Macro

• Gold price is a reflection of underlying global stress in currency markets
• Gold price is a reflection of actual not reported real rates of interest
• Gold price is a reflection of global increased demand from central banks and consumers

• Goldman also highlights that cyclical risks from the business cycle are fading.
• An upswing in the global industrial cycle typically leads to broad metals upside over the next 12 months the investment bank added.
• According to data from PIERS, a trade flow analytics tool within S&P Global, Baltimore port held just 4% share of the total trade volumes on the East Coast compared with other major regional ports like New York, with a nearly 38% share according to S&P Global.

• A monthly review at 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

• Happy Easter and welcome to our flagship editorial! The tide is turning on USD liquidity and the four most recent bills auctions have seen net negative issuance, which is a harbinger for the trend into April, which is typically strongly net issuance negative due to tax seasonality (see chart 1).
• Only during the first lockdown in 2020, did the net amount of outstanding bills increase through this period, which makes for a solid hit ratio in predicting (much) weaker USD liquidity in Q2 this year.
• We wrote on New Years eve of 2023 that “USD liquidity is likely going to increase massively in Q1 due to a series of technicalities surrounding the BTFP, ON RRP and TGA facilities, which makes us set for a material rally (or a blow off top) in Q1.”, which I guess was as precise as it could be.

• The past week saw insights on Ultrajaya Milk (ULTJ IJ), Mitra Adiperkasa (MAPI IJ), PT Nippon Indosari Corpindo (ROTI IJ), Bukalapak.com (BUKA IJ), and Semen Indonesia (SMGR IJ). 
• There were also insights on Bank Mandiri (BMRI IJ), Siloam International Hospitals (SILO IJ), Kawasan Industri Jababeka (KIJA IJ), Multi Bintang Indonesia, and Far East Hospitality Trust (FEHT SP)
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

• Further weakness in the JPY poses a risk to RMB stability
• If major stimulus is unleashed in China, it is likely the RMB will weaken
• Continued incremental easing will benefit the economy in the long term but may disapoint equity investors looking for a quick fix despite Chinese data improving

• The S&P 500 ended the quarter exhibiting a series of “good overbought” conditions which are signals of strong momentum. Can the bullish momentum continue?
• Equity price momentum in Q2 is dependent on continued rising EPS estimates, a tame bond market response to higher Treasury coupon issuance, and a possible liquidity squeeze. 
• The market is vulnerable to a setback. A lot has to go right.

• Fed Chairman Powell’s assessment that monetary conditions are restrictive is questionable due to issues surrounding the neutral federal funds rate. Secondary signals of the Fed’s policy stance are worth following.
• Commodity and risky asset price trends, exchange rate movements and yield curve changes are viewed as secondary indicators of the Fed’s policy stance. 
• Policy is not tight based on commodity and risky asset prices. Exchange rate movements are inconclusive. Yield curve inversion is associated with tight money, but this condition no longer holds. 

• The incoming inflation data has received more attention and scrutiny as G3 (Fed, BoJ and ECB) policymakers up the ante  
• Ideally, the emphasis should be on “trend” or “underlying” inflation, not the monthly data wiggles  
• My estimate of the G3 underlying inflation rate is currently hovering around 1.5%-points above the pre-pandemic average     

• We believe the market hasn’t discounted Powell’s political need for unanimity for the first decision to cut rates in an election year. 
• Current consensus expectations call for the first quarter-point rate cut at the June FOMC meeting, which is probably a stretch for FOMC members.
• It will be difficult to form a consensus for a June cut in the absence of either lower inflation data or weakness in the labour market.

• China’s Local Government Financing Vehicles remain a major obstacle to faster GDP growth and confirm that the country is quickly reaching its debt limits.
• A lack of liquidity has kept Chinese stocks from rallying even though central authorities have deployed a massive amount of targeted stimulus measures
• My new Bitcoin price projection is between USD 224K and USD 288K, two to seven years from now. 

