Macro

In today’s briefing:

The Seven Reasons Why This Cycle Is Different
When Does The Pain End?

The Seven Reasons Why This Cycle Is Different

The main reason why stock prices haven’t skidded further in the face of earnings downgrades is because this cycle is different from others.
This has been an extraordinarily rapid rate hike cycle. Not only has the market discounted a recession, it may already be discounting Fed easing in 2023.
The acid test for market psychology will be Q2 earnings season. More immediately, the June Employment Report will serve as another guidepost for the trajectory of monetary policy.

When Does The Pain End?

The market is very worried about falling growth and an inflation rate that’s slow to decelerate.
Few have considered a scenario of a combination of small improvements in supply and demand destruction from higher rates is just enough to soft-land the economy.
The rise of recession hysteria has meant that risk/reward is becoming tilted to the upside for equity investors.

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Jul 02

Macro: CX Daily: How SoftBank Wrestled Back Control of Arm China and more

In today’s briefing:

CX Daily: How SoftBank Wrestled Back Control of Arm China
EA: Inflation Trend Stays for Summer

CX Daily: How SoftBank Wrestled Back Control of Arm China

In Depth: How SoftBank wrestled back control of Arm China
Analysis: China’s ‘zero-Covid’ policy is here to stay despite relaxing of quarantine rules
Charts of the Day: China’s trade deficit with Russia balloons

EA: Inflation Trend Stays for Summer

EA inflation continued its trend with another 0.6pp rise to 8.64% in June-22. The surprise pressures are moving back from the core components to energy and food.
Despite the upside headline surprise, Germany undershot our already low forecast, but Spain was beyond even our distant high view. Other countries skew to the upside.
We now forecast a more substantial increase in July to 8.9%, extending the trend further into the summer. The ECB has already committed to responding.

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Jul 01

Macro: USDJPY Disconnect and more

In today’s briefing:

USDJPY Disconnect
Un-Real Neutral Rate Views
Fed Policy Outlook: Markets Face a Summer Tug of War Between Inflation and Growth Fears
Cambodia and Myanmar Race to Become the Next Apparel Manufacturing Hub

USDJPY Disconnect

By Shyam Devani

The slip in US yields has lead the US_Japan yield spread to move lower thereby putting USDJPY out of line with it
The danger is that once month end is over, USDJPY may “catch up” by trending down in the short term
In addition we see price action developments on USDJPY itself that reflects weakness in the uptrend

Un-Real Neutral Rate Views

Neutral rates still appear to have risen beyond reversing the covid-related crash. That makes policy more stimulative, pushing further tightening.
Adding inflation to “real” neutral estimates exaggerates the problem. Rates need not rise above inflation to lower it, as it is effective expectations that matter.
Mistaken fundamental views of neutrality encourage markets to price a possibility of spuriously high rates, contributing to excessive pricing (a probability-weighted mean).

Fed Policy Outlook: Markets Face a Summer Tug of War Between Inflation and Growth Fears

By Said Desaque

Changes to the Fed’s forward guidance will depend on incoming economic data over the summer. The Fed will only change policy stance once a return to price stability is achieved.
30-Year fixed mortgage rates will probably breach 6% if the Fed retains a hawkish bias, particularly as quantitative tightening accelerates. The Fed will not be overly-concerned by cooler downstream activity.
Markets may be disappointed by the Fed’s reaction to economic weakness, but elevated inflation makes easing policy impossible. US equities have corrected, but are vulnerable to revised corporate profits expectations.

Cambodia and Myanmar Race to Become the Next Apparel Manufacturing Hub

From October 2021 to March 2022, China lost around 5% of its textile export orders, 7% of its furniture and 2% of its mechanical and electrical export orders from the United States to the 10-member Association of Southeast Asian Nations (ASEAN), especially Vietnam
A shift of factories away from China has been underway for years as China’s labor costs rise. Countries in Southeast Asia and South Asia such as Vietnam and India have become the top alternatives for their abundant and cheap labor forces
The relocation has been driven by lower costs and the trade war between China and the United States

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Jun 30

Macro: Taiwan Export Orders: A Soft Landing for Asian Trade and more

In today’s briefing:

Taiwan Export Orders: A Soft Landing for Asian Trade
CX Daily: Local and National Interests Clash in China’s New Green Power Market
CX Daily: Four Things to Know About Chinese Policy Banks’ Extra $120 Billion for Infrastructure

Taiwan Export Orders: A Soft Landing for Asian Trade

By Nigel Chiang

Taiwan export orders point to slower momentum in global capital spending.
This should flow through to Asian trade in the coming months, with the pace and extent of decline possibly cushioned by continued normalisation in Chinese industrial production.
That said, technology-related orders continue their relative outperformance. This is a boon for Asian economies with heavy tech orientations e.g., Taiwan, Korea, Singapore, and Malaysia.

