Category: Research Report

Categories
Research Report

Global Market – China’s economic recovery hits road block

Global Market – China’s economic recovery hits road block

This week we will discuss China’s growth momentum slows further and need further stimulus.  China’s Central bank PBOC continues its support for YUAN as currency continues to weaken.  China after following strict COVID policy since March 2020 has removed strict restriction from 8-Jan-23.

China June PMI @ 49 – reading below 50 is contraction

Speculation about potential policy support has been mounting as the recovery for the world’s second-largest economy loses traction. After a burst of activity in the first quarter, consumer spending is slowing. The housing rebound has fizzled, exports have weakened and infrastructure investment has been muted, too.

China’s PBOC Sticks with Yuan Support as Currency Losses Deepen

The central bank set its so-called fixing for the managed currency at a stronger-than-expected level on Friday, after the offshore yuan extended a seven-month low. The move came after reports that regulators have stepped up scrutiny of currency trading and cross-border capital flows, in a bid to stabilize the yuan.

China removes strong COVID restriction from January 2023

China after following zero tolerance COVID policy for more than 2 years since COVID in March 2020 has taken steps to remove restriction from January 2023 and support economy.   Travelers coming into China were required to follow COVID restriction policy and go through quarantine period before of 7 days.

Equichain Wealth Advisors: Market View & Opinion

The People’s Bank of China will likely reduce the rate on its one-year policy loans — known as the medium-term lending facility — by 5 basis points to 2.6% in the final quarter of this year, according to the median estimate in the latest quarterly survey.

China economic data continues to show worrying sign where as US Fed, ECB & BOE continues to raise rates as inflation remains key risk in developed economy.  Inflation is not a concern in China – 2nd largest economy.   Global market continues to trade near its recent high market is factoring in some kind of stimulus and any weakness in economic recovery will be blessing for market and risk-on sentiment.

Click on the attachment to read the full report:
Global Market – China’s economic recovery hits road block.pdf
View Document
Categories
Research Report

Global Market – BOE hike rate by 50-bps & Powell’s testimony

Global Market – BOE hike rate by 50-bps & US Fed Chair Jerome Powell testimony

This week we will discuss, BOE surprises street by raising interest rate by 50-bps to 5.00% and US Fed chair Jerome Powell in a testimony over 2-days to US Congress indicated further rate hike by 1 or 2 before end of 2023.

BOE raises rates by 50-bps to 5.00% – highest level since 2008.

The nine-member Monetary Policy Committee voted 7-2 for an increase to 5%, the highest level in 15 years and the biggest move since February.

Markets had priced in only a 40% chance of a half-point hike, with most economists anticipating a quarter point.

US Fed chair Jerome Powell – may need one or two more rate hike in 2023

Policymakers feel “it will be appropriate to raise rates again this year, and perhaps twice,” if the economy performs about as expected, even as they’ve been hiked to an appropriately restrictive level, Powell told the Senate Banking Committee Thursday.

Fed officials held rates steady last week after 10 straight increases, giving themselves more time to evaluate how the economy is responding to recent banking stress and higher borrowing costs.  The move left the Fed’s benchmark rate steady in a range of 5% to 5.25%.

Equichain Wealth Advisors: Market View & Opinion

Barring BOE decision which hike rate by 50-bps, decision by all other major banks were in-line with market estimate.  Last week US Fed “PAUSE” on rake hike, ECB raise rates by 25-bps & BOJ maintain its negative interest rate policy and guidance on JGB remains at -0.50% to 0.50%.

We believe further rate hike could impact global economy, which could be pushed in recession for short period of time and globally central banks are prepared to take pain in near term for long term objective to keep inflation at 2%.

Click on the attachment to read the full report:
Global Market – BOE hike rate by 50-bps & Powell’s testimony.pdf
View Document
Categories
Research Report

Global Market – It’s “PAUSE” or “Indicative PIVOT”

Global Market – It’s a “Pause” or “Indicative Pivot”

This week we will discuss all three central bank’s meeting outcome and its impact on global sentiment and interest rate policy.  Our focus will be that whether it will be “Pause” or “Indicative pivot”.  US Fed & ECB meeting outcome was in-line with estimate and BOJ outlook and guidance was positive as they maintain JGB yield curve at -0.50% to 0.50%.

US Fed meeting outcome on 14-Jun-23

• US Fed kept interest rate unchanged after 15-months of rate-hike cycle.
• Current interest in US at 5.25% is same rate as seen in 2007, back in 2006 – 07 – interest rate remains at 5.25% for 14 months before interest rate heads downward.

