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. Investment Strategy Under Upcoming US Rate Cut
- In face of the recent speeches by several FOMC members, we are changing or non-consensus view of no rate cut this year to one rate cut in September
- Under rate cuts, several asset classes such as real estate stocks, gold, and other safe haven currencies will rise.
- However, we still believe there will not be continuous series of rate cuts in the remainder of this year such that various asset classes listed above will only rise modestly.
2. Launch of Korea Value Up Index in September
- Korea Value-Up index is finally expected to be launched in September 2024 which is likely to include at least 100 companies in KOSPI and KOSDAQ.
- There are expectations that Korea’s Value Up index could resemble JPX Prime 150 index which is a Japanese version of the value up index launched last year.
- We provide 70 stocks in Korea that could be included in the Korea Value Up index. These 70 stocks could outperform the market in the next several months.
3. The Hang Seng Index Is at a Critical Juncture
- In the short-term, meaningful policy reforms needed out of the Third Plenum
- Chinese data continues to be lacklustre as expected while markets tread water
- What can we expect from the Third Plenum to galvanise the next stage
4. Equity Watch: The Trump versus Biden Basket
- We’ve received loads of feedback from our clients regarding our Trump versus Biden basket.
- As a result, we will provide a detailed breakdown of both baskets and explain the rationale behind each.
- We are updating the baskets regularly based on the political proposals of the two candidates.
5. Steno Signals #108 – A messianic Donald
- Happy Sunday from Copenhagen after the atrocious assassination attempt in Pennsylvania late Saturday.
- Trump was apparently struck by some fragments but managed to raise his fist and greet his supporters in a strong show of defiance as he was escorted off the stage.
- This incident will undoubtedly dominate the campaign in the coming days and weeks, transforming his appearance at the upcoming Republican Convention into a near-messianic event.
6. The Week At A Glance: Another inflation shocker in the UK paired with a rebound in US retail sales?
- Morning from Europe! Remember that we release our “Week at a glance” publication instead of the “Something for your Espresso” every Monday before lunch-time.
- Our aim is to digest the release calendar in an actionable way and assess the risk/reward around the macro themes in the context of the economic release calendar.
- This week, we will focus on the US consumer (Retail Sales), UK inflation (CPI) and the EUR rates (ECB meeting).
7. Technically Speaking: Breakouts & Breakdowns: HONG KONG (July 17)
- China State Construction International and Sinopec Engineering have short term reversal patterns indicating profit taking from recent advances.
- China Resources Cement reverses downtrend with volume indicating some near term gains after reporting that 1st half profit was under pressure.
- Yum China continues to show downward pressure given the increasing competition in the retail food segment, while Nongfu Spring collapses on news about the safety of its products.
8. Where US Stocks Are Heading Before Rate Cut
- To assess US equity direction before rate cut, we must first forecast the next rate cut. Our house forecasts that there will only be one rate cut during 2024.
- We believe S&P500, after hitting all-time high this week is due a 10% correction until the rate cut in September. Rate cuts are essential for S&P500 to tread new high.
- But we believe the rate cut is going to be one-off as the labor market remains bullish and inflation still comes off a tad higher than the Fed target.
9. China: Second Quarter 2024 GDP Growth
- China’s National Bureau of Statistics on Monday said the country’s second-quarter GDP rose by 4.7%.
- That’s slower than the 5.3% year-on-year GDP increase in the first quarter, and misses the 5.1% expectation.
- Retail sales for June missed expectations, while industrial production figures beat.
10. Great Game – Trump: Election or Coronation?
- We cover the Trump assassination attempt in other spaces, so in this we’ll focus on the political fallout and touch upon other relevant topics, including the Chinese Policy Plenary.
- Firstly some thought on Trump picking J.D. Vance as his running mate.
- As a staunch Trump supporter, Vance represents a more grassroots, anti-establishment figure compared to others like Nikki Haley.
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 #107 – The 3 indicators you NEED to watch on recession risks
- Happy Sunday and welcome to our flagship editorial!The ISM Services report admittedly made for recessionary reading, and it is not because we have been blind to such risks.
- We just found the risk/reward in betting on them incredibly weak, and we continue to hold that view.
- We actually laid out exactly that roadmap to a recession in Q4 2023, and correctly forecasted that the re-acceleration in cyclical sectors such as Manufacturing would lead everyone to conclude that recession risks were off the table in 2024, with a major bull run in assets accordingly.
2. Positioning Watch – No recession betting in markets yet
- Hello everyone, and welcome back to our weekly positioning watch.
- Economic data from the US has been received by markets with a bit more skepticism after the recessionary ISM services report, and while the NFP report—judging by the markets’ reaction—made everyone from equities to fixed income happy, the overall picture of the US economy is still admittedly gloomier than we anticipated a few weeks back However, with increased access to real-time gauges of the economy, there is currently no reason to worry about a recession—or at least no reason to trade it.
- Recessions are always triggered by something; the economy almost never slow-drifts into one, which makes it impossible to time.
3. Macro Regime Indicator – Growth is the dark horse in July..
- Coming into June, we wrote that the biggest “risk” was that we moved towards a goldilocks scenario.
- While our portfolio returns have mostly mirrored that regime (outside of Crypto), we have to admit that the growth component of the equation has slowed somewhat relative to our model base case.
