Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

<ul>
<li>Core PCE inflation was 2.7%YoY in Aug'24, too high to allow another 50bp cut in Nov'24, despite the fourth consecutive MoM (annualized) gain in core PCE of less than 2%.</li>
<li>The Jul'23-Feb'24 acceleration in base money (10.2%YoY in Feb'24) contributed crucially to the Jan-Apr'24 spike in core PCE. Slower base money, and steadily accelerating M2, made things better since May'24. </li>
<li>Mild, steady acceleration in M2 (i.e., small rate cuts every 6 weeks) should allow core inflation to keep receding. Faster rate cuts are possible once inflation is genuinely at 2%YoY. </li>
</ul>


Core PCE inflation was 2.7%YoY in Aug'24, too high to allow another 50bp cut in Nov'24, despite the fourth consecutive MoM (annualized) gain in core PCE of less than 2%.
The Jul'23-Feb'24 acceleration in base money (10.2%YoY in Feb'24) contributed crucially to the Jan-Apr'24 spike in core PCE. Slower base money, and steadily accelerating M2, made things better since May'24. 
Mild, steady acceleration in M2 (i.e., small rate cuts every 6 weeks) should allow core inflation to keep receding. Faster rate cuts are possible once inflation is genuinely at 2%YoY. 


US: Benign Core PCE Provides Smooth Passage to Small, Steady Rate Cuts

<ul>
<li>The FOMC cut its Fed Funds rate by 50bp, acknowledging that enough progress has occurred toward reaching the 2% target for core PCE inflation, while the labor market has cooled.</li>
<li>We were right on inflation and direction of rates since 2021 (so have differed with the Fed). Now, we agree that two more 25bp rate cuts will occur in 2024. </li>
<li>Core PCE inflation will be slow to moderate further, so allowing only another 50bp of cuts by end-2024. The FF rate should end 2025 at 3.5%, as RGDP grows 2.5%. </li>
</ul>


The FOMC cut its Fed Funds rate by 50bp, acknowledging that enough progress has occurred toward reaching the 2% target for core PCE inflation, while the labor market has cooled.
We were right on inflation and direction of rates since 2021 (so have differed with the Fed). Now, we agree that two more 25bp rate cuts will occur in 2024. 
Core PCE inflation will be slow to moderate further, so allowing only another 50bp of cuts by end-2024. The FF rate should end 2025 at 3.5%, as RGDP grows 2.5%. 


US: FOMC's 50bp Cut Should Avert Recession But Keep Inflation Elevated

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Our long-term outlook remains neutral on the S&amp;P 500 (SPX) as of our 8/6/24 Compass, after being bullish since early-November 2023.</li>
<li>Since late-July discussed expectations for a 1-to 4-month pullback/consolidation on SPX and QQQ; now it's likely to last closer to four months, and potentially 4- to 6-months from 7/17/24.</li>
<li>At that point the market will decide which way this consolidation resolves. Throughout this pullback we have said that this consolidation could end up being a significant topping pattern.</li>
</ul>


Our long-term outlook remains neutral on the S&amp;P 500 (SPX) as of our 8/6/24 Compass, after being bullish since early-November 2023.
Since late-July discussed expectations for a 1-to 4-month pullback/consolidation on SPX and QQQ; now it's likely to last closer to four months, and potentially 4- to 6-months from 7/17/24.
At that point the market will decide which way this consolidation resolves. Throughout this pullback we have said that this consolidation could end up being a significant topping pattern.


Upgrading Staples, Real Estate, and Health Care to Overweight; List of Concerns Continues to Grow

<ul>
<li>Jul'24 was the weakest month for NFPs, and Jun-Aug'24 the weakest 3-month period, since Dec'20. Sahm Rule predicts recession: unemployment rate (averaging 4.2% Jun-Aug'24) is 0.57pp above 12m low (Nov'23-Jan'24).</li>
<li>ISM manufacturing PMI has been below 50 for 11 of past 12 months, with new orders slumping anew in the past 5 months -- suggesting a sharp cyclical downturn ahead.</li>
<li>Core PCE inflation is 2.6%YoY (and just below 2%MoM annualized) in May-Jul'24. That's enough to ensure a 25bp cut next week. Recession risk necessitates 50bp cut, but it won't happen. </li>
</ul>


Jul'24 was the weakest month for NFPs, and Jun-Aug'24 the weakest 3-month period, since Dec'20. Sahm Rule predicts recession: unemployment rate (averaging 4.2% Jun-Aug'24) is 0.57pp above 12m low (Nov'23-Jan'24).
ISM manufacturing PMI has been below 50 for 11 of past 12 months, with new orders slumping anew in the past 5 months -- suggesting a sharp cyclical downturn ahead.
Core PCE inflation is 2.6%YoY (and just below 2%MoM annualized) in May-Jul'24. That's enough to ensure a 25bp cut next week. Recession risk necessitates 50bp cut, but it won't happen. 


