Disclaimer: The following content is an archive of Substantive Research Discovery – Trending Investment Themes, as delivered as weekly insights to our paid subscribers. Links to gated content have been removed.
Longview Economics: China balance sheet recession (December 14)
The Chinese real estate market has been experiencing a major bubble, with certain cities being among the most expensive in the world. The real estate sector has grown to 30% of Chinese GDP, leading to high levels of leverage, record high investment share of GDP, and a misallocation of capital. However, the bubble has burst and the market is now deflating. Property developers have gone bankrupt, investor psychology has been affected, and the process of price discovery has stopped working properly. Consumer confidence remains low, and there are concerns about the social contract between the state and individuals, as well as the Chinese economic model. The unwinding of these imbalances is expected to generate long-term headwinds for China’s economy, and the policy response to the bursting of the real estate bubble is designed to support land and house prices, as well as government revenues. However, there are downside risks to China’s economy, including a lack of stimulus from policymakers, poor outlook for credit growth, and households not spending their cash. Click here for the full report. Click here if you would like to speak to the analyst.
Clocktower Group: China macro watch – December policy meeting takeaways & 2024 outlook (December 13)
The December Politburo meeting and the Central Economic Work Conference in China have reaffirmed Beijing’s preference to continue muddling through in 2024, according to this report by Clocktower Group. While policymakers may set next year’s growth target at around 5%, the lack of meaningful stimulus is likely to deepen market concerns over deflation and wealth destruction. Beijing’s fiscal guidance for 2024 is moderate at best, dashing hopes for an aggressive central government balance sheet expansion. The report also highlights the deflationary forces of ongoing property market depreciation and Beijing’s commitment to preventing moral hazard and corruption. As a result, Chinese equities are expected to underperform the rest of the world in 2024. However, the report suggests that commodities may stay resilient in 2024 despite macro weakness, but overcapacity issues in new economy sectors could pose challenges in 2025. Click here for the full report. Click here if you would like to speak to the analyst.
MI2 Partners: If there’s life in manufacturing, watch out (December 14)
This report discusses the importance of the manufacturing sector in economic and market cycles. It highlights Sweden as a key indicator for the manufacturing cycle, as its performance often precedes that of larger economies like the Eurozone and the US. The text notes that Swedish manufacturing is showing signs of recovery, with exports back into expansion territory. It also mentions that there are indications of a potential bounce in the US manufacturing sector, with inventories declining and new orders stabilizing. However, the text cautions that the current cycle is atypical and uncertain, and betting solely on manufacturing could be risky. It suggests that a reacceleration of manufacturing momentum could be problematic for markets that are pricing in a major easing cycle, as historically, central banks have responded to manufacturing expansion by hiking rates or ending easing cycles. Click here for the full report. Click here if you would like to speak to the analyst.
Global X: Charting disruption
The “Charting Disruption 2024” report by Global X Management Company explores the potential disruptions and trends in various industries for the year 2024 and beyond. The report highlights the importance of infrastructure development, particularly in the United States, with significant investments being made in areas such as transportation, energy, and manufacturing. The adoption of artificial intelligence (AI) and robotics is also discussed, with a focus on generative AI and its transformative power. The report predicts that generative AI will bring about a new paradigm where consumer experiences and enterprise applications are intelligent and interactive. It also emphasizes the rise of smart machines, including autonomous vehicles and the impact they will have on various industries. The report concludes with insights into the growth of electric vehicles and the shift towards greener transportation. Click here for the full report. Click here if you would like to speak to the analyst.
Beacon Policy Advisors: Biden’s regulatory drive to shape 2024 (December 14)
The Biden administration is set to shape the regulatory landscape in 2024, according to the latest Unified Agenda of Regulatory and Deregulatory Actions. The agenda highlights the sheer volume of rulemaking coming from the Biden administration, with a focus on areas such as financial regulation, consumer finance, energy and environment, tech-media-telecom, labor policy, and healthcare. The timing of these regulations is expected to be concentrated in the first half of the year, as agencies rush to complete as much as possible before potentially leaving office. However, the Supreme Court’s decisions on cases related to agency deference could impact the regulatory landscape. The full effect of these decisions may not be felt if Biden does not win a second term, but they could provide further fodder for business groups’ attempts to push back on regulators. Click here for the full report. Click here if you would like to speak to the analyst.