- We reassess the picture on a macro level and on a quant basis in this analysis.
4. CPI Review: Gung Ho summer! Risk-off fall?
- The inflation report provides a surprisingly soft set of data, aligning perfectly with the FOMC’s hopes, but not with their predictions.
- Back in June, the FOMC projected only one rate cut while hiking the inflation forecast to levels that now seem feasible to undershoot.
- This report, as soft as it gets, shows transportation services down by 0.5% for the month, and shelter prices have only increased by 0.17% MoM.
5. Portfolio Watch: Not worth betting on a recession (yet)
- We haven’t made significant changes to our portfolio in recent days due to a lack of conviction in the current market price action.
- However, we are not blind to the risks currently present in the US economic cycle.
- The job market is normalizing linearly, but the risk is that it normalizes linearly until it weakens exponentially.
6. Technically Speaking: Breakouts and Breakdowns in HONG KONG (July 10)
- Smoore International, China Communication Services and GDS have Bullish technical signals in a challenging market.
- After a 3 year run from the COVID lows, Samsonite has confirmed a Bearish technical signal.
- Hautai Securities hits an all time low and becomes a “Catch a Falling Knife” chart.
7. June 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
8. Indonesia Economics: Signs of Moderating Growth
- Indonesia saw inflation return to target thanks to a further softening in food inflation. There are however upside risks from imported inflation due to the rupiah’s weakness.
- Demand-Side indicators suggest that the strong run of expansionary activity may be reaching its tail end; the latest PMI reading has only been marginally positive.
- Jakarta’s trade policy erraticism was on full display as ministers contradicted each other on a proposal to slap tariffs on China-origin goods.
9. Japan: Is the Balance Sheet Recession Over?
- Japan has suffered from a balance sheet recession, triggered by a sharp decline in asset value, since the 1990s.
- As the Nikkei treads new height, it raises the question of whther the balance sheet recession is over.
- Though some of the structural challenges remain, the balance sheet recession has improved in recent years.
10. US CPI Preview: Taking clues from China?
- We already addressed the US CPI report in our “Week at a Glance”.
- Tomorrow’s US CPI report is the make-or-break moment we’ve been waiting for.
- To keep the risk asset party alive, we need a soft outcome, and it looks like we might just get it.
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. Korean Government Announces Corporate and Dividend Tax Incentives Under Corporate Value Up Program
- The Korean government announced corporate tax incentives for companies that actively increase capital returns to shareholders and also dividend tax incentives and as part of the Corporate Value Up program.
- For companies that provide shareholder returns, a 5% corporate tax amount on the increase will be deducted and the tax burden on increased dividends of the company will be reduced.
- For dividends under 20mn won, the tax rate will be reduced from 14% to 9%. Investor can choose lower rate (25% or comprehensive tax rate) for dividends exceeding 20mn won.
2. Steno Signals #106 – The cycle is improving. Not weakening.
- We spent most of last week examining cycle leads and lags as we continue to observe solid signs of re-acceleration in economies with low duration profiles and high sensitivities to interest rates and exports.
- The Riksbank in Sweden, the BoC in Canada, and partially the ECB in Europe have all cut interest rates amidst an already improving cyclical environment.
- We are already starting to see the positive ripple effects.
3. Union Budget 2024- What to Expect?
- All eyes will be on the upcoming Union Budget 2024 in July, marking the first of Modi Government 3.0.
- Job creation, tackling agriculture woes including farmers income and sustaining expenditure on infra are expected to be the core deliverables.
- Moreover, fiscal deficit is expected to continue its improvement run. Capital gains tax would not be touched but GST network could broaden.
4. Three Risk-Off Signals Offset by One Risk-On Signal?
- The three risk-off signals include the decline in the Bitcoin price, decline in the copper price, and the first day share price performances of recent Korean IPOs.
- These three risk-off signals are offset by one major risk-on signal which includes the U.S. Junk Bond-Treasury Yield spread.
- An important risk-off signal is the first day share price performances of major Korean IPOs after listing. We have started to see some weakness on this signal in July.
5. Japan Watch – Why BoJ Will NOT Intervene Anytime Soon
- Recently, numerous JPY pairs have breached the levels where the BoJ / MoF intervened in April/May, prompting markets to wonder if (and when) authorities might step in again to support the Yen.
- The reaction in USDJPY post key events/meetings has been consistently uniform for the past 12-18 months.
- Markets build up a hawkish narrative prior to the event, only to unwind positions when the news turns out to be less hawkish than anticipated.
6. QE With Chinese Characteristics: What It Will Look Like.
- PBOC announced that it will borrow and trade treasury bonds from primary markets.
- The central bank will use Open Market Operations to not only control and steepen the yield curve, but also improve market liquidity.
- Last week the 50-year bond dropped below the 2.5% yield which was the minimal threshold the PBOC indicated before defense.
7. Preview to the 3rd Plenum of Chinese Communist Party
- The 3 plenum July 15-18 will likely see some additional measures that will support or stimulate China economy. However, they are unlikely to be game changers.
- Major points to observe include unemployment and healthcare benefit boost, Hukou fine tuning, discussion about inheritance tax, and the 2-4 trillion Yuan of buying most unsold homes.
- Deepening of reform especially in boosting innovation and upgrading consumption will also be touched on, but there will seem no short-term effective measures.