• The Bank of Japan is caught between a rock and a hard place
• The JPY’s only hope is a US recession and lower US interest rates
• Japan’s inflation problem to resume as imported inflation bites into purchasing power once again

• Russia has pledged to cut oil output to 9 million barrels per day by June, potentially causing Brent oil prices to rise to $90 in April and above $100 in the future
• The US has the option to release up to 60 million barrels of crude oil from the Strategic Petroleum Reserve to mitigate the impact of high oil prices
• SPR inventories currently cover 188 days of net import demand for crude oil, suggesting that the reserve may not need to be as large as it once was and could be used for funding infrastructure and federal spending priorities

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• Javier discusses high olive oil and chocolate prices due to peak crop arrival and increased demand
• Tracy shares her favorite chocolates, including Hershey’s and Milka, and discusses expensive Swiss chocolates
• The surge in cocoa prices is attributed to increased global chocolate consumption and crop failures in West Africa, leading to comparisons with Nvidia’s performance.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• Stagnant growth and price deflation have defined the term Japanization, and, due to rapidly rising debt levels in conjunction with aging populations, long been the striking worry for many economists.
• Post-Covid inflation has shifted the narrative however, and fears of it becoming structural has taken over as the new doom-scenario globally.
• For Japan though, inflation is not so much a fear as a hope, and we see signs that Japan is in fact achieving sustained inflation.

• IPOs / In Depth: China IPO slowdown pits startups against investors
• Pakistan /: Beijing pushes Pakistan to hunt down ‘terrorists’ after bombing kills five Chinese
• TikTok /: Rivals vie to fill market void as U.S. business ban looms over TikTok

• As of the week ending 15/March, crude inventories fell more than expected (2 million barrels vs 900k barrels expected) led by higher exports and refinery activity.
• Refineries operations have picked up faster than anticipated, with the utilization rate jumping from 80% in early February to nearly 88% by 15/Mar.
• OPEC members like Iraq, UAE, Gabon, and Kuwait, have exceeded their production quotas, raising concerns about adherence.

• Nominal disposable income continues to surge amid widespread enormous pay rises. Unmatched by productivity, the nominal boost is eroded by inflation to real stagnation.
• The regime of high nominal increases nonetheless inflates away the debt stock, helping sustain affordability despite forceful interest rate increases.
• An inflationary reduction in debt burdens is not real wealth. The UK’s net worth is crashing to record negatives as corporates and households suffer post-pandemic.

• Loads of stuff are going on in Global Macro, with global equities on the rise yet again, the JPY struggling a bit after unsuccessful attempts from policymakers, including the verbal FX intervention from MoF and BoJ today, and the Spanish HICP numbers, which we hit right on the mark! The benign base effects and dovish outlook has potentially paved the way for a cut in June, but what should you look out for in the meantime?
• We give you 5 topics from our watchlist.
• This week we are watching out for the following 5 topics within global macro.

• TikTok /: ByteDance holds firm against selling TikTok despite U.S. ban threat
• Corruption /: Head of Chinese Football Association sentenced to life in prison
• CMB /: Exclusive: China Merchants Bank punishes two private banking executives, sources say

• Powell’s dovish tone at the press conference led to initial market reaction, but subsequent dollar rally due to revised growth and inflation forecasts in the SCP release
• Market leaning towards higher median dot in SCP, but overall outlook remains for shallower cutting cycle by Fed
• Yen vulnerability due to negative real yields despite BOJ rate hikes, yen weakening may impact other Asian currencies and markets

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• Cautious but promising signs emerge from China’s consumer demand landscape.
• According to China’s statistics bureau, consumer prices saw a 0.7% increase year-on-year in February, marking the first rise since August.
• The extended Lunar New Year holiday period, spanning 8 days instead of the usual 7, nearly matched pre-pandemic domestic spending levels.

• Last week we took healthy profits in some of our global reflation bets.
• We got out of silver and copper, but remain in the broad materials ETF.
• Data out of China is a bit unclear with some prints being bullish and others bearish and then ambiguous data points such as the BOOMING copper stock. 

• Welcome to this week’s Great Game.
• We’re going to try out a slightly new format this time.
• Instead of unfolding one major topic, we will cover a couple stories more briefly, so you are covered on the most important stories in geopolitics right now.

