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Macro and Cross Asset Strategy

Weekly Top Ten Macro and Cross Asset Strategy – Dec 3, 2023

By | Macro and Cross Asset Strategy

1. The US Fed May Find It Hard NOT to Cut Rates in 2024

By Michael J. Howell, CrossBorder Capital

  • Risk asset markets are driven by rising Global Liquidity and falling inflation. Low inflation in 2024 will be sufficient to justify a significant change in direction by the US Fed
  • Cyclical analysis points to a further sizeable improvement in Global Liquidity conditions over the next 12-18 months
  • Investment regime is heading towards its next phase of Calmwhich favors equities and sees steeper yield curves  ahead

2. Steno Signals #75 – The 2007/2008 Playbook Is Useful Again

By Andreas Steno, Steno Research

  • Happy Sunday and welcome to our weekly flagship editorial.
  • The soft landing narrative has seen material tailwinds over the past 6-8 weeks, while the recession narrative is fading fast.
  • This is the first prerequisite for an actual recession as a recession never arrives when everyone plans for one.

3. Investment Opportunities From A Global Leadership Review

By Cam Hui, Pennock Idea Hub

  • Global equities are surging, led by growth stocks. Stay with the current leadership until year-end as hedge funds are likely to engage in a beta chase for performance.
  • U.S. stocks are still the leaders, especially the megacap growth stocks.
  • Set-Ups for a new leadership are emerging in Europe and EM ex-China. Wait until early 2024 to re-evaluate the evolution of leadership before making any decisions on rotation.

4. End of Mandatory Lock-Up Periods for 53 Companies in Korea in December 2023

By Douglas Kim

  • We discuss the end of the mandatory lock-up periods for 53 stocks in Korea in December 2023, among which 6 are in KOSPI and 47 are in KOSDAQ.
  • These 53 stocks on average could be subject to further selling pressures in December and could underperform relative to the market.
  • Among these 53 stocks, top five market cap stocks include Doosan Robotics, Studio Dragon, Asicland, Manyo Factory, and Curocell. 

5. Positioning Watch – All About the Soft Landing Narrative

By Andreas Steno, Steno Research

  • Hello everyone, and welcome back to our weekly positioning watch, where we as always try to dig down into the latest positioning data and give you an overview of what’s moving narrative currently.
  • Sentiment and positioning are still skewed towards hopes of a soft landing, with bets being placed on lower yields, a weaker dollar, booming equities and almost non-existent credit spreads – ironically a prime condition for an upcoming recession (which is still our base case for H1 2024).
  • General media and story counts are also all about the soft landing vs recession, with the mentionings of “recession” back at pre-COVID levels, while soft landing counts are on the rise, although pulling a bit back from recent highs.

6. VIX Isn’t Broken. It Is Diluted by 0DTE Options That Have Shifted Target Risk Windows.

By Srinidhi Raghavendra, Mint Finance

  • Geo-Politics are tense. Monetary policies are in contraction. Rates are on hawkish pause. Inflation is far from tamed. Financial conditions remain tight. VIX should be anything but sanguine.
  • Any misjudgment across politicians, central bankers or businesses could send equities tanking or soaring. Yet the VIX is sending a calming signal.
  • VIX isn’t broken. It has been diluted by rise of Zero DTE (0DTE) options which have shifted risk pricing windows away from VIX target expiry range.

7. 5 Things We Watch: CBs, Eurflation, OPEC, Ifo, Dutch Politics

By Ulrik Simmelholt, Steno Research

  • We start off this week’s 5 Things We Watch by having a look at the reactions of CBs.
  • This is followed by talking about EURflation and the upcoming OPEC meeting and we then move on to talking about the Ifo numbers released last week while lastly finishing off with Dutch politics.
  • The Fed is the most plausible “pauser”.

8. 7 Reasons to Embrace the Melt-Up Into Year-End

By Cam Hui, Pennock Idea Hub

  • We wouldn’t go as far as to call the current circumstance a generational buying opportunity, but a rare “fat pitch” that comes along only once or twice per decade.
  • The current episode of strong breadth thrust off the market bottom in late October is a rare and clear, and extraordinary, trading signal of a major market bottom.
  • We believe investors should, at a minimum, embrace the likely melt-up into year-end and re-evaluate market conditions in January.

