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 7 April).

Global

• Risky Assets (bullish)
  • Network remains constructive on risk despite markets entering a consolidation phase. Despite the overall bullish mood, a number of reflation trades have been exited out of concerns various cyclical indicators may be close to peaks.
• Commodities (neutral)
  • Neutral oil: If oil supply increases, it could have significant implications for global growth theme. As things stand, oil could move back to $55-57/bbl.
  • Bullish copper: Copper is still very much part of the growth story. It had a strong open to the week and is trading around a range. Overall bullish raw materials.
  • A potential headwind for commodities is that China is unlikely to focus much on investment. Also, any infrastructure spend in US will not be large enough to offset lower China demand.

US

• Equities (bullish)
  • Difficult to fight equity trend, but there are signs markets could be changing. The Archegos and Greensill developments reflected a backdrop of easy money and the current regulatory environment. There could be more of such issues ahead, and Softbank appears to have some exposure.
  • Markets may also be in ‘wait and see’ mode. At this point, economic data needs to justify high valuations, and Q1 earnings season may give equities a push if they turn out strong. Indeed, there is every reason to believe earnings may be better-than-expected, as theory suggests an injection of demand goes straight into boosting profits.
• Rates (neutral)
  • The core view is for US yields to go higher, but from a tactical perspective this is unlikely to happen in the next few weeks. We have written a note on this.
  • Looking at the gap between real 10y bonds and real GDP, there appears to be room on the upside for yields.
  • Some concerns over rates falling on strong US data. This suggests a lot of good US news has already been priced into markets.
• Economy
  • PMIs are high and mobility returning to pre-pandemic levels. The labour market, however, has not yet normalised – people who dropped out of the labour market last year are still to re-enter. Good labour market news could be the catalyst for markets to move higher.
  • Credit spreads rallied hard last week, with IG and HY both tightening. It shows people are sanguine about the economy and reflects a low default rate outlook. The correlation between HY and Treasuries is also low, which is good for those concerned about rate risk.
  • There have been discussions around how ISM overstates economic momentum. In the current climate, government actions are leading the economic recovery, which is different to past cycles.
  • Inflation is due next week and expectations are that base effects should be coming in. There are questions around what level of inflation markets may be concerned about. On this front, inflation matters for two reasons – TIPs pricing and Fed expectations. A decent amount of Fed hikes are priced in and the TIPs market is very efficient. Base effects should, therefore, be accurately priced.
• FX (bullish)
  • Short USD/GBP: Could see level go back to 1.40-1.41. Dollar seems to be struggling a bit.

EU

• Equities (bullish)
  • European equities have broken out of ranges. Covid-19 cases appear to have reached peaks, and vaccination supply could triple in Q2.
• FX (bullish)
  • A short USD position manifested as a long EUR/USD trade.

UK

• FX (neutral)
  • The pound had been doing well, but seems to be trading as a flow at the moment and it is not done yet. The Sterling seasonal may be another reason it is moving around a little bit – Cable has only been down three times in the last twenty April’s.
• Equities (bullish)
  • The FTSE-100 has broken out of recent ranges.

China

• Rates
  • China growth outlook looks less bullish than ROW. It may be a good point to enter Chinese rates markets.
• Economy
  • China inventories show they have been good sellers of copper and raw materials.

Russia

• FX (bearish)
  • RUB underperforming for two reasons; (i) the finance ministry announced an ambitious target for FX purchases on open market from 6 Apr; (ii) deteriorating relations with Ukraine. The latter is unlikely to resolve itself, and perhaps even escalate, which is bad for RUB.

Brazil

• Economy
  • Q1 GDP growth is expected to be around 0% and could even be negative in Q2 following the surge in Covid-19 cases. ITU utilisation rate is 90% and hospitals are close to collapsing. On vaccinations, herd immunity is unlikely to be reached this year.
  • Despite this, headline inflation is still strong because of commodity prices. Inflation could reach 7% by mid-year and 5% by the end of the year, above the 3.5% target. Core inflation, on the other hand, is far lower.
• Fiscal Policy
  • The budget has been approved, and puts into question the fiscal responsibility of Brazil’s government. As a result, there is a lot of risk premia being priced into the yield curve.
• FX
  • A lot of bad news has already been priced into the currency and it appears to be moving in line with international markets now. The country should not come across as ‘cheap’, as there are a lot of risk premiums priced in.

Korea

• Economy
  • Strong export and import data alongside good PMI’s. Equity flows have also picked up and Covid is no real issue. As a result, the KRW and Kospi look to be interesting trades.

India

• FX (neutral)
  • No longer bullish INR following RBI meeting and worsening Covid-19 conditions. PMIs are slightly softer and consumer confidence data shows greater pessimism.

Thailand

• Equities
  • Was a standout underperformer over the last week. CPI figures came out as a surprise and the THB has suffered.

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.)