CX Daily: Local and National Interests Clash in China’s New Green Power Market

In Depth: Local and national interests clash in China’s new green power market
China sees rebound in travel, leisure sectors as Covid-19 lockdowns end
China to ban over 1 million ‘fake’ foreign stock investors

CX Daily: Four Things to Know About Chinese Policy Banks’ Extra $120 Billion for Infrastructure

Four things to know about Chinese policy banks’ extra $120 billion for infrastructure
Cambodia and Myanmar race to become the next apparel manufacturing hub
Charts of the Day: China looms large in Laos debt crisis

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Jun 29

Macro: The Hump and Kink in Brazil’s Yield Curve to Become More Pronounced and more

In today’s briefing:

The Hump and Kink in Brazil’s Yield Curve to Become More Pronounced

The Hump and Kink in Brazil’s Yield Curve to Become More Pronounced

By Gautam Jain, PhD, CFA

With the Brazilian central bank approaching the end of its aggressive monetary tightening cycle, the rate curve has taken a unique shape that features a hump and a kink.
The hump should get more pronounced because the rate-cutting cycle should be deeper than currently priced because real rates are quite elevated and growth risks are high.
The kink should also get more prominent as the curve should steepen further out due to fiscal risks irrespective of who wins the upcoming presidential election.

Before it’s here, it’s on Smartkarma

Jun 28

Macro: Asian Monetary Policy: Upside Risk to Rates and more

In today’s briefing:

Asian Monetary Policy: Upside Risk to Rates
Competitiveness Rankings Are Mixed But SE Asia Secures More FDI
The Week That Was in [email protected] – Grab’s Maps, Kino’s Beverages & Beauty, and ThaiBev’s BeerCo
CX Daily: How Bad Is China’s Manufacturing Exodus?

Asian Monetary Policy: Upside Risk to Rates

By Nicholas Chia

Policy rates in Asia must rise in 2H22 as inflation picks up with a lag.
Bank Indonesia stood out for keeping rates unchanged even as the BSP raised rates by 25bps.
The BoK has raised its inflation forecasts. Minutes from the RBI June MPC meeting point to more hikes in 2H22.

Competitiveness Rankings Are Mixed But SE Asia Secures More FDI

By Manu Bhaskaran

There is widening disparity in competitiveness rankings among Asian economies according to the latest IMD report.
Weakening economic fundamentals explain part of the laggard performance. Government and business efficiency were mixed across the region but infrastructure was a bright spot.
Despite this, recent years have seen Southeast Asia enjoy a steady increase in its share of global FDI flows, where it now out-performs China again.

The Week That Was in [email protected] – Grab’s Maps, Kino’s Beverages & Beauty, and ThaiBev’s BeerCo

By Angus Mackintosh

The Week That Was in [email protected] is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia.
The past week saw insights in Grab (GRAB US), Kino Indonesia (KINO IJ), and XL Axiata (EXCL IJ), as well as deal-related commentary on Thai Beverage and True Corp.
There were also some Index inclusion insights for Indonesia and the Philippines, as well as insights on Comfortdelgro Corp (CD SP) and My E.G. Services (MYEG MK) in Malaysia.

CX Daily: How Bad Is China’s Manufacturing Exodus?

Cover Story: How bad is China’s manufacturing exodus?
Goldman’s China wealth management venture gets OK to launch business
China regulator issues draft rules for private pension investment products

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Jun 27

Macro: Taiwan Moves to Top Underweight and more

In today’s briefing:

Taiwan Moves to Top Underweight, Tech Overweight Risk
Q2 Earnings Season = Market Abyss?

Taiwan Moves to Top Underweight, Tech Overweight Risk

By Steven Holden

A recent shift in momentum has pushed Taiwan to the largest country level underweight in the Asia Ex-Japan region
Taiwan Technology stocks have driven allocations lower, in addition to Consumer Discretionary and Staples, Health Care and Financials.
Taiwan Tech remains the key risk. Sentiment is starting to waver when funds are close to maximum exposure. Underperformance here will be costly on both an absolute a relative basis

Q2 Earnings Season = Market Abyss?