• Hello everyone, and welcome back to our weekly positioning watch! The weather in Copenhagen is sunny, and so is the mood in markets, with aggregate equity fund flows in the US reaching 2-year highs this week.
• Markets are certainly back into full risk-on mode, with the Fed promising rate cuts amidst reflationary trends in the US, which is a trend that is slowly but surely spreading to the rest of the world.
• The cyclical rebound is not truly there yet in Europe, which means that European indices are starting to get flagged as overpriced in our quant-models.

• Price expectations in services ex. real estate continued its downtrend and we now find ourselves at 2018-19 levels in what is pointing towards lower core inflation readings in the second half of the year. 

• Meanwhile price expectations in manufacturing climbed and looks like they have bottomed out at levels consistent with the price mandate of the ECB.

• The drop in input prices, the global reflation story and expectations of ECB rate cuts seem to have had an effect and the question now becomes which of the two manufacturing and service price expectations will impact inflation come Summer and Fall the most.   

• The preliminary European inflation numbers will be released during this week, while Germany has decided to postpone the release until after Easter.
• We are leaning dovish relative to consensus, but due to VAT increases in Spanish electricity markets, it will not look like an outright home-run for disinflationistas in March either unless markets decide to focus on the TAX-constant HICP rates.
• Spanish HICP (Wednesday) -> Consensus 1.4%, Steno Research 1.26% 

• The abrupt resignation of President Thuong is a sign that a major intra-party struggle within the ruling Communist Party is underway.
• Claims that Thuong resigned for failure to tackle corruption should be taken with more than a pinch of salt, given the politicization of the anti-corruption campaign by the party secretary-general. 
• Pro-Growth policies will be maintained regardless of the political turnover, but prolonged turmoil will risk the country losing its moment in the sun. 

• TikTok /Cover Story: The countdown begins: TikTok navigates uncertain future amid U.S. ban bill
• Forum /: Premier reiterates commitment to making China a better place to do business
• Ma Ying-jeou /: Former Taiwan leader to make first visit to Beijing

• The catalyst: Japan’s Vice Finance Minister. ‘The current weakening of the yen is not in line with fundamentals and is clearly driven by speculation.’
• As the Bank of Japan will not or only marginally hike its policy rate from here, the interest rate differential can only go one way. 
• China to the rescue? China needs a stable currency, at least not a weaker one. 

• For the first time since 2016, the Bank of Japan has decided to raise interest rates, becoming the last country in the world to end its loose monetary policy stance, and signaling an end to the country’s deflationary cycle that has dominated policy decisions for the better part of the last decade. The impact of the BoJ’s policy move this week has led to volatility in global markets.
• The Japanese Yen (JPY) has also depreciated against major currencies since the central bank raised its policy rate, as the policy move is suggestive of a gradual transition from accommodative policy by the central bank, rather than a hard exit into a tighter monetary environment.
• Prior to the rate hike, the JPY has also seen a relatively softer appreciation against many developed currencies, especially the USD, as global markets priced in fewer than expected rate cuts by the Fed over the year making the interest rate differential still attractive.

• The IEA has recently adjusted its 2024 supply/demand forecast to align more closely with Opec’s predictions.
• This adjustment is based on optimistic estimates for the Chinese and US economies.
• However, these estimates are contingent on the continued discipline of Opec+ members, which is not guaranteed.

• Fund Manager Positioning In March fund managers added to their energy position but reduced overall commodities like grains, softs and metals on a MoM basis — the latest BofA survey shows.
• Investors have been underweight commodities now for the past 4 months (longest underweight streak since Aug’19) Compared to the past 20-year z-score, fund managers remain heavily underweight in commodities and even more in energy.
• In March fund managers added to their energy position but reduced overall commodities like grains, softs and metals on a MoM basis — the latest BofA survey shows.

