In today’s briefing:
- Latest Fed Policy Guidance Signals Green Light for Melt-Up in US Risky Assets
- The Investor’s Cyclical Mystery
- India Deep Dive: Record Allocations Mask Growing Underweight
- Steno Signals #92 – The head fake reflation?
- Portfolio Watch: Data green-lighting continued rally – cautious metals however
Latest Fed Policy Guidance Signals Green Light for Melt-Up in US Risky Assets
- 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.
The Investor’s Cyclical Mystery
- 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.
India Deep Dive: Record Allocations Mask Growing Underweight
- 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.
Steno Signals #92 – The head fake reflation?
- 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.
Portfolio Watch: Data green-lighting continued rally – cautious metals however
- 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.
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