Pantheon Macro: The Fed is done; inflation undershoot will trigger easing in Q1 (December 14)
The Federal Reserve is cautious about declaring victory over inflation and is not ready to say that all risk of further rate hikes has gone, according to Chair Jerome Powell. The Fed is at the “beginning” of the discussion about easing, he said. The FOMC still expects core PCE inflation to remain above the target until Q4 2026, unchanged from September forecasts. The near-term inflation forecast has been cut further than expected, with the FOMC now projecting 3.2% core PCE inflation in Q4 2023, down half a point from their September forecast. The range for next year is wide, from 2.3% to 3.0%, so not a single member thinks inflation will hit the target before 2025. Click here for the full report. Click here if you would like to speak to the analyst.
Gavekal Research: Lagarde, le grinch (December 15)
In this report by Gavekal, it is highlighted that while the US Federal Reserve Chairman, Jerome Powell, discussed potential interest rate cuts, European Central Bank (ECB) President, Christine Lagarde, vehemently denied any discussion of rate cuts by the ECB. This came as a surprise to the market, which had been pricing in an 80% probability of a rate cut in March. The report suggests that the ECB’s reluctance to cut rates may be due to several factors, including the lower concern of fiscal dominance compared to the US, the gradual rise in eurozone governments’ debt service burdens, and the containment of fragmentation risks. Additionally, the report notes that rising unit labor costs in the eurozone and the ECB’s lack of experience in fighting inflation may contribute to their cautious approach. Click here for the full report. Click here if you would like to speak to the analyst.
BCA Research: 2024 key views – Chimerica in trouble, part 2 (December 13)
The Counterpoint Special Report 2024 highlights key views on the state of the global economy. It suggests that China’s housing boom, which has been a major driver of global growth, is coming to an end, leading to a sharp slowdown in the world economy. The report also discusses the potential impact of the Federal Reserve and European Central Bank’s policies on inflation, as well as the challenges facing the AI industry in delivering significant profits. It recommends overweighting long-duration bonds, tech-lite Europe, and French luxury goods, while underweighting oil and industrial metals. The report also suggests that Switzerland is an outperformance candidate. Click here for the full report. Click here if you would like to speak to the analyst.
Forest For The Trees: Yellen pre-empts Powell in another symptom of fiscal dominance (December 12)
This report discusses the concept of fiscal dominance in the US and its implications for the Federal Reserve’s monetary policy. It highlights comments made by Treasury Secretary Janet Yellen, who pre-empts Fed Chair Jerome Powell on the rate path and inflation expectations. The report argues that the US is already in fiscal dominance, as evidenced by the crash in the long-dated US Treasury market when 10-year real rates hit 2%. It suggests that the US fiscal situation is forcing the Fed to pause rate hikes and that the US is likely to weaken the USD accordingly. The report concludes that 2024 is setting up to be bullish for most assets except the USD, with increased volatility. Click here for the full report. Click here if you would like to speak to the analyst.
Stone X: The global savings squeeze is here. It will get worse (November 2023)
The StoneX Flow Report discusses the global savings squeeze and predicts that it will worsen in the coming years. The report highlights several factors contributing to the squeeze, including deficit countries growing faster than surplus countries, the trend of friendshoring to deficit countries with open capital accounts, and China’s need to boost its low share of consumption to achieve growth. The report suggests that higher interest rates and a weaker USD will be necessary to attract a shrinking pool of savings to fund growing deficits. It also explores the potential investment implications, such as higher rates and inflation, and considers the possibility of countries’ trade positions changing over time. Click here for the full report. Click here if you would like to speak to the analyst.