• The ongoing Fed pause puts emphasis on the interactions between financial conditions and headline growth  
• My proprietary measure of financial market conditions seems to be broadly consistent with the Fed Board’s indicator of financial conditions   
• Chair Powell alluded to the prospect that financial conditions are currently “weighing on economic activity”    

• In straightforward terms, we are still in a risk-on environment with many analysts and market observers now thinking that US equities – a key momentum driver for all risk assets – are heading towards 6000 at some stage.
• The chart below from analysts at French investment bank SocGen is a useful tool for quickly mapping global, cross-asset class sentiment.
• It measures “market sentiment by looking at the short-term dynamics of six risk-related variables across different asset classes. 

• The past week saw insights on GoTo Gojek Tokopedia (GOTO IJ), Cisarua Mountain Dairy (CMRY IJ), Far East Hospitality Trust (FEHT SP), and Delta Dunia Makmur (DOID IJ). 
• There was also a macro insight on Indonesia, with commentary on Ace Hardware Indonesia (ACES IJ), Astra International (ASII IJ), and DCI Indonesia Tbk PT (DCII IJ).
• The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.

• The Fed’s forward guidance remains unchanged from December. Three potential policy rate reductions in 2024. Economic growth expectations were revised upward, providing a bullish backdrop for higher corporate profit expectations. 
• The early tapering of quantitative tightening (QT) will reduce the supply of notes and bonds to private investors, thereby boosting the attraction of risky assets and further easing financial conditions. 
• Recent Bank of Japan policy changes need not be disastrous for US Treasuries, particularly as the Fed’s buying capacity will soon be enhanced by the arrival of QT tapering. 

• Cyclically sensitive copper is rallying, but the copper/gold ratio has been trading sideways. Are the markets signaling a cyclical rebound, or not?
• We find that the market is signaling the prospect of a cyclical recovery through its price action.
• Stock prices have run ahead by expanding the forward P/E ratio. The upcoming earnings season will be an acid test of the cyclical recovery narrative.

• Record Allocations Mask Caution: Record investments in India contrast with a rising underweight, as selected managers pare back exposure.
• Valuations Prompt Strategic Pause: Record underweights among Value funds reflect valuation concerns, with growth funds also seeing overweights decline.
• India vs. China: Allocation Shifts: The stark contrast in allocation trends underscores a strategic pivot within EM, highlighting record divergences between the two.

• It is always lovely to get back on the road and meet a load of fund managers, and it is nice to see that a few reflation skepticals are still found out there.
• I went to London to meet with a bunch of the big funds in town, hot on the heels of Powell’s reflationary Fed meeting on Wednesday.
• It almost annoyed me how “vanilla” my analysis had to be on the back of it, as the Fed is moving the needle lower and lower and lower on the implied Real Fed Funds rate every meeting currently, no matter the underlying developments in inflation and/or growth.

• Our early conviction in pro-cyclical trends keeps getting confirmed.
• Initially, our nowcast indicator for China signaled a positive outlook, and most notably this week, the Li Keqiang Index has experienced its strongest monthly surge since 1999.
• Consequently, Asian currencies and the AUD still appear undervalued when compared to the early yet unfolding expansion outside the US.

• Audit /: U.S. watchdog fines three KPMG China partners for audit violations
• Law enforcement /: As profit-driven, cross-regional law enforcement grows, scholars suggest fines be turned over to central government
• China-Ukraine /: Ukraine’s top diplomat says China has ‘big potential’ role to help end war with Russia

• Thailand’s economic outlook appears bleak, with downward revisions in GDP growth forecasts signaling ongoing challenges in investment and export sectors, compounded by political discontent.
• Vietnam has demonstrated resilience, showcasing a notable recovery in trade and tourism despite corruption scandals, underlining its potential as an emerging market.
• Hong Kong’s adoption of the national security law has drawn attention, yet its impact on the business landscape may be less significant than anticipated, emphasizing the importance of nuanced perspectives amidst regional developments.

• Switzerland sparks the start of a global wave of monetary policy easing. And it’s only March!
• Why are central banks already contemplating rate cuts when inflation levels are significantly above target, and the global economy is at full employment?
• I explain why investors should pay more attention to the MOVE Index and less to the VIX Index. It comes down to the answer to the question above.

