Macro and Cross Asset Strategy

Weekly Top Ten Macro and Cross Asset Strategy – Jul 7, 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. Korean Government Announces Corporate and Dividend Tax Incentives Under Corporate Value Up Program

By Douglas Kim, Douglas Research Advisory

  • 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.

By Andreas Steno, Steno Research

  • 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?

By Nitin Mangal, Trudence Capital Advisors

  • 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?

By Douglas Kim, Douglas Research Advisory

  • 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

By Andreas Steno, Steno Research

  • 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.

By David Mudd

  • 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

By Alex Ng, Fortress Hill Advisors

  • 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

By Alex Ng, Fortress Hill Advisors

  • 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

By Alex Ng, Fortress Hill Advisors

  • 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

By Alex Ng, Fortress Hill Advisors

  • 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.