8. Hong Kong: How Much GDP Is Deduced from the Northern Spending of Hong Kong Residents
- It is estimated that 0.8 million Hong Kong residents spend weekends at other Bay Areas
- These residents spend an average of HKD730 on a weekend in Shenzhen
- The value-added factor for food, alcoholic drinks, and tobacco as well as retail trade are both 0.12, which gives 3.64 billion HKD, or 3.5% in annual GDP
9. Non-Consensus Forecast: No Fed Rate Cut This Year
- We are against the majority opinion that Fed will cut rate in September meeting. Also majority forecast there will be 1-2 rate cuts this year but we forecast none.
- CORE PCE Price Index has been treading above 2% target, though it is on a decreasing trend two streaks on a roll and since Jan 2023.
- We believe instead of targeting at the static CORE PCE Index for one data point, the Fed will consider a dynamic series of data points, known as cumulative inflation targeting.
10. Response to Premier Li: Post COVID Chinese Economy
- In a recent forum, Chinese Premier Li Qiang is confident that Chinese economy was stagnant simply because of COVID. Now that COVID has gone, Chinese economy will eventually heal itself.
- We believe rather Chinese economy will still be bumpy after COVID, with three major arrows against Chinese Economy, namely property sector slump, local government debt, and weak private sector.
- Instead of the “self recovery” view of the economy proposed by Li, we believe government should more actively roll out fiscal and monetary stimulus.
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. CHINA: When Will Stocks Catch Up With Surging Debt Markets?
- China’s debt markets are experiencing an historic bull cycle as government and companies take advantage by ramping up issuances this year.
- Beijing will use its healthy balance sheet and continued debt issuance to clean up local government debt and simultaneously address the property sector problems.
- China’s healthy external position will provide continued support for its currency and debt markets with equity markets to follow in the coming months.
2. Inflation Watch: What if the Cyclical Prices Are Not Truly Tamed? Lessons from Canada and Sweden
- If you know me, you know I have a thing for charts, especially those showing momentum in the macro cycle.
- Forget nominal levels; it’s the rate of change that really drives asset markets.
- This analysis is chock-full of rate of change charts, just to remind you that we’ve only managed to nudge inflation back to just above target levels—right as the cycle’s rate of change is shifting towards re-acceleration in many places.
3. EM Watch: Western investors are tired of China and Japan “crying wolf”
- Welcome to our weekly EM Watch, with a particular focus on China and metals.
- Allow me to reflect on how the Chinese and Japanese investment cases look from the outside and how Western investors perceive the current rhetoric around the suffering local currencies in the region.
- The CNY once again “slow burns” versus the USD this week and we are approaching the 7.30 handle, which has typically been the line in the sand for the PBoC in China.
4. The Week At A Glance: Time to bet against the USD?
- Greetings from Europe! The Week At A Glance replaces our Morning Report each Monday as it allows for a deep dive into the economic releases and major tradeable themes for the week ahead.
- We see a couple of major tradeable themes in the week(s) ahead.
- First, the Euro area data, which is still improving in forward-looking indicators, while spot data remains relatively soft, probably in part due to a plethora of (potential) election risks.
5. Energy Cable: Bullish Oil, Bearish Nat Gas, and Especially Metals! Here’s Why!
- We start with crude oil, where positions in crude oil futures have returned to Covid-19 pandemic levels, which we believe is overly bearish.
- The economy is normalizing with rising travel and growing consumer energy demand.
- Despite this, the futures market’s bearish sentiment seems misaligned with these positive economic indicators.
6. Why the November Election Matters to Gold
- The latest CBO fiscal update raises the odds of upside inflation surprises in the coming years, which would be bullish for gold.
- The intermediate-term outlook for inflation will largely depend on the outcome of the November election.
- We project that a Biden win would be bearish for bond prices and mildly bullish for stock prices. A Trump win would be bond and USD bearish and gold bullish.
7. The Heat Is On: News Flow and Sentiment in HONG KONG
- China ETF flows in June continued to show positive momentum while other categories remained flat. Southbound Connect Flows were positive while Northbound Connect recorded a Net Sell.
- Midea Real Estate Holdings jumped on plans to privatize its property development business
- Shanghai Microport fell after launching a share placement at a 15% discount. The share price is hitting all time lows.
8. Positioning Watch – Markets are buying into US Fixed Income, but fast money don’t agree
- Welcome back to our weekly positioning watch, brought to you today from a sunny Copenhagen.
- The standings at the Euros almost perfectly mirror the current cross-regional uncertainties in equity markets.
- The European election has increased the option-implied volatility premium of European equities compared to US equities, while the FTSE 100 continues to stay “less volatile” in IV terms.
9. Actinver – Macro Daily: Inflation 1h-Jun
- Headline inflation increased by 0.21% bw, pressured by agricultural prices, returning to an annual rate of 4.78%.
- Core inflation rose by 0.17% bw, returning to an annual rate of 4.17%.
- Headline inflation was slightly above our estimate (0.21% vs. 0.19%), because some agricultural products registered higher price increases than estimated.
10. Why the Breadth Divergence May Not Be Bearish
- Anxiety has been increasing among the technical analysis community over the blatant instances of narrow market leadership and negative breadth divergence.
