Our Macroeconomic Briefing will be taking a break over the month of August, so our coverage of the research market and the dominant themes will be intermittent over the coming month. We’d wish all of you taking a break in August, a very relaxing and well deserved holiday.
Substantive's Top Themes - Best of the Broker Notes
1. Hawkishness Will Come to Nothing
Llewellyn Consulting provides a consistant, succinctly and tightly written research on a range of macroeconomic themes. They've just launched a new research series in response to the number of requests for periodic detailed analysis by theme. The series called ''Blue Book'' will be on a specific theme that affects economies and markets; each will draw together everything important that they know and have written upon about the subject, generally over a run of years. Their first edition is on the interest rates theme where their essential argument is that the world will remain in an historically low interest rate configuration for the foreseeable future. Their reasoning is that world slow-growth environment seems likely to endure, while contributory factors include legacy effects from 2008 and broader structural considerations which are all explored here. It's a excellent piece bring together a wide body of work, which is well worth exploring.
2. Uberfication – Global Sharing Economy Primer
With disruptive business models based on rental, on-demand, gig, access, collaboration, platform, circular and P2P, Felix Tran, thematic investing analyst at BAML, introduces the challenges and opportunities within the companies transforming 21st-century business. These tech-focused models are unlocking the value of unused and under-used assets, driving a shift from asset-heavy to asset-light businesses and enabling access over ownership, says the BAML report. This increasingly growing business model is estimated to be a market of US$250bn but the potential addressable market at US$785bn in the US, US$645bn in Europe and US$500bn in China. By comprehensively explaining sharing economy as an umbrella term which describes a range of market activity transacted over online platforms, BAML highlights the sectors that are more likely to be disrupted: 1) Transportation; 2) Travel, Leisure & Workspace; 3) Food; 4) Retail; 5) Media; 6) Financials. It additionally sets out the challenges including regulation, taxes, workers’ rights and inequality. The Sharing Economy will eventually disrupt most sectors, with more companies needing to re-examine how they create value, argues BAML, believing that many Sharing Economy companies could eventually address trillion+ rather than billion+ dollar markets in the most bullish scenario.
3. Equities; Appetite for Disruption
In January the Credit Suisse equity strategy team published ‘’Global Equity Themes: Appetite for disruption.’’ Their analysts provided their view on disruptive risk faced by c2700 companies globally. In this short update they review the performance of the stocks selected at the time and update their “cheap & undisruptable” versus “expensive & disruptable” baskets. Their framework assesses risk faced by companies from 3 specific disruptive forces. These are 1) Competition/globalisation: e.g. “China as a threat” vs. the impact of a “multi-polar world” 2) Regulation: e.g. “Petrol and Diesel cars no longer allowed’’ 3) Technology: e.g. Automation to make 1 in 2 jobs redundant. The report looks to address the following question: Who’s at risk and is the market seeing this too. CS clients can view the full note on CS Plus.
4. The Semiconductor View on Growth
Recent semiconductor data continues to point to 2.5%+ year-on-year growth, which implies 3% month-on-month GDP, says Andrew Zatlin from SouthBay Research. That growth certainly seems to be more likely given the release this week of June data, which showed a slightly improved quarter-on-quarter trade picture, which coupled with an uptick in June’s supply chain orders will be positive. SouthBay Research focuses delivering actionable data and insight on labor and capital goods markets, the core elements of business and economic activity. For capital goods, they track the semiconductor sector. During the industrial age oil and steel were the universal common denominators of economy, silicon is the equivalent in the digital age. Simply put, what happens in the semiconductor world typically foreshadows what is about to happen in the rest of the economy. We highlight this presentation published last week where Zatlin outlines how the global supply chain indicates slowing global growth momentum. Click here if you would like complimentary access to this report.
5. Why The Fed Will Raise More Than You Think
The Fed fund futures markets indicates that the Fed won’t raise rates as aggressively as their DOT plot suggests, observes MRB. The market is wrong, says MRB. In this report they provide a series of charts that show why the Fed is already behind the economic growth curve, and that monetary conditions are overly easy in the US, and why the US economy is now LESS sensitive to raising US interest rates. The bottom line is that MRB believe the Fed will stay the course, and as a result the recommend investors stay underweight government bonds and US Treasury’s within global fixed income and multi-asset portfolios. Click here to request complimentary access from MRB directly.