9. Vietnam Poised to Be Winner in Global Competition for Investments

By Manu Bhaskaran, Centennial Asia Advisors

  • Vietnam’s economy is regaining its footing after a difficult first half in 2023. Industrial activity and trade picking up, complementing still-healthy growth in the services sector. y. 
  • Despite the cyclical difficulties, foreign investments into Vietnam are on the up.  Advantageous economic geography and diplomacy are powerful pull factors. 
  • However, defective infrastructure, including in transport and utilities, limits the scope of Hanoi’s economic ambitions. These must be fixed if investments are to remain in Vietnam.

10. G3 Central Bank Watch: More Fuel to the 2007 = 2023 Analogy

By Andreas Steno, Steno Research

  • We have used the 2007 = 2023 analogy a few times already this year and we continue to find coincidental evidence that looks a lot like the emerging pressures built up in the quarters preceding the financial crisis.
  • The outcome of 2024 is still up in the air, but credit indicators do not look pretty ahead of next year when we combine the impulse in China, the US and the Euro area in an aggregate model and judging from the central bank behavior, we see a lot of similarities to 2007 across the BoJ, the Fed and the ECB.
  • Let’s briefly explain why in this central bank watch piece! 

Weekly Top Ten Macro and Cross Asset Strategy

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Weekly Top Ten Macro and Cross Asset Strategy – Nov 26, 2023

By | Macro and Cross Asset Strategy

1. Steno Signals #74 – Did King USD Just Break?

By Andreas Steno, Steno Research

  • The sharp move in USDJPY and other USD pairs towards the end of last week has caught our attention and it arrives on the back of Powell letting go of the steering wheel on USD real rates.
  • The weekly credit data from the US economy keeps weakening and we are en route for a credit contraction in the US during Q1/Q2 next year.
  • Powell is probably right to let go of the tightness in USD real rates, but the question is whether he could be tempted to take back control in December in a final policy error?

2. KOSPI 200 and KOSDAQ 150 Rebalance Additions and Deletions Announced (December 2023)

By Douglas Kim

  • Korea Exchange announced KOSPI 200 rebalance additions and deletions today. There were 14 new additions and deletions (7 each).
  • Some surprises in KOSPI 200 rebalance included addition of Seah Besteel and deletion of HDC Hyundai Development. 
  • There were a lot more additions and deletions in KOSDAQ 150 (34 total additions and deletions). Among the KOSDAQ 150 additions included Neowiz, JNTC, Lunit, and Jeio.

3. The Land of Swaying Yen: Will The BoJ Intervene? How Will Yen Respond?

By Pranay Yadav, Mint Finance

  • Japan faces a raft of economic headwinds which shows up in Yen’s underperformance. BoJ’s job is not one to be envied given near-term issues plus structural challenges.
  • Since the start of Sep, the Yen has underperformed the most among currency majors declining to a 33-year low relative to the USD.
  • A frail outlook warrants continued loose monetary policy. However, that creates other problems forcing BoJ intervention to support the Yen.

4. Charting Beyond the Euro Area Headlines

By Thomas Lam

  • Available data through October implies that prevailing GDP growth is possibly tracking weaker than the prior quarter
  • A proxy of household saving propensity seems to be hovering around elevated levels partly because of greater uncertainty
  • Notwithstanding the recent disinflationary prints, the most persistent category of HICP inflation appears to be sticky at roughly twice the pre-pandemic average level

5. Fed’s Policy Rate Benchmark Under Scrutiny: Goodbye to the Federal Funds Rate?

By Said Desaque, DeSaque Macro Research

  • The poor results from the US Treasury’s latest 30-year bond auction highlights limited private investor appetite. Pressure on the Treasury to persist with high levels of short-term borrowing has increased.
  • Aggressive quantitative easing and interest on reserves have significantly lowered trading in the federal funds market by US banks, while Federal Home Loan Banks currently dominate lending.
  • The Fed’s policy rate could shift to the Secured Overnight Funding Rate. Functionality could be impacted by shifting perceptions about the collateral quality of Treasury securities due to high borrowing.   

6. Asia Geopolitics: Following Biden-Xi Meeting, Asia Is a Safer Place For Now

By Manu Bhaskaran, Centennial Asia Advisors

  • The Biden-Xi meeting signals a positive phase for lower geopolitical risks in the Asia Pacific. Beijing and Washington are prioritising handling its domestic challenges over ratcheting up competitive activity.
  • Taiwan’s presidential polls also motivate China’s “wait-and-see” approach as the Sinoskeptic DPP faces headwinds in maintaining its grip on power. 
  • Japan’s more nuanced strategy has gained it traction with Asian nations. It is why it is emerging as a real winner in the geo-political game in Asia.