- The bearish consequences of a negative breadth divergence can take over a year to be realized. Instead, they are warnings of bearish conditions than actionable tactical sell signals.
- We interpret current market conditions as highly extended that can pull back at any time, but investors should also recognize that the situation could resolve itself in a benign manner.
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. Korean Government Is Pushing for a Comprehensive Inheritance Reforms – Will They Pass or Fail?
- In the past several days, the South Korean Presidential Office has announced that it is pushing for a comprehensive inheritance tax reforms.
- Although the Presidential Office mentioned it is pushing to reduce highest inheritance tax rates from 60% to 30%, the more likely scenario is to reduce this rate to about 50%.
- The lump sum personal deduction of 500 million won or inheritance tax which has been maintained for nearly 27 years could be doubled to about 1 billion won or more.
2. Where Now for the Hong Kong Market?
- Minimum correction targets have been hit for the Hang Seng Index
- Some potential catalysts for the resumption of the bull market
- We highlight some suggested sector allocations for the next phase
3. EM Watch: Is the Chinese copper demand down 40%?
- Welcome to our weekly EM and Metals editorial.
- It’s hard not to talk about China again this week, given the importance of the metals trade for global inflation expectations.
- Our live assessment of the Chinese recovery continues to paint a stalling picture in Real Estate, exemplified by the physical copper demand being on the edge of a precipice, while the pollution based metrics hint of a continued surge in industrial production into June.
4. Steno Signals #104 – Get ready for a WAVE of liquidity in July!
- Happy Sunday from Copenhagen! Risk asset investing is typically seen as a winter-sport for good reasons, but July is often up there among the best return months.
- It’s as if July heard winter bragging about its stock market prowess and decided to show up in flip-flops, a Hawaiian shirt, and a cocktail in hand, just to prove that even in the heat, it can keep up with the icy competition.
- This year is unlikely to be an exception as we will see improving liquidity trends into July, while the bond market seasonality is typically also a lot more favorable due to more benign issuance trends (especially in Europe).
5. The Market Gods Present Patient Investors With Three Gifts
- Market conditions are setting up for buying opportunities in three markets. U.S. equities will probably weaken on disappointment over the timing of rate cuts.
- European stocks corrected over political turmoil in France that’s likely to be temporary.
- China’s announcement that its central bank had suspended gold buying looks like an entry point in the near future.
6. Positioning Watch – Increasing the BETA risk?
- Hello everyone, and welcome back to our weekly positioning watch.
- Our newly invented high-frequency hedge fund positioning data was well received, and we’re working on expanding it to more assets on a running basis.
- It’s worth revisiting the points we raised about concentration in broader equity indices.
7. CHINA: Do You Like AI? BUY Utilities!
- AI is poised to drive a large increase in power consumption on the mainland. Data demand from generative AI necessitates more data centers and consequently more power.
- China energy consumption is at the beginning of a super cycle as AI becomes integral to everyday corporate and eventually personal lives.
- China’s clean energy names will benefit from the China’s energy strategy as its power needs from data centers surge.
8. Great Game – Why Tesla is winning the EU-China trade war
- Welcome to this weeks Great Game, in which we will cover 3 major stories right now – European EV tariffs, the upcoming election in France and the turmoil in Brazil.
- EU Tariffs on Chinese Electric Vehicles Situation: The European Commission is expected to disclose this week the tariffs it plans to impose on Chinese electric vehicles (EVs) due to what it says are excessive subsidies.
- This move follows Washington’s recent decision to quadruple duties for Chinese EVs to 100%, although Brussels is expected to set significantly lower tariffs.
9. Energy Cable: Short shipping companies?
- Hello from a sunny Copenhagen where the Euro 24 fever is upon us all.
- This week we’ll do a chart heavy analysis on shipping and nat gas.
- We were stopped out of our long position in shipping in February due to false reports on a deal with the Houthis that sent the market tanking.
10. China Debt Hangover and Policy Limits
- China has seen a very large increase in total public and private non-financial sector debt/GDP since 2008, which is unlikely to be repeated in the coming decade.
- This is curtailing Chinese policymakers’ actions on monetary, credit and fiscal policy to support the economy, and actions risk being less than recent promises.
- Thus we remain of the view that China will struggle to meet growth targets and we look for 4.5% growth in 2024.
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. Ban on Short Selling Stocks in Korea Extended Until March 2025
- On 13 June, the Korean government announced that it will extend a ban on short selling stocks in Korea until end of March 2025.
- For now, the government has not given a 100% go-ahead on the end of the ban on short selling stocks starting 1 April 2025.
- However, in our view, the government is likely to allow short selling stocks in Korea once again, sometime in 2Q 2025.
2. Steno Signals #103: A blood-bath in metals in July!?
- Happy Sunday from a windy Copenhagen!We’ve been yammering about the copper buildup on Chinese exchanges for months.
- Was it a strategic decision to hoard copper reserves?
- Were the Chinese waiting to offload this copper until the CNY devalued, or a result of the physical demand in the Chinese economy nosedived off a cliff?
3. EM Watch: Is China making a fool out of Western metals speculants?
- Hot on the heels of watching Powell’s press conference, which pushed back slightly against renewed rate-cut optimism, it’s clear that the Fed is playing a cautious game.
- Despite the soft inflation data this morning, they significantly changed the dot plot.
