The fall-out from Catalonia’s referendum will be with us for ages. But in market terms, this has so far been a mere blip. Mario Draghi’s two big interventions, the ‘whatever it takes’ speech in 2012 and asset purchases over the last two years, have been much bigger drivers of market indicators, such as the Bono/Bund spread, argue analysts. Indeed, the overall market bias is risk-friendly, as a glance at charts of SPX or NKY would suggest. In today’s macroeconomic briefing we shine a light a range of future macro touch points. Clearly the stability of the EU, and the periphery will be important as the Brexit negotiations take place and today we feature a piece on Greece, and on the potential of the UK joining NAFTA. We also look at China PMIs, the commodity price outlook in 2018 and asset allocation. Is now the time to remain overweight equities?
Substantive's Top Themes - Best of the Broker Notes
1. The UK and NAFTA
2. China PMIs Slip: Real or Just Sentiment Driven?
Who better to talk about the Caixin China Manufacturing PMI than Caixin Insight Group. In this report they ask the question about whether the slippage in the manufacturing PMIs is an indication of an economic downturn, or just a change in sentiment. To be sure manufacturing is still expansionary, but the rate of growth is declining. At a composite level, China's PMIs are in decline, which Caixin Insight Group reckon means that 4Q China growth could be under pressure. Click below to request a trial with the Caixin service.
3. Where to Next for Greece?
MacroPolis is an insight service focussed on all things Greek, and one of the better resources on the nation and economy written in English The recent conclusion of the second programme review marks the start of a new chapter for Greece, ending a period of uncertainty and providing some clarity for the short- to medium-term. MacroPolis have just published a report that sets the scene for the post-review period, outlining the current state of affairs and highlighting the challenges and opportunities ahead. It is an invaluable guide to the dynamics likely to shape future developments, for anyone interested in investment in Greece. It updates the latest economic developments, the political landscape, global factors, status of the programme and they focus on key sectors; banking (NPL market), energy, logistics and tourism. You can take a trial to access this report, or purchase the report and recieve a 1-year subscription.
4. All Roads Lead to the Fed; Go OW Equities
The evolution of the outlook for Fed policy is, in the view of Longview Economics, the single most important driver of price direction across global asset classes, the firm writes in its latest edition of its Quarterly Global Asset Allocation report. In this respect, weak US inflation, disappointing US macro data (particularly in 1H) and the ‘pricing out’ of Fed rate hikes this year has set the stage for the key top level themes in 2017, say Longview. Therefore, the overarching question for global asset allocators, is whether recent weakness in US inflation and the economy will persist – or whether it’s nothing more sinister than a temporary soft patch? Longview's analysis suggests it’s the latter, with a likely re-acceleration of US economic activity, inflation and a re-pricing of interest rate expectations. In Longview's analysis this means being overweight DM equities, and underweight all other asset classes based on a 6-month-to-2-year view. This piece can be purchased on wither ResearchPool, RSRCHXchange or AlphaExchange, alternatively contact the provider directly.
5. Commodity Outlook: Surfing Smaller Waves in 2018
With commodities boosted by the 2017 global growth upturn, Nick Exarhos from CIBC takes a more cautious stance for what prices might look like over the next two years, in this commodity outlook piece. With growth acceleration caused by central bank policy and China’s ongoing effect on resources, metals’ prices will continue to be supported over the balance of the year. However, for the next couple of years, falling supply will become a bigger driver of commodity profiles, argues Exarhos, who suggests that supply increases will be forthcoming thus creating to downward pressure on prices in the year ahead. CIBC explains its near-term view on metals and energy in this concentrated report. CIBC have kindly given us access to the full note. Click below.
6. Vol Markets: Hedge Fatigue Becomes Hedge Avoidance
Macro Risk Advisors have built a strong following on Wall Street as specialists in volatility as an asset class and more importantly the inherent risks contained within many of the structures that incorporate volatility products. They've just launched a new research product, Global Market Risk, where they share their views on the investment climate, identify potential risk catalysts and provide actionable trade ideas. In their first piece, they summarize their recent work around volatility, both its causes and impacts, and contemplate the current state of low option prices in the context of market reflexivity. They also detail the performance of their model cross asset, long volatility portfolio, sharing views on how they utilize it to source convexity and cover off certain specific risk scenarios. For example, the big gain in the portfolio has been their "Fed faster" short calendar spread in Eurodollar futures. MRA are happy to provide this report to interested potential clients. Click below.