is expected to cut rates by 50 basis points on Wednesday, with additional cuts expected in November and December
- There is uncertainty in the markets with regards to the size of the rate cut, with equal probabilities for a 25 or 50 basis point cut
- Near term uncertainty is high, leading to bullishness on volatility in the markets
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9. Fed: 50bps Cut and 175bps More to Follow
- The 50bps cut in the Fed Funds rate to 4.75-5.00% will likely be followed with two 25bps cuts in November and December.
- For 2025, we now look for 125bps rather than 150bps, given our soft landing view and also the 50bps being delivered at the September meeting.
- This would be a 3.00-3.25% Fed Funds rate and just above the revised long run estimate of 2.9%.
10. The Slow March to Fiscal Dominance
- The sovereign debt levels of major developed economies are well on the path to fiscal dominance, underpinned by the U.S. fiscal trajectory.
- Mario Draghi’s proposals for European competitiveness also highlighted a need for debt-financed investments that will also substantially raise EU debt to GDP ratios.
- Investors should expect a regime shift toward higher term premiums on bonds and from paper assets to hard assets in the coming years.