- They likely believe the CPI report was noisy due to a sudden deflation in transportation.
4. Malaysia Economics: Is “Digital Tiger” Malaysia About to Roar Again?
- After a period of economic and political turbulence, Malaysia is now re-entering the spotlight, performing admirably in attracting technology-focused investments.
- The success in luring semiconductor and data centre investments is not down to pure luck; policymakers have worked hard to ensure that the country friendly to global tech business.
- If momentum on business investments and policy reform can be maintained, the country may be on the verge of a virtuous cycle that helps it escape the middle-income trap.
5. The Week at A Glance: Everything you need to know ahead of the FOMC and CPI
- Welcome to our concise weekly overview of key events, expectations, and positioning strategies.
- This week, we focus on the Federal Reserve meeting, US inflation data, and the crucial Bank of Japan meeting.
- As usual, the most crucial forward-looking inflation evidence is found in the NFIB report released ahead of the CPI report.
6. US CPI Review – Admittedly a soft report, but NOT the new normal
- The CPI report today was admittedly softer than our initial hawkish forecasts, with headline coming in unchanged at 0.0% MoM vs 0.1% expected while core came in to the soft side of 0.2% MoM vs 0.3% expected.
- Our anticipation of rising goods-flation didn’t play out fully, and while shelter re-accelerated as we forecasted, core services disinflated heavily in May due to auto insurance costs declining.
- The main culprit behind the dovish CPI report was the sudden drop in Motor Vehicle Insurance (chart 2.b), which has so far been printing at trend MoM levels around 1-1.5%, lifting headline inflation by 0.03-0.05% consecutively.
7. Portfolio Watch: Good news = no cuts = bad news (for metals)
- The latest job report just dropped, and it’s music to our ears—solidifying our thesis once again.
- A few highlights:Construction Hiring: Markedly up again.
- This is a strong cycle signal, indicating robust economic activity.
8. “Wham, Bam, Thank You Ma’am” – Commodities Get Slammed
- “Strong” non-farm payrolls number a catalyst for another hit to commodities
- Oil positioning is now very supportive for prices with non-commercial buying levels close to five-year lows.
- Copper may have more short-term downside with speculative interest still high
9. Macro Regime Indicator: Up, Up, Up still!
- In May we concluded that: “In May, our models hint of an “Up,Up,Up” environment in inflation, growth and liquidity, which is a decently positive indicator for risk assets, but also for broader reflationary trades returning through the month and into June.” The above conclusion has held true to a large extent and we went against the prevailing consensus driven by the “slowdonistas” when needed during the latter parts of April.
- For June/July, we see an increasing liquidity trend from right about now, while the growth- and inflation cycle cyclically heats up still, while some lagged effects pull in the opposite direction.
- From a market perspective, the overwhelming conclusion is that we will continue in an up, up, up macro regime referring to the liquidity cycle, growth cycle and cyclical price/inflation cycle.
10. Quant Signals: USDMXN
- The case for a stronger MXNMXN sold off massively following the Mexican election last week but we still view the MXN as a clear-cut ‘trade balance’ play.
- As long as the trade ties between China and the US increasingly necessitate a ‘value-add middleman,’ Mexico remains in an advantageous position, regardless of whether the president is Sheinbaum or Obrador.
- Our PCA model reveals that USDMXN is trading very rich compared to macro factors.
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. Positioning Watch – Turmoil in Markets Is Returning
- Hello everyone, and welcome back to our weekly positioning watch.
- The divergence between market-cap weighted and and non market-cap weighted indices is slowly normalizing, but the impact that NVIDIA (and some of the other big tech firms) has on both broad equity returns is notable with the 5 largest companies in the S&P 500 accounting for roughly 30% of the index by now.
- This does not only have implications for the distribution of returns between bigger indices (Nasdaq vs Dow Jones for instance), but also on indices option volatility, with the VIX ex NVIDIA hitting lows of around 9 in May (2017/2018 lows).
2. EM Watch: The China bet and the copper story are both old hat by now
- Welcome to our weekly EM editorial where we travel across the liquid EM markets in the context of recent developments in USD markets.
- ISM Services jumped back to 53.8—time to put that recession chatter to bed for a few months again?
- Bloomberg’s latest alarmist piece on “business employment dynamics” showing a net job loss in Q3 of last year is probably the worst analysis I have read in a while.
3. Steno Signals #102 – Bad inflation news everywhere
- Happy Sunday and welcome to our weekly flagship editorial.
- The inflation progress has stalled, and it is not just a US phenomenon.
- It is spread to Europe and with freight rates rapidly on the rise, we are likely no longer getting any help from goods inflation in coming quarters.
4. The Week at A Glance: The comeback of the (growth and inflation) cycle
- Welcome to our short and sweet weekly overview of key events, our expectations and how we position for them.
- On ISM Manufacturing (Monday). Our forecast at Steno Research is 50.2 for the ISM Manufacturing Index, slightly above the consensus of 49.9.
- April’s activity was notably weak due to several factors: tax seasonality which withdrew liquidity, a hawkish build-up of expectations ahead of the early May FOMC press conference, and weak international impulses.