US: Recession Risk up Sharply as NFP and ISM Manufacturing Signal Downturn Ahead

HK/China Equity Long-Short

Osbert Tang, CFA

Quantitative Analysis

<ul>
<li>The HSI has declined 3% MTD, but based on history, there is more downside risk. Over the last 10 years, the Index has only returned positively in two September.</li>
<li>October is also not good, and the Index declined an average of 1.9% in the month since 2019. However, November and December are normally the best-performing ones. </li>
<li>Prudent investors should stay conservative until October. By the end of next month, there are opportunities to increase position to take hold of the potential year-end rally. </li>
</ul>


The HSI has declined 3% MTD, but based on history, there is more downside risk. Over the last 10 years, the Index has only returned positively in two September.
October is also not good, and the Index declined an average of 1.9% in the month since 2019. However, November and December are normally the best-performing ones. 
Prudent investors should stay conservative until October. By the end of next month, there are opportunities to increase position to take hold of the potential year-end rally. 


China & HK Strategy: Sell in September and Go Away, Really?

United States

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Dow Jones Industrial Average (INDU INDEX)

Dow Jones Industrial Average (INDU INDEX)

US: Benign Core PCE Provides Smooth Passage to Small, Steady Rate Cuts

Core PCE inflation at 2.7%YoY in Aug'24 is too high for another 50bp cut. A Goldilocks economy needs Goldilocks monetary easing: not too hot, not...

Prasenjit K. Basu

US: FOMC's 50bp Cut Should Avert Recession But Keep Inflation Elevated

FOMC cuts rates by 50bp, predicts two more 25bp cuts in 2024 due to progress on inflation but cooling labor market. We expect FF rate to end 2025...

Prasenjit K. Basu

Upgrading Staples, Real Estate, and Health Care to Overweight; List of Concerns Continues to Grow

Upgrading Staples $XLP, Real Estate $XLRE, Health Care $XLV to Overweight; List of Concerns Continues to Grow; Dow $DJI, Equal-Weight S&P 500 $RSP,...

Vermilion Research

US: Recession Risk up Sharply as NFP and ISM Manufacturing Signal Downturn Ahead

Unemployment rate (avg 4.2% in Jun-Jul'24) is 0.57% higher than Nov'23-Jan'24, indicating recession ahead; so does deterioration in ISM mfg new...

Prasenjit K. Basu

China & HK Strategy: Sell in September and Go Away, Really?

It pays to be cautious for HSI investors in Sep and Oct, with opportunities for a year-end rally in Nov and Dec. Despite the 3% drop in MTD, it is...

Osbert Tang, CFA

US: Benign Core PCE Provides Smooth Passage to Small, Steady Rate Cuts

​Core PCE inflation at 2.7%YoY in Aug'24 is too high for another 50bp cut. A Goldilocks economy needs Goldilocks monetary easing: not too hot, not...

Prasenjit K. Basu

US: FOMC's 50bp Cut Should Avert Recession But Keep Inflation Elevated

​FOMC cuts rates by 50bp, predicts two more 25bp cuts in 2024 due to progress on inflation but cooling labor market. We expect FF rate to end 2025...

Prasenjit K. Basu

Upgrading Staples, Real Estate, and Health Care to Overweight; List of Concerns Continues to Grow

Upgrading Staples $XLP, Real Estate $XLRE, Health Care $XLV to Overweight; List of Concerns Continues to Grow; Dow $DJI, Equal-Weight S&P 500 $RSP,...

Vermilion Research

US: Recession Risk up Sharply as NFP and ISM Manufacturing Signal Downturn Ahead

Unemployment rate (avg 4.2% in Jun-Jul'24) is 0.57% higher than Nov'23-Jan'24, indicating recession ahead; so does deterioration in ISM mfg new...

Prasenjit K. Basu

China & HK Strategy: Sell in September and Go Away, Really?

​It pays to be cautious for HSI investors in Sep and Oct, with opportunities for a year-end rally in Nov and Dec. Despite the 3% drop in MTD, it is...

Osbert Tang, CFA

Core PCE inflation at 2.7%YoY in Aug'24 is too high for another 50bp cut. A Goldilocks economy needs Goldilocks monetary easing: not too hot, not...

FOMC cuts rates by 50bp, predicts two more 25bp cuts in 2024 due to progress on inflation but cooling labor market. We expect FF rate to end 2025...

It pays to be cautious for HSI investors in Sep and Oct, with opportunities for a year-end rally in Nov and Dec. Despite the 3% drop in MTD, it is...