7. How Far Can This Rally Run?

By Cam Hui, Pennock Idea Hub

  • The U.S. equity rally off the bottom in late October is characterized by strong price momentum and shows a high degree of upside potential.
  • Point and figure charting signifies measured objectives indicating percentage gains in the high teens or low 20s.
  • We also offer a series of sell signal triggers that indicate possible inflection points in risk/reward potential.

8. 5 things we watch: IFO, US rates, Earnings revisions, USD & Gasoline

By Andreas Steno, Steno Research

  • We start off this week’s 5 Things We Watch by having a look at the Ifo survey coming up this Friday in the midst of the Schwarze Null ruling.
  • This is followed by talking about US rates and Nvidia earnings and we then move on to talking about the USD while lastly finishing off with gasoline demand.
  • This week we are watching out for the following 5 topics within Global macro: IFO, US Rates, Earnings revisions, The USD, Gasoline.

9. Energy Cable #47: Price Always Leads Narrative

By Andreas Steno, Steno Research

  • Happy Monday to everybody from a cold and rainy Copenhagen.
  • We are now long crude oil again as we find the narrative too bearish given the fundamentals.
  • Before we start to talk about our crude oil case, we would like to highlight the volatility in post covid energy markets and how these have benefitted sellers in the futures markets more than buyers keeping storage costs constant.

10. Taiwan: Underowned, Yet Gaining on Peers

By Steven Holden, Copley Fund Research

  • The percentage of Global funds invested in Taiwan hits an all-time high of 57.8%.
  • Taiwan has been a key beneficiary of manager rotation alongside India, Argentina and South Korea over the last 6-months.
  • TSMC is the dominant stock holding, with 49.8% of funds holding a position and has hit record ownership among Global funds.

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Weekly Top Ten Macro and Cross Asset Strategy – Nov 19, 2023

By | Macro and Cross Asset Strategy

1. Increase in Trading of Inverse ETFs in Korea Post Temporary Ban on Stocks Short Selling

By Douglas Kim

  • In this insight, we discuss the increase in trading of inverse ETFs in Korea post the temporary ban on stock short selling.
  • From 6th to 14th November, individual investors made net purchases of 46 inverse ETFs worth 3.7 trillion won. Local institutions also made net purchases of 1.6 trillion won. 
  • On the other hand, foreigners net sold 5.8 trillion won worth of inverse ETFs. 

2. Steno Signals #73 – An Abysmal Impulse for 2024

By Andreas Steno, Steno Research

  • Happy Sunday and welcome to our flagship editorial! As per usual we take you for a chart-heavy guided macro tour around major asset classes.
  • Conclusions up front: – The credit impulse for 2024 looks abysmal– Rates volatility is likely going to rise sharply again– Equities still look (too) expensive on most parameters – JPY and CNY trends to continue worsening– Oil bulls have less to cheer about than Nat Gas bulls
  • Momentum in 2023 saw a positive impulse from 1) lower input costs for production due to lower commodity and energy prices than in 2022 and 2) Easing financial conditions due to higher multiples and an easing momentum in rates.

3. EUR Watch: Damned if You Do Until You Are Damned if You Don’t

By Andreas Steno, Steno Research

  • EUR assets will suffer if the activity levels rebound too quickly due to a lack of elasticity in the commodity/energy supply in Europe.
  • The EUR (and EUR assets) have suffered from a damned if you do, damned if you don’t a scenario in recent years as the scarcity of energy has taken center stage in the pricing of everything from the EUR, to EUR discount rates and EUR risk assets.
  • Low volatility in energy prices allows energy-sensitive industrials to brighten up the outlook, which is initially good for the EUR, but the problem is just that there is a potential negative embedded feedback loop in that journey.

4. Positioning Watch – The Cocktail of Heavy Logs in Both Equities and Bonds

By Andreas Steno, Steno Research

  • Hello everyone, and welcome back to our weekly positioning watch, which due to delays in the CFTC data has been postponed to today (data was available yesterday evening).
  • Almost as usual, markets find themselves in an odd position, as they await the next big event to move price action after Powell’s latest shocker a couple of weeks ago coupled with a severe sell-off in bonds in recent weeks.
  • Today’s CPI report will likely not change a whole lot, but equity markets may continue their run upward if we are right in our prediction from yesterday (more on that here).