5. Is that It? Commodity Bull Market Over?
- Recent signs of economic weakness in the US is a believable narrative for the current weakness
- OPEC + announcement on increasing production adds to the noise
- Weakness spreads from the energy sector to other commodity sectors
6. Market Trends and Strategy: Hong Kong Bull Market Broadens
- High dividend yield names continue to outperform the broader market. Energy and Materials sectors are best performers over the last year.
- Mainland buying has continued to buoy the Hong Kong market even through the pullback in May.
- Short selling is declining and market breadth is increasing supporting rotational buying between sectors.
7. ETFs Are Reaching Way Beyond Passive Investing
- ETFs are synonymous with passive investing. It passive investing and beyond. ETFs have been stealing breakfast, lunch and dinner away from mutual funds.
- Active ETFs have jumped from obscurity to ubiquity. >70% of new ETF launches in the US over the last seven years have been active ETFs.
- Active ETFs in the cheapest quintile command AUM of USD 325 billion while those in the most expensive quintile hold merely USD 35 billion.
8. May 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
9. Impact of China’s Economic Deceleration on EM Economies
- China’s economic growth is expected to decelerate from the previous high-growth period in the 2000s and early 2010s. This will have an impact on other EMs.
- We track the impact from the angles of China’s commodity imports, supply-chain position, and foreign investment.
- Commodity producer countries can be more heavily impacted. The impact on Asia will be mixed, suffering from regional trade, but some supply chains could be diverted away from China.
10. India Politics: Setback for Modi Heralds Era of Uncertain Coalition Politics
- The ruling BJP suffered major losses in the recent elections. It fell short of an overall majority and will have to rely on regional partners to form the next government.
- Consolidation of the anti-BJP vote under the aegis of the INDIA coalition delivered dividends, but voters also were not enthused by Modi’s economic and social campaign rhetoric.
- Expect short-term uncertainty as the major blocs attempt to cobble together parliamentary majorities. But more political checks and balances would be good for India.
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. Positioning Watch – AI (NVIDIA) is overshadowing everything else
- Hello everyone, and welcome back to our weekly positioning watch.
- Equities have been dragged higher over the past week after NVIDIA published yet another earnings surprise, and markets were funnily enough buying into other Tech equities on the back of NVIDIAs earnings – strengthening the argument as to why AI / NVIDIA has proven to be a major driver in the equity space.
- Every single time NVIDIA or other GPU companies’ earnings surprise positively, we are witnessing a subsequent boom in the amount of AI related news, which are rapidly increasing at the moment.
2. Korea Exchange Launches the Disclosure of Corporate Value Up Program on KIND System
- The Korea Exchange introduced the Corporate Value Up program on the KIND website. This is a voluntary system aimed at boosting the corporate value of listed Korean companies.
- Five key investment indicators for the 2,400+ listed Korean companies include PBR, PER, ROE, dividend payout, and dividend yield. The detailed data these indicators can be easily downloaded on excel.
- Corporate Value Up program is a marathon, not a sprint. In this race, the runners (Korean companies) also need some water (such as improvements to dividend/corporate income tax policy).
3. Ifo Watch – Is Germany rebounding against all odds?
- The nationwide figure was released today at 14.00 CET, and despite headline CPI surprising a tad dovish compared to consensus of 0.2% MoM, we had the right lean on overall price pressures with rates markets clearly viewing the report as hawkish news with the longer end of the yield curve selling off.
- In general regional figures showed a slight dovish surprise in headline terms, which is de facto the mandate of the ECB, but core prices and key components of the HICP basket were not a pleasant surprise for policymakers, which will likely weigh on the rhetoric from ECB in their June meeting.
- Notably we saw a slight hawkish surprise in the HICP figure compared to CPI, as the categories recreation and culture and restaurants and hotels weigh relatively more in HICP compared to CPI, while food prices weigh less.
4. How to Spot A Market Top
- We are not overly concerned about the capitulation of a prominent Wall Street bear on an intermediate-term basis.
- Stock prices are advancing on stable interest rates and continued economic and earnings growth.
- However, the stock market is showing some signs of bullishness exhaustion and it’s vulnerable to a short-term pullback.
5. Steno Signals #101 – Introducing the Washington DC Crypto Put!
- It’s been a break-through week for Crypto bros in many ways.
- First, the SEC made a massive u-turn and approved the spot ETH ETF and then Donald Trump fully endorsed the crypto space in his speech at the Libertarian Party forum over the weekend.
- Crypto has broken through to K-street and on top of the obvious positive side-effects, a BTC or an ETH is now becoming a politicized asset.
6. Portfolio Watch – Adjusting equity and commodity risks as the reflation story stalls
- Hello everyone, and welcome back to our weekly portfolio watch, where we shed light on the most important factors driving our Macro and Crypto portfolio over the past week.
- Macro Portfolio – Reflation bets have lost momentumWe have been banging the drum on a combination of slightly higher prices and a continuation of the rebound in manufacturing on a more global scale, placing bets in broad commodities and cyclical equities like Materials.
- The recent rally in BCOM has however been put to a halt over the past week, and it looks like we are in for a smaller correction in industrial metals, where clustering risks have turned more profound in copper and silver especially, as right about everyone has placed longs in the copper July contract.
7. FSC Head Remarks Short Selling Could Resume in 1Q 2025 and Launch of Financial Investment Income Tax
- On 27 May, Lee Bok-Hyun (Head of FSC) remarked that short selling of stocks in Korea could resume sometime in 1Q -4Q 2025.