• The bad news is that Hong Kong will not have a V-Shaped recovery which will keep market sentiment subdued
• The good news is that Hong Kong will not have a V-Shaped recovery which will contribute to a reduction in overall market volatility
• After an epic bear market, Hong Kong will enter a secular bull market this year

• China’s government is targeting an economic expansion of approximately 5% again this year.
• A challenging objective considering the myriad of challenges facing the world’s second-largest economy.
• These challenges include weak consumer spending, a real estate sector in turmoil, efforts by the US to limit its technological advancements, unprecedented youth unemployment rates, and significant debt levels among local governments.

• The exceptional Covid-induced monetary and fiscal stimulus is being wound down, but not fast enough. Fiscal deficits averaged 10% of GDP for 4 years, far larger and longer than 2009-11.  
• QT was abandoned in Jul’23, and M2 has contracted at a modest pace. Upside growth surprises are thus likely to continue, and will require Q2CY24 M2 to decline more sharply. 
• Once core CPE inflation abates below 2.5%YoY (likely Jun’24) the first 25bp rate cut will occur at the Jul’24 FOMC, then similar cuts in Sep’24 and Dec’24. Benign for markets. 

• Financial markets reacted partly to Chair Powell’s presser and the updated projections  
• The new median dot, while still anticipating three rate cuts in 2024, shows a somewhat shallower Fed easing path in 2025 and 2026
• The current market implied odds, though fluid and unsettled, repriced aggressively following the March meeting

• In 2023, the United States economy registered robust growth, with a Gross Domestic Product increase of 3.3% in the fourth quarter, resulting in an overall annual growth rate of 3.1%.
• This expansion was mainly driven by a 2.8% increase in consumer spending, despite the prevailing challenges caused by elevated interest rates, persistent inflation, and looming recession fears.
• The positive momentum entering the current year is bolstered by carry-over effects from the preceding year, suggesting a continuation of economic expansion.

• Debt / In Depth: Local governments struggle to tackle mountain of hidden debt
• Guizhou / China graft busters launch probes into regional officials linked to debt dispute 
• Loans /China’s new loans to nonbanking institutions hit nine-year high

• The Norges Bank decided to keep the policy rate at 4.5% to balance inflation control and economic growth amid slowing but above-target inflation and modest economic activity.
• Inflation is now expected to decelerate somewhat faster than anticipated, economic growth is more subdued in the first half of 2024 before improving, while unemployment rises slightly less than previously expected.
• The Committee is ready to adjust the policy rate in response to evolving economic and inflationary trends. It aims to steer inflation towards the 2% target by the end of 2027 while navigating prevailing uncertainties.

• The BoE held the Bank rate at 5.25%, with only one dissent for a cut as the two hawks stopped pushing for a hike that was not going to happen, given broad resistance.
• An extended period of restrictive policy is still envisaged, with persistent inflationary pressures rather than the spot CPI rate guiding when rate cuts begin.
• Wage and service inflation is not seen returning to target sufficiently rapidly yet, and we expect that problem to persist, leaving our call for the first cut back in Feb-25.

• The SNB’s unexpected rate cut to 1.5% reflects a strategic shift, influenced by sustained below-target inflation and the effectiveness of previous monetary tightening, underscoring the bank’s commitment to price stability and economic support.
• Future policy decisions will hinge on inflation dynamics, global economic conditions, and domestic economic health. The SNB is poised to adjust its stance in response to evolving economic indicators and inflation forecasts.
• The SNB’s approach balances supporting economic growth and ensuring price stability, indicating a readiness to adapt policy measures in the face of heightened economic uncertainties and shifting global dynamics.

• The 2024 projections for Greece show a slight rise in its GDP growth, as Real GDP would reach €199.205 billion, reflecting a 2.15% increase compared to the previous year’s projection of €195.019 billion.
• In overall looking at the past and current year, the OECD, IMF, and EU have forecasted average growth rates of 2.29% for 2023 and 2.15% for 2024.
• The projections for Public Debt indicating a decline from €367,842 mn 2023 to €363,454 mn in 2024.