5. Energy Watch: Time to Buy Oil Again?

By Ulrik Simmelholt, Steno Research

  • Conclusions up front: – We agree with OPEC that the demand side seems to be doing decent; paper markets are net short oil again.
  • Our model is approaching the buy zone despite the recent weakness seen in Oil.
  • The big risk to our model is a supply increase from an exhausted Saudi Arabian one-man-army.

6. USD CPI Watch: The tricky path to 2% despite a soft report

By Andreas Steno, Steno Research

  • Another CPI report, another preparation piece, where we as always share our thoughts on the coming report, what to expect next, and how far the Fed is from their all-important mandate of 2% inflation.
  • Main conclusions/notes upfront: 1) The path to 2% is tricky or almost impossible for the next 6 months.
  • CPI needs to average 0% MoM, which does not seem feasible.

7. Five Bullish Risk Reversals You May Have Missed

By Cam Hui, Pennock Idea Hub

  • We’re old enough to remember how the market was panicked about a U.S. recession and a rising term premium in the Treasury market.
  • Since then, a series of positive technical, macro and fundamental reversals have occurred to alleviate those concerns.
  • These reversals of an extremely bearish psychology are bullish for risk assets.

8. UK CPI Watch: No Path to 2% Unless Inflation Deflates on a Monthly Basis

By Andreas Steno, Steno Research

  • Welcome to our short and chart-packed preview of UK inflation out tomorrow morning.
  • Extreme base effects are at play in October due to energy price revisions in October 2022
  • Housing and household services are about to turn negative year over year 

9. US Inflation: First Take!

By Jeroen Blokland, True Insights

  • Disinflation Lives! US consumer prices were unchanged in October. As a result, headline inflation dropped to 3.2%. Core inflation declined to 4.0%, the lowest level in two years.
  • However, like last month, the underlying data look less upbeat. The 3-month annualized Core Services excluding Housing CPI has risen for four(!) consecutive months and reached 4.9% in October.
  • The disinflation narrative remains intact, opening the door for the Fed to proactively lower interest rates. But it remains doubtful whether Powell & Co. are truly inclined to do so.

10. 5 Things We Watch: Trump, Electricity, CPI, Crude Oil, Fixed Income

By Ulrik Simmelholt, Steno Research

  • This week we start out by looking at Trump’s chances of getting reelected then move on to European electricity markets after that we’ll discuss yesterday’s CPI print before moving on to crude oil and then ending with fixed income positioning.
  • President Biden’s approval ratings continue to sour as the country heads into potential Oil price headwinds and numerous unsolved foreign policy challenges.
  • The Biden camp has launched a number of PR offensives during 2023 – most notably the coining of “Bidenomics”, but none have managed to close the gap, which has even accelerated since summertime.

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Weekly Top Ten Macro and Cross Asset Strategy – Nov 9, 2023

By | Macro and Cross Asset Strategy

1. QT Dead…Risk On Again?

By Michael J. Howell, CrossBorder Capital

Risk asset markets are racing ahead. Is the bull back? We argue that not much has changed, except that QT (quantitative tightening) is effectively ‘dead’

  • Three events have changed investors’ mood: US Quarterly Refunding (QRA), Fed FOMC Statement and H4.1 Release, and a downbeat October ISM Print
  • Most important by far is the QFA. This effectively ‘added’ a net US$80 billion of liquidity to US markets. It confirm ‘fact’ that QT effectively dead
  • Risk still remain in our view. These events underscore a flat market in risk assets. Equity bull market still requires positive Central Bank liquidity injections and a stable bond market

2. Korean Government Ready to Temporarily Suspend Short-Selling: A Move to Gain More Votes?

By Douglas Kim

On 3 November, numerous local media outlets reported that the Korean government is likely to temporarily suspend short selling in the Korean stock market for about six months.

  • On 3 November, numerous local media outlets reported that the Korean government is likely to temporarily suspend short selling in the Korean stock market.
  • According to a high level ruling party official, the Korean government plans to announce temporary ban on short selling stocks no later than on 15 November for about six months.
  • There is a major legislative election in Korea in April 2024. If there is a temporary ban on short selling stocks, this could be viewed negatively by many foreign investors.

3. 5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company

By Douglas Kim

The Korean regulators are actively considering a plan to limit the short selling repayment period for foreign and institutional investors to 90 days (same as the individual retail investors).

  • In this insight, we discuss the five important factors impacting potential regulations changes of shorting stocks in Korea.
  • The Korean regulators are actively considering a plan to limit the short selling repayment period for foreign and institutional investors to 90 days (same as the individual retail investors).
  • More than 400 years ago in 1609, a Dutch businessman called Issac Le Maire started to short shares in the Dutch East India Company.