- The centralized system to detect short selling of stocks in Korea on a live basis could be completed as early as 1Q 2025.
- The financial investment income tax is likely to be LAUNCHED in January 2025, which could negatively impact the local stock market.
8. China’s Housing Market: Heading Closer Towards an Eventual Bottom
- Beijing has announced a range of measures to stabilise China’s housing market, including dealing with unsold inventory through government purchases and boosting demand via lower mortgage downpayments.
- A return to the 2016-2020 boom in housing activity is unlikely, while an extended L-shaped period of healing appears to be a plausible baseline scenario.
- Improvement in homebuyers’ confidence will be crucial in achieving a market bottom, particularly lower concerns about the financial health of developers and non-delivery risks for new homes.
9. Litigation Funding as an Asset Class
- Litigation funding offers third-party financing for lawsuits in exchange for a share of the settlement or judgment.
- It has emerged as an attractive asset class due to high returns and diversification benefits.
- The market is driven by institutional involvement, technological advancements, and the rise of ESG litigation.
10. Energy Cable: A new supply side crisis brewing in Nat Gas space?
- The natural gas trade has started to move in recent weeks as the supply side looks constrained again.
- While the current situation doesn’t exactly mirror 2021, there are some similarities when we look more closely.
- Firstly, given the new supply outlook post-energy crisis, we believe there are no fundamental reasons for TTF natural gas to trade in its pre-crisis range.
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. Portfolio Watch: Are you paying attention to China?
- The Chinese equity trends have really been eye-catching over the past weeks and despite US efforts to flare-up the trade war via new tariffs, the trend has just continued.
- The new Chinese efforts to prop up the sentiment in the Real Estate space have so far been successful and it seems like an attempt that is a LOT more serious and sizy than what we have seen so far.
- We are no longer talking about trial balloons or minor twists.
2. EM Watch: Have Copper markets been hit by a bus full of tourists or by the Chinese economy?
- Copper markets have been on a tear in recent months and our assessment is that the positive sentiment started when Chinese copper stock data points started supporting the notion that China was “hoarding” Copper concentrate ahead of 1) a devaluation, 2) an overhaul of the electrical grid or 3) a power grab on supply chains for EVs, Solar Panels, Data centers and the likes.
- On top of this, we have seen how US officials have highlighted the option of creating a strategic reserve of Copper Cathode in the US, potentially in response to the stockpiling of refined copper seen in China (chart 1).
- Why is the Chinese copper stock not receding here? That is the question macro-managers and geopolitical pundits are asking themselves daily!
3. Positioning Watch – The real world strikes back
- Hello everyone, and welcome back to our weekly positioning watch.
- Markets have been enjoying the easier financial conditions imposed by a weaker than anticipated inflation print, although yields have found their way back to pre-CPI levels.
- The big ongoing theme in markets seems to be the renewed pressures in commodities, as real world demand for crucial metals like copper and nickel has spurred significant flows into broad commodities.
4. Steno Signals #100 – China’s MAJOR power grab on Copper supply chains
- Let me start by dwelling on the fact that Macro generalists such as myself and Thorsten Slok of Apollo suddenly spend countless hours watching Copper trends.
- It is probably a red flag in itself, but it just seems like these developments are so INCREDIBLY important for global macro- and geopolitics these months.
- We have been all over the Chinese copper story in recent months and also traded it with good luck, but we have admittedly been wrong in our call for a weaker CNY (so far).
5. Don’t Let the Bull Throw You Off!
- There is a chance for a correction in the HK markets as latecomers to the party get nervous
- All the signs are pointing to a continuation of this bull market as government support measures continue to roll out.
- Don’t get bucked off that bull by a short-term correction!
6. Technically Speaking: Hong Kong Strategy in the Secular Bull Market
- First major technical resistance for HSI and HSCEI has been met with force and a consolidation/correction begins
- Market breadth expands over last month presenting investment opportunities beyond tech and mega-cap
- Short and long term sentiment indicators going positive as most analysts continue to look in rear view mirror
7. Active GEM Funds: Top-Down Country Positioning Latest
- EMEA Momentum: EMEA is experiencing positive momentum across multiple countries, with record investments in the MENA region, strong momentum in Greece, Turkey reversing long-term declines, and Poland nearing new ownership highs.
- Asian Stall: Significant underweight in India suggests caution among investors, China weights remain depressed, Indonesia maintains a strong consensus overweight. Select ASEAN nations show signs of potential comeback.
- LATAM Overweights: Investor sentiment in LATAM remains bullish, with Brazil and Mexico seeing most funds positioned overweight. Argentina hits new highs in fund ownership driven by strong conviction in MercadoLibre.
8. Quant Signals: PCA model and Backtesting Features
- Steno Research PCA model Using a Principal Component Analysis (PCA) model to analyze assets across financial markets provides a powerful framework for investment decisions.
- By mapping out the macro anatomy of a given asset, PCA identifies key trends and underlying patterns that influence price fluctuations and market dynamics.
- In this process, we have defined what we see as the most important global macro factors, ensuring that our analysis is comprehensive and targeted.
9. Portfolio Watch: Trading the next of the rolling melt-ups
- Welcome to our weekly Portfolio Watch.