Investors may face the risk of earnings downgrades as we approach Q2 earnings season, but much of the fundamental weakness may already have been discounted.
From a chartist’s perspective, the intermediate-term bull case is still intact.
Both sentiment and technical conditions are still supportive of high stock prices.

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Jun 26

Macro: Bullish Omens From The Factor Gods and more

In today’s briefing:

Bullish Omens From The Factor Gods

Bullish Omens From The Factor Gods

A U.S. recession has become the consensus view among strategists, but the market is not reacting to the negative news.
A review of sector and factor returns shows a constructive return of risk appetite.
While it’s impossible to know if another shock could spark another risk-off episode, the long-term risk/return outlook for equities is becoming more attractive at these levels.

Before it’s here, it’s on Smartkarma

Jun 25

Macro: Currency Strength: Becoming Fashionable in the West and more

In today’s briefing:

Currency Strength: Becoming Fashionable in the West, Less So in Japan and China
UK: Retail Resilience Revealed as Mirage

Currency Strength: Becoming Fashionable in the West, Less So in Japan and China

By Said Desaque

The Fed raised the ante in fighting inflation. Financial markets remain wary of downside risks, while even the Swiss National Bank raised its policy rate to counter rising inflationary risks.
Financial fragmentation risks prevent the European Central Bank from engaging in Fed-style quantitative tightening, potentially prolonging higher inflation, while the Bank of England has been accused of being too timid.
Pressure on China and Japan to tighten policy has been mitigated by low inflation compared to Western economies. Currency movements depend on central banks’ willingness to replicate Fed policy.

UK: Retail Resilience Revealed as Mirage

April’s surprise surge in retail sales was revised away, and yet May contracted for the ninth time in the past year. Hawkish hopes of retail resilience were built on sand.
High inflation is squeezing real incomes and consumption volumes as a natural progression of the pressures burning themselves out without hyperactive tightening.
Overdoing rate hikes risks recession, but the housing market canary seems alive and well. Less depressed supply is finding demand, consistent with house prices not falling.

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Jun 24

Macro: China: The Worst Is over … Maybe and more

In today’s briefing:

China: The Worst Is over … Maybe, but Downside Pressures Remain
CX Daily: Will the Bear Market End the Blockchain Funding Frenzy?
EA Activity Catches Global Cold
CX Daily: China’s Relaxation of Penalties for Wildlife Breeding Raises Concerns
Time To Buy Bonds?

China: The Worst Is over … Maybe, but Downside Pressures Remain

By Nigel Chiang

The economy is past the worst of the Omicron wave. In May: real industrial production returned to growth, contractions in retail sales, services output narrowed, and infra investment edged up.
But underlying demand in the economy remains parlous. Consumer demand is fragile and aggregate fixed asset investment continues to decline, reflecting damaged consumer and business confidence.
The steady drumbeat of expansionary fiscal and monetary policies is unlikely to significantly boost growth when it fails to resolve key constraints on the behaviour of economic agents.

CX Daily: Will the Bear Market End the Blockchain Funding Frenzy?

In Depth: Will the bear market end the blockchain funding frenzy?
Analysis: New Oriental’s livestreaming a hit, but hurdles remain to long-term success
Local officials punished for abusing China’s health code system

EA Activity Catches Global Cold

The Euro area’s relative resilience lasted only a month as its services PMI crashed in June, while the US extended its trend decline.
Consumer confidence remains far gloomier than businesses amid squeezed real incomes. Unemployment may be turning higher, but the vacancy backlog should prevent a spike.
Monetary policymakers are fixated on the risk of high coincident inflation and will keep hiking into weaker activity. They overdid stimulus and now risk overdoing tightening.

CX Daily: China’s Relaxation of Penalties for Wildlife Breeding Raises Concerns

In Depth: China’s relaxation of penalties for wildlife breeding raises concerns
State firms urged to recruit more college graduates amid bleak job market
Xi Jinping slams sanctions as ‘double-edged sword’ hurting world economy

Time To Buy Bonds?

By The Macro Compass

In yesterday’s Senate Banking Committee hearing, Powell brought his hawkish stance to new highs: a strong economy underpinned by healthy levels of consumers’ savings, 100 bps hikes not off the table, and to top it off a good likelihood the Fed will actively sell (!) mortgage-backed securities from their balance sheet.
Well, there is a big news: for the first time in 8 months, the bond market isn’t compounding Powell’s hawkish rhetoric.
Instead, fixed income investors have become loud enough we can almost hear them ask one big question: a recession is becoming increasingly likely, so what are you going to do about it J-Pow?

Before it’s here, it’s on Smartkarma