4. Credit Watch: The Worst Is Behind Us in the SLOOS, But…

By Andreas Steno, Steno Research

The quarterly SLOOS survey from the Fed was released a bit more than an hour ago and the results resemble the quarterly credit surveys from Japan…

  • The quarterly SLOOS survey from the Fed was released a bit more than an hour ago and the results resemble the quarterly credit surveys from Japan and Europe released ahead of the US ditto.
  • There is a sequential improvement in demand, while fewer banks tighten standards compared to Q3.
  • So, is it good news or did the survey rather confirm the credit contraction?

5. Portfolio Watch: November Bear Market Rally?

By Emil Moller, Steno Research

As I am sure you are aware we have been awaiting the exact market move we have seen this week: The long end of the UST curve catching a breather fueling an inevitable risk-on rally.

  • Hello Everybody and welcome back for our weekly Portfolio Watch! As I am sure you are aware we have been awaiting the exact market move we have seen this week: The long end of the UST curve catching a breather fueling an inevitable risk-on rally.
  • That fear is essentially why we have abstained from going full-on short beta these past weeks.
  • A decision we are content with this week.

6. Steno Signals #72 – When a Recession Meets a Melt-Up in Equities and Bonds

By Andreas Steno, Steno Research

The BoJ no longer has a firm guidance towards higher 10yr bond yields, the Fed accepted higher long bond yields as an excuse to pause and economic data has been abysmal.

  • Happy Sunday and welcome to our flagship editorial! What a week.
  • The BoJ no longer has a firm guidance towards higher 10yr bond yields, the Fed accepted higher long bond yields as an excuse to pause and economic data has been abysmal.
  • That cocktail has so far allowed the everything rally to thrive in a way we haven’t seen in quarters, but the feedback loop introduced by the big central banks may limit the scope of the bear market rally.

7. Thailand: Government Shows Early Signs of Impotence

By Manu Bhaskaran, Centennial Asia Advisors

Bangkok’s haphazard planning of the digital wallet stimulus is a symptom of broader policy paralysis given the unwieldy coalition government.

  • The cyclical outlook for Thailand remains mixed despite the formation of the government. Signs of policy impotence are emerging, limiting the administration’s ability to respond.
  • The messy implementation of Pheu Thai’s flagship digital wallet is but one sign of policy paralysis. The pro-Thaksin party is stuck in myopic populism to prop up its support.
  • The unwieldy composition of the coalition means that hopes for economic and political reform are unlikely to be met. Economic upsides from political stability are thus limited.

8. EIA Watch: Oil demand up, Fuel demand down..

By Andreas Steno, Steno Research

Welcome to our weekly EIA Watch where we use our sophisticated models to filter noise from actual trends in the EIA demand data for Energy…

  • Welcome to our weekly EIA Watch where we use our sophisticated models to filter noise from actual trends in the EIA demand data for Energy products.
  • Since a week ago, Oil has rebounded in the non-adjusted implied demand while transportation fuel demand weakness is seen across Gasoline and especially Diesel.
  • We continue to find the Gasoline demand out of whack with reality, while the Oil demand looks to be closer to the actual demand.

9. Will Euro Shrink to Parity to the Dollar on Diverging Macro Economic Conditions?

By Srinidhi Raghavendra, Mint Finance

Euro-Dollar parity murmurs are creeping back into the market. Economic divergence will force euro to weaken but others believe that pessimism is already priced in.

  • Since December 2002, the euro has traded above parity to the USD with the only exception being the last quarter of 2022.
  • Following central banks rate decisions to pause hikes across both sides of the Atlantic, volatility in the Euro/USD pair is near 12-month lows.
  • Low volatility equates to lower option premiums. Periods of low volatility offer best opportunity for going long options.

10. Macro Regime Indicator: Heavy Long in Cyclical FX

By Elias Lisberg Glistrup, Steno Research

We anticipate consistent QT in both USDs and EURs in the forthcoming month. On a 3-month time frame, and given the assumed conditions, our model suggests a substantial allocation towards gold.

  • With the turn of October, it’s time for our monthly evaluation of both the present and coming month’s macroeconomic conditions, in which we weigh risks against rewards.
  • In order to do so, we employ both our Macro Regime Indicator framework and the interactive Structural Asset Allocation Model.
  • In combination, these tools provide an empirically rooted portfolio allocation, given the identified macro conditions and drivers in financial markets.

Weekly Top Ten Macro and Cross Asset Strategy

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