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Wednesday, Jan 20

It’s not what you do; it’s the way that you do it. Apparently that is what gets results. In today’s Macro Briefing, MI2 Partners explains why a number of warning lights in a few select markets could potentially turn a benign – and profitable – rotation into growth into a nasty volatility event. Meanwhile 4X Global Research debunks the myth of a one-size-fits-all dollar weakness story, Ned Davis Research warns that optimistic sentiment masks a growing storm cloud that could be problematic for stocks and Cornerstone Macro sets out why there are some important nuances in its preference for growth over value. Elsewhere, TS Lombard looks ahead to Joe Biden’s inaugural address and explains why style and tone are going to be just as important as substance if he wants a new form of Democratic populism to succeed. 
  1. market rotation VAR shocks MI2 Partners

    1. Opportunity, threats and instability

    Julian Brigden at MI2 Partners believes markets are in the early stages of a multiyear growth/value rotation that could turn ugly. Until recently, with plenty of cash on the side-lines, the move has been benign or “nice”, he says, with portfolio managers not having had to sell their beloved long-term winners to put on new reflationary trades. Unfortunately, Brigden believes that’s no longer the case, and the current stability is far more fragile than it appears. Given positioning, he says sharp moves in several key variables could quickly turn a nice rotation into a nasty VaR event. If you’d like to read the full note, click here to contact us for access.
  2. currencies 4X Global Research

    2. Dollar – diversification, rotation and valuations

    Much has been written about the demise of the dollar and the scope for EM currency outperformance over the past month says Olivier Desbarres at 4X Global Research, but the reality is that the currency has hardly moved. Indeed, he says rather than reflecting rising risk appetite and broad confidence in the global economy and EM currencies, the weakness in the dollar in the month after the US presidential election was actually the result of central banks and sovereign wealth funds diversifying into other reserve currencies, such as the euro, sterling, and Canadian, Australian and NZ dollars. Going forward, Desbarres believes dollar depreciation is unlikely to be as a broad-based as it was in November and early-December. The report digs into what is driving the rotation into sterling and why markets will pay greater attention to domestic factors, including valuations and seasonal patterns, when picking their winners and losers in the currency space. If you’d like to read the full note, click here to contact us for access.
  3. Global equities sentiment indicators Ned Davis Research

    3. Are they any bears left?

    Ed Clissold at Ned Davis Research has released a note in light of the fact that the firm’s Daily Trading Sentiment Composite has risen to levels of extreme optimism. Indeed, he says the indicator could only be as high as it currently stands if the vast majority of indicators were signalling optimism. With the composite so one-sided, Clissold’s report dives into US stock market sentiment charts, subdivided into four categories: investment surveys, economic surveys, market-based sentiment, and flows and holdings. Together, he says, they paint the picture of a growing sentiment storm cloud that could become problematic for stocks once technical, macroeconomic, and earnings indicators deteriorate. If you’d like to read the full note, click here to contact us for access.
  4. growth versus value Cornerstone Macro

    4. Don’t expect value versus growth to be the hottest trade of 2021

    Michael Kantrowitz says after three years of being a “growth bull”, he has finally joined the” value bulls” in 2021, albeit with less enthusiasm than the typical value investors. Indeed, he says the main takeaway from his 2021 outlook is not that he is now bullish on value, but that investors should expect modest returns, small style spreads, and earnings-driven (not P/E) leadership. Kantrowitz explores the main theme’s for the year ahead, as well as which stocks and sectors investors should be buying – and which they should be selling. If you’d like to read the full note, click here to contact us for access.
  5. US Politics TS Lombard

    5. Biden’s inaugural to build populism

    Ahead of Joe Biden’s inaugural address, Steven Blitz at TS Lombard sets out why the incoming president must communicate that he recognises that US economic scarring – the fall-off in US economic well-being, rising inequality and downward mobility – has been an issue before the Covid pandemic. Indeed, he says Trump tapped into this disquiet in order to build his popularity – and so he believes Biden needs to show he too understands the problem, by ordering his economic priorities accordingly into a new form of Democratic populism. That is why Blitz believes the tone of US global and domestic priorities will naturally change from Trump, but not necessarily the direction. If you’d like to read the full note, click here to contact us for access.