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.

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.

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.

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.

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.

The EM Breakout

Jeffrey deGraaf from Renaissance Macro Research is upfront in this report that he was a little too early in reducing his conviction level on EM vs DM. While he wasn’t bearish, it was simply more of an incremental move towards increasing doubt. He’s reassessed, arguing buying into recent weakness would have been the better strategy, because EM FX is now breaking out on a multi-year basis with the MSCI EM vs MSCI Developed on the cusp of doing the same. Against the greater macro backdrop of a weak US dollar environment (driven by yield, growth, and policy differentials) it stands to reason that EM currencies and therefore EM equities will continue to do well, he writes in this report. He identifies countries for outperformance, with Mexico his top pick for longer term investing based on RenMac’s SERM scores. For developed-only managers, RenMac have revisited and updated their correlation study between European stocks and EM performance, selecting the best looking charts from within the top 20 European stock/EM correlations. Click below to request access directly from RenMac

MRB: Will the USD Revive?

At the end of 2016 MRB began writing that its long-term bullish view on the dollar was coming to an end, and that the cyclical advance that characterized the long period of appreciation was maturing. In this report they argue that this cyclical advance is not over yet, but upside will be limited and more narrowly defined. As a result their approach is to continue to sell into strength. rotating towards the euro, Swedish krona, Mexican peso and currencies of EM Asia ex-China. As for the Yen, they recommend a continuation of being underweight the Japanese currency. Click here to request access to the full report directly from MRB.

The End of Abenomics; Impact on the Yen and Japan

JPMorgan’s Tohru Sasaki, Shumpei Kobayashi and Maoko Ishikawa have put together their market views on Japan in the event that Abe is forced to resign. Their view essentially boils to down to short and medium term effects. In the short term, a large strengthening in the Yen due to positioning and a sell off in equities (forecasts included within the piece), but price reversion thereafter. The logic is sound. ABe may be the current front person, but fundamental governement policy is very unlikely to change if the governement remains in LDP hands. JPM clients can view the full note on Morgan Markets.

Demand For Duration Versus QE Wind Down

Interesting piece here from the team at RDQ Economics, on US Treasury yields. They discuss how QE has likely reduced the supply of duration relative to the demand for duration which then caused a lowering of term premiums and real yields. As QE begins to be unwound – firstly in the US, RDQ anticipates these forces will reverse. This piece, and other research from RDQ can be purchased on AlphaExchange and Research Pool. RDQ can also be read on the SmartKarma platform.

Stay Over-weight Equities (for now)

Longview Economics have maintained a consistent equities overweight to their asset allocation work for several years, at a time when many strategists prematurely called an end to the bull markets. In this piece, strategist Harry Colvin writes that with the Fed rate hiking cycle underway, and with other central banks shifting towards more hawkish language, the central question for asset allocators is whether policy tightening is about to expose the structural fragility of the global economy. Longview maintain a sanguine view, saying that despite gradual tightening steps by the Fed, those key indicators still point to loose monetary conditions and therefore ongoing economic expansion. It’s also clear that the US corporate sector is in relatively good health, the report adds. Colvin therefore continues to recommend staying OW risk assets in longer term portfolios. Longview’s research can be purchased by the piece, or by subscription on Alpha Exchange. Alternatively contact the provider directly.