Hive Intelligence Report: Global Insights From Our Experts

Every week, we bring together our community of macro experts to discuss the latest market developments. In this piece, we distil all the latest insights from our most recent conversations (up to 31 Mar).

Global

• Risky Assets (bullish)
  • Consensus remains constructive on risk following a good week for global equities. The resilience of stocks during a period of rising yields and the Archegos blow up, shows there is little chance of the trend abating in the short term.
  • Long Australian and Canadian equities: Valuations in these commodity countries are relatively low and points to a catch-up trade.
• Commodities (bullish)
  • Neutral oil: Oil and other commodities should do well under the global growth recovery theme, however, recent price action has turned our experts neutral.

US

• Equities (bullish)
  • The market is likely to continue on its current path. Only once current stimulus drops off and the economy opens up, will we start to see momentum fall.
  • Long USD: Rising yields should support the dollar through greater foreign inflows. Euro Area weakness should also play a role. The dollar-index could rise to anywhere between 94-99.
• Rates (bearish)
  • Short 10y, 30y (medium-term): US yields continue to rise and could move closer to 1.9% on the 10y in the longer-term. On a cross-market basis, USTs now offer better yields than Italian bonds (BTPs). Discussions around a new fiscal package are also pushing up rates. Stay short until we see a larger correction.
• Fiscal Policy
  • Biden’s plan for fiscal package which was in line with expectations – $2tn will be spent over 8 years, funded by $2tn of higher taxes on corporates over 15 years. This will increase the deficit by $120bn a year for the first 8 years, then decrease it by $133bn a year for the following 7 years. Package is not enough to change view on inflation, i.e. temporary spike in inflation, but nothing permanent.
  • The TGA is being distributed. In the last couple of days, however, it appears that some of this is making it back to the Fed, as money market funds look for places to park cash. It shows there is a lot of cash looking for a home and is sitting outside of the banking system. This could be keeping the curve relatively steep and money market rates lower.
• Economy (bullish)
  • GDP Data: The Atlanta Fed nowcast has Q1 GDP growth at 4.7% saar, and this is before March data. We could see 6% GDP growth in Q1, and as much as 16-17% in Q2.
• Credit (Constructive)
  • Long High Yield: High Yield could continue to grind tighter based on low default rates. We have published a note on this.
• Coronavirus
  • Vaccinations: Cases are picking up in the US, but there are enough vaccines to vaccinate population twice over. Rising cases should not therefore be an issue.

China

• Economy
  • Latest official PMI data looks good, although seasonality and Lunar New Year/Covid-19 restrictions make readings slightly less clear-cut. Nevertheless, the numbers bode well for a continued consumption driven recovery. On the construction component, the PMI has reversed from last month’s big drop and is now at its highest in two years.

Russia

• Monetary Policy
  • Rate Hike: Recent unexpected rate hike sparked a sell-off in local debt markets. Market is pricing in more hikes to come. RUB also under pressure over the past week or so.
  • US Sanctions: Part of the sell-off may be related to looming US sanctions on Russian local debt. This is most likely to impact new issuance, but last time the US placed sanctions on hard currency debt (Aug 2018) it did not have much of an impact.

EM

• Economy (bullish growth)
  • Bigger deficits in the US are likely to lead to higher surpluses in EM countries. We have written a note on this.
  • India’s calendar Q4 2020 BoP data showed the basic balance surplus continuing to increase. Large equity inflows are a key factor and supports our bullish INR view.
  • Latest CPB global trade data for January shows Asian countries had a good start to the year, with China leading the way.
• Monetary Policy
  • PLN weakness is at its highest in a long time. Bu unlikely this will shift the dovish stance of the central bank, even with the higher-than-expected inflation print. Zloty set to remain rangebound until after the supreme court ruling on FX mortgage settlements on 11 April.
• Rates
  • The FTSE Russell’s confirmed CGBs are to be included in the world bond index, and Malaysian bonds, which were on review for exclusion, won’t be dropped. Meanwhile, India is on the watchlist to be included in a smaller EM government bond index.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Sam van de Schootbrugge is a macro research economist taking a one year industrial break from his Ph.D. in Economics. He has 2 years of experience working in government and has an MPhil degree in Economic Research from the University of Cambridge. His research expertise are in international finance, macroeconomics and fiscal policy.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)