Shehriyar Antia was William Dudley’s right-hand man at the New York Fed. He also advised Janet Yellen, Ben Bernanke and Tim Geithner, before founding Macro Insight Group in 2013. In this report he sums up his main views on inflation, where he argues that there are few signs of ‘’classic’’ wage driven inflation, despite strong labor markets. His latest work can be purchased on ResearchPool. Alternatively contact the provider directly.
Asian growth may be slowing. But under the hood, Asia is changing – fast. These changes at both the economic and index level should be a boon to active managers, creating around 120bp of annual returns that may be available to active managers, that a passive manager will struggle to capture, say UBS. This more than offsets the typical fee difference between and active and passive product. Tokyo macro strategists, Niall MacLeod and Matthew Gilman explain in this piece. UBS clients can view the full note on UBS Neo.
China’s economic data can be frustrating to follow, given the limited movement of several key measures of output, particularly headline GDP growth, writes Logan Wright from Rhodium Group. So Rhodium have developed an alternative, unveiling their China Activity Tracker (R-CAT), which attempts to gauge shorter-term inflection points in China’s industrial output growth using a more systematic approach to weighting official production data and assessing the state of China’s economic cycle. If you’d like to get access to this proprietary approach, click below to contact Rhodium directly. They would be happy to provide complimentary access to this ground breaking approach.
CrossBorderCapital are specialists in liquidity analysis and how this can be applied to tactical asset allocation. They take a three-dimensional view of EM risk by using three broad quantitative factor inputs: (1) exposure risk – how ‘crowded’ is the investment class; (2) liquidity risk –how easily can existing positions in the market be re-financed if necessary, and (3) FX risk – what are the odds of devaluation? These sub-indexes are combined into a forward-looking Composite Risk Index by economy, using weights informed by machine-learning algorithms. This report outlines which countries have lowest and highest investment risk in the EM complex. CBC’s latest global liquidity update is available for purchase on RSRCHXchange. Alternatively contact the provider directly for their reports.
Anderew Zatlin from Southbay Research has a unique, and often valuable take of the driving forces for US and global growth. He’s put together an interesting presentation on the dynamics of the global supply chain. Through 1H 2016, a global realignment of supply to demand drove a wave of deflation and inventory destocking, with knock-on impact to CAPEX, Payrolls and so on. This was followed by a re-stocking wave that began in 2H 2016 and continues into 1H 2017, says Zatlin. With the destocking/restocking wave now ending, the supply chain remains optimistic, but does not yet see signs of other sources of growth. From cargo shipping to production, signs are already emerging of a pause (i.e. growth will slow again). The presentation then focuses key metrics markets need to track to ascertain whether this is indeed a pause, or something much more serious. If you would like to get access to this presentation, contact Zatlin directly. He would be happy to provide on a case-by-case basis.
Des Supple of Event Horizon Research has just published a report that looks at the Scottish economy in light of the increased prospects for independence, and what options the government may have in terms of it’s future exchange rate regime. Supple says the economic argument for Scottish independence remains weak. Scotland’s fiscal position, combined with it’s ambition to rejoin the EU, would ensure years of painful economic austerity. Moreover, Scotland’s weak external liquidity position and the UK’s opposition to the country retaining the GBP means that the most realistic options for a future monetary anchor would be a currency board or, and far more appropriately, a floating exchange rate. Both options come with macro-economic costs, according to Supple’s assessment. This report can be purchased on RSRCHXchange and AlphaExchange. Alternatively contact the provider directly.
EM dollar debt has produced some excellent returns for investors. The question is how much juice is left in this trade? In this podcast, Mehran Nakhjavani discusses the outlook for EM dollar debt and also for Mexican financial assets. While still overweight EM dollar debt, Nakhjavani does sound a warning, based on this asset class’s substantial commodity exposure. Mexico, on the other hand, is a clear candidate for an upgrade: its currency, its peso bonds and its dollar bonds all look attractive. If you would like access to the podcast, or associated written reports, contact the provider directly.
Ned Davis from Ned Davis Research reckons we are in the late phases of a passive index bubble and that over the next five years, there will be great opportunity for active managers to outperform passive managers. While the time horizon might seem long, and even if one agrees that indexes are overvalued and flows toward passive funds have been excessive, how does one know that the trend has gone too far? Davis points to correlations. One of the reasons behind the success and popularity of passive investing has been zero interest rates has been that everything else looks attractive when compared to that, and so everything has been correlated. As rates have begun to move off the zero-bound, many of those correlations have started to break down, And therein lays the opportunity, writes Davis.To access the full piece, contact the provider directly.
Last year markets were “surprised” by the reflation trade but have now caught up, however surprise could turn into disappointment as cyclical growth/inflation data peaks, writes Julian Brigden from MI2 Partners, who made a very early call on the reflation trade in Q1 last year. Now, those same metrics – that helped Brigden and his team catch the lows in yields – suggest a high, and so risk reward suggests that investors should get out of Treasury shorts, although they should continue to focus on Europe in terms of the reflation trade. MI2’s research can be purchased on RSHCHXchange, alternatively contact the provider directly.
Back in January, Diana Choyleva from Enodo Economics published a report which argued that Beijing was committed to reining in financial risks this year and that investor complacency about “China risk” would be tested first in the domestic interbank market. It was a prescient call, as it has come to pass last week. In a note late last week, she outlined what’s driving the volatility and the potential risks for China’s financial institutions and increased volatility for markets more broadly. Choyleva founded Enodo Economics last year after 16-year’s at Lombard Street Research, where she was most recently chief economist and head of research.