US Foreign Policy, Two Months Later

Philippe Dauba-Pantanacce, an economist and geopolitical strategist at Standard Chartered, writes some of the most insightful and succinct analysis on geopolitics across the sell side research space. We highlight his latest piece that looks at President Trump’s foreign policy stance two months on from his inauguration. It’s a good time to be reassessing this, given Trump’s meetings with Xi last weekend, and NATO Secretary General Jens Stoltenberg yesterday, and the recent air strikes on Syria. Some media outlets observe a major change in his pre-election rhetoric, but Dauba-Pantanacce sees more continuity than rupture, with a classic Republican hawkish bias, adding that there is no clear doctrine yet, Any of these apparent shifts are more of a reflection of competing government-institution influences. StanChart clients can view the full note via the research portal.

French Presidential Programs Under the Lens

It’s probably not a surprise that SG have been prolific on their coverage of the French elections, and we can verify that it is well worth the effort to read. So as a deep-dive complement to their cross asset report, Trading election programmes, SG have just released two reports today the merit close review. The first is French presidential programmes under the lens, examines in detail each major candidate’s economic programme. The second, Europe after the French elections, focuses on the potential implications of the French elections in determining the future shape of the EU project. SG clients can view the full note via the bank’s research portal.

Equity Market Correction; Risk is Elevated

The Macro Research Board produce quality macro research, but also some strong equity sector work. In their latest report on US equities they warn that the risk of a near-term equity market correction is elevated, yet at the same time, cyclical conditions remain positive. Thus a moderately pro-growth stance is recommended. That means staying OW financials and UW energy. If you would like access to this report, click below to request it directly from MRB.

Fed Balance Sheet: What’s the Optimal Balance Sheet Size?

A key question for markets when it comes to the Fed’s balance sheet is what is the optimal terminal size it should be targeting. Goldman Sachs economist David Mericle has written this piece that looks at a range of scenarios. For instance, what is the minimum size necessary to implement monetary policy, consistent with its current guidance? Or will the Fed decide  to maintain a significantly higher level of reserve balances than before the crisis for reasons related to regulatory needs, monetary policy considerations, and/or crisis management?  Mericle provides his estimates of terminal (% of GDP) and the probable time frame. Goldman clients can view the full note via Goldman 360.

Fed Underestimates the Potency of its Balance Sheet At its Peril

The Fed believes reducing the balance sheet and raising Fed funds are interchangeable. This view is flawed, according to Julian Brigden from MI2 Partners. The balance sheet is far more potent than the Fed thinks, and hence is more dangerous, Brigden argues in this piece. One should be aware of the consequences, which are that a reduction in the balance sheet is deflationary, would most likely turbo charge the dollar and – unless credit creation steps up to fill the gap – could lead to a major draw down in 2018. This piece can be purchased on RSRCHXchange, alternatively contact the provider directly.

Japan Wage Inflation at an Inflection Point

Sean Maher from Entext writes that one of the biggest dampeners of wage growth in Japan has been the increase in non-regular workers who comprise almost 38% of the workforce. That’s about to change he says, and so wage inflation is set to pick up considerably, he writes in this report. This’s piece can be purchased on RSRCHXchange, alternatively contact the provider directly.

Why US banks are Better Bet than European

Dave Hendler, the veteran financials credit analyst, provides a candid, often brutal, but considered analysis of global banks. He’s been particularly critical of the European banking system. Late last year he published a piece where he argued that the great banking race between US and European banks was over, and US banks were the winners. He’s just launched a new weekly note entitled ‘’Systemic Sirens Song Weekly,’ which is a weekly report on forward thinking views on systemic financials globally. Last week’s edition looked at Credit Suisse, which continues to run into trouble with regulators, while at the same time destroying shareholder value. Viola considers the bank ”high risk.” He also looks at US regional player, Citizens Financial Group, discussing the challenges regional players face, and his outlook for the bank itself. There’s also a section called ‘’Systemic Siren Movers’’ which looks at the biggest movers, either up and down, in terms of capital shortfalls or surplus. If you’d like to access this note, or any other pieces, Viola is happy to be provide complimentary access on a case-by-case basis.

M&A, Credit, Positioning, and Multi Asset Portfolios

The SG equity team last week published their 2017 update of their M&A outlook, where they took a closer look at recent trends in the global M&A cycle and provide a very positive outlook for the M&A pipeline through 2017. They cite toppish corporate margins and sluggish organic growth which are putting pressure on management to use cash and re -leverage balance sheets, as the predominant driver, but they also cover multiple other drivers. How will this activity be financed? SG prefer equity to credit here, because the credit market won’t have much appeal at a time when leverage is already high – and in a rising yield environment, the equity space outperforms credit 78.2% of the time, according to their data going back as far as 1990. SG clients can view the full note via the research portal.

Time to Rotate into Japan Equities

In common-currency terms, the Japanese equity market is on the cusp of an important breakout, with prices testing their 2015 and post-recession highs, writes MRB Partners. Investor interest is also ratcheting up, with many looking to the market as a potential rotation alternative to the comparatively expensive U.S. MRB dedicate a section of their Weekly Macro Strategy report to assessing the Japan equity market, by sector. As they say, it’s a market that has repeatedly disappointed, but it’s worth looking again beneath the headlines to assess whether key sectors are confirming the bullish trend.

US Autos; No Systemic Risk

How exposed are US banks to auto loans? Well, a lot less than some of the wholesale funded, often PE owned, finance companies that have pushed the envelope in subprime loans at a time when collateral values are dropping, writes the CreditSights financials team. In this meaty report they give a complete breakdown of auto loan exposures of all US banks on their coverage list. At either end of the exposure scale, Capital One, Huntington, Fifth Third have the highest, while BAML, M&T and KeyCorp have the lowest. IF you’d like access to this report, contact the provider directly.