- We have had a decent week as our short bet on Utilities has started to deliver, while a continued long bet in technology (and ETH) has been the game in town in the risk asset space.
- The liquidity trajectory is slightly murky over the next 2-3 weeks before a major reversal from mid-June and onwards as the net issuance pace of T-bills will be ramped up again into July tapping liquidity from the ON RRP along the way.
10. Energy Cable: Commodities, Freight Rates and Goods Imports Are Rising…
- A soft CPI report was just what Commodities needed to take the next leg higher
- Inflation expectations fat tailed. Commodities on the move, but we still need oil. China to export inflation to Europe?
- Despite last week’s dovish inflation print, we are not sure that it is disinflation that we need to be worried about, both in the short- and long term.
- Let’s discuss three reasons for that.
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 #99 – Freddie Mac gearing up to unleash trillions for consumption?
- Last week we learned that the so-called “excess savings pool” from the pandemic had vanished into thin air in the US, or rather that personal savings have been running sub-trend long enough to bring savings back to a normalized state.
- This does not mean that US households have run out of savings, it merely means that savings rates are running below trend, which is not out of the ordinary during late-cycle economies.
- We have recreated the study on German numbers and found much less “alarming” trends in German households, which goes to show that the methodology developed by the San Fran Fed ought to be taken with a pinch, if not even a truckload, of salt.
2. China Watch: No one has noticed that China is exporting INFLATION again..
- Welcome to our weekly EM editorial where we shed light on the most important developments in the EM space in the context of the impulses from the USD markets.
- Things are heating up in the global macro space as we are standing at crossroads.
- Is the macro momentum finally rolling over globally (including in the US) or are we amidst a potential rebound from China that wreaks havoc with the current increasingly dovish Western consensus?
3. Great Game – Why Putin fired Shoigu and Why Biden is going tough on China
- Welcome to this week’s geopolitical update, the Great Game.
- This week we’re covering Putin’s surprise sacking of Defense Minister Shoigu as well as the ongoing global EV war.
- Russian President Putin has replaced his Defense Minister Sergei Shoigu with former economic advisor and Deputy Prime Minister Andrei Beluosov.
4. Positioning Watch – How are Macro Hedge Funds positioned?
- Hello everyone, and welcome back to our weekly Positioning Watch – insights into how market participants are positioned.
- Markets are waiting patiently for the US CPI report today before placing their bets it seems, with little to no action seen yesterday and in European opening hours yesterday.
- As elaborated upon in our “Week At a Glance” on Monday, we see hawkish surprises to both headline and core inflation , which will not be good news for markets, who have seemingly returned to their hopes of rate cut(s) this year.
5. US CPI Review – Everything is soft in April
- Main Takeaways: Core inflation is still way too hot, but this report speaks well to the crowd hoping for rate cuts.
- Food and Shelter are the two dovish surprises… Both are re-accelerating in live data which will likely come into effect laterApril was super soft in real-time activity data and there isn’t much to suggest that it will continue in May, where data is on the rise again… But for now, this feeds the FCI loop in a positive sense, which will allow risk assets to ride the dovish CPI wave for now.
- US Headline CPI rose 0.31% on the month, whilst core inflation increased by 0.29%, with consensus at 0.4% and 0.3%.
6. Quant Signals: Central Bank Sentiment Indicators
- Our updated state-of-the-art Central Bank Sentiment indicators are flagging important changes in communication dynamics since the beginning of the year.
- We recently upgraded our sentiment measurement to a more fine-tuned and nuanced NLP model that effectively captures the meaning of Central Banker rhetoric and here share key findings.
- We regularly track and update our measure of positivity/negativity of Bank language contained in statements, outlooks and speeches on a scale of -1 to +1 in our DataHub for premium subscribers.
7. Five Reasons to Be Bullish
- A review of technical and sentiment conditions shows that stock prices are setting up for a sustained advance.
- The combination of strong momentum, good breadth and skeptical sentiment points to higher stock prices.
- Key risks are evidence of a disturbing relative strength by defensive sectors and an upcoming CPI report that could upend the bullish narrative.
8. China Takes It up Another Notch-Property Proposals Change the Game
- China is following the Fed’s playbook of keeping market momentum going with good news and actions
- The HK dividend scheme is a prime example of that
- The latest proposal for unsold properties will remove a major barrier to a bottom in the property market.
9. NFIB Watch: 5 KEY charts from the best survey on the US economy
- Our favorite survey out of the US economy was published earlier and it was a pretty decent report overall as the sentiment among SMEs improved, but there are a few trends worth noting in the details, so why don’t we briefly walk you through them here.
- For the first time in a long while, we see a clear net/net decrease in expectations for future price hikes.
- This is conciliatory news for Jay Powell and his ilk for H2-2024 (but not before then..)
10. Long 10Y, Short 2Y on Yield Curve Normalisation
- Fed’s decision to taper its balance sheet runoff has provided support to long-term treasuries, particularly 10-year notes, signaling a potential rise in demand and a move towards yield curve normalization.
- Recent treasury auction results reflect a divergence in demand across maturities; long-term 10-year treasuries show weaker performance compared to strong showings in shorter 3-year and 5-year maturities.
- Data-Dependent Fed is likely to be influenced by improving economic indicators, supporting a normalization of the yield curve. During normalization, the 10Y-2Y spread is the superior instrument for exposure.