U.S. Fed chair Jerome Powell had signaled that they would prefer to skip rate hike at June meeting, while still leaving room for a hike in coming months, if needed. 

ECB meeting outcome on 15-Jun-23

• ECB hikes rate by 25-bps to 4.00%.  Deposit rate now stands at 3.50%, highest level in more than 2-decades.
• ECB guides for continuation of rate hike to bring long term inflation at 2% and to keep interest rate higher as long as necessary.

BOJ meeting outcome on 16-Jun-23

• BOJ kept interest rate by -0.10%, maintain interest rate at ultra-low level.
• BOJ signaled JGB yield curve between -0.50% to 0.50%.
• BOJ maintain its current pace of quantitative easing, and said that it will continue to purchase exchange-traded funds and Japanese real estate investment trust.

The BOJ’s move on Friday comes largely in line with market expectations, as analysts saw little scope for immediate change in the bank’s dovish stance under new Governor Kazuo Ueda.

Equichain Wealth Advisors: Market View & Opinion

While BOJ maintains its ultra-low interest rate and QE policy.  If we compare all these policies, we see significant contradiction as all these central banks are key liquidity provide for global financial market.

Our base case assumption does suggest that – we could consider this as early sign of “PIVOT” as higher interest rate will show its impact sooner rather than later.

Click on the attachment to read the full report:
Global Market – It’s an “PAUSE” or an “Indicative PIVOT”.pdf
View Document
Categories
Research Report

Global Market – Focus shift to central banks – US Fed, ECB & BOJ

Global Market – Focus shift to Central banks – US Fed, ECB & BOJ

This week, we will discuss how the focus will shift back to central banks as 3 central banks are schedule to meet this week and take decision on interest rate.  Inflation still remains major concern of all these central banks as they continue to focus on their long-term target on inflation at 2%.  We will discuss what market expectation is from this central bank outcome.

US Fed meeting on 14-Jun-23

• US Fed expected to pause on 14-Jun-23, to take breather after more than a year.
• US Fed chair Jerome Powell signaled after May 2023 US Fed meeting.
• Recent hike in interest rate cycle is the most aggressive rate hike, U.S. Fed has hike rates in every meeting since March 2022.

US fed chair Jerome Powell commentary after meeting outcome will be key event market will be watching out for.  Any comment which will mean that further rate hike could be expected after a pause would be negative.

Bank of Japan meeting on 16-Jun-23

• Bank of Japan may keep interest rate at -0.10%, maintain interest rate at ultra-low rate.
• BOJ to make no tweaks to yield control policy
• Board to maintain forecast of moderate economic recovery
• BOJ may lay groundwork for July upgrade in price forecasts
• Gov Ueda to hold briefing after policy meeting

BOJ may signal robust recovery as robust corporate and house hold spending cushion the blow from slowing oversea demand.  BOJ may also signal that inflation is overshooting its forecast.

Equichain Wealth Advisors: Market View & Opinion

This week focus will shift back to central banks, and market would focus on commentary from US Fed and BOJ.  There is major surprise expectation from ECB as market expectation another hike & temporary pause.

US Fed chair Jerome Powell post meeting press conference will be important as market as already factored in pause from U.S. Fed.  U.S. CPI & Core CPI inflation data are due on 13-Jun-23 and U.S. fed policy outcome on 14-Jun-23.  Comment from BOJ will also be important if there is any change in JGB yield curve or any change in policy would be negative.

Click on the attachment to read the full report:
Global Market – Focus shift to central banks – US Fed, ECB & BOJ.pdf
View Document
Categories
Research Report

Global Market – U.S. debt deal & suspends debt ceiling till 1-Jan-25

Global Market – U.S. debt deal – suspends debt ceiling till 1-Jan-25

This week we will discuss the U.S. debt deal details as it suspends debt ceiling limit till next U.S. presidential election, but it comes with certain curbs on spending and restriction.  Prime facie deal looks well balance – we do believe it another round of monitory expansion.

U.S. debt deal details

• Deal would suspend the $31.4 trillion debt ceiling until Jan. 1, 2025, allowing the U.S. government to pay its bills.
• Non-defense discretionary spending would be “roughly flat” at current year levels in 2024, “when factoring in agreed upon appropriations adjustments,” according to White House officials.

Relief for U.S. Presidential election 2024

• The debt limit extension lasts past 2024, meaning Congress would not need to address the deeply polarizing issue again until after the November 2024 presidential election.
• Still, tough conversations about how to allocate money under the new spending caps will need to take place in Congress this year.

Biden and McCarthy agreed to claw back much of the unused COVID relief funds as part of the budget deal. The estimated amount of unused funds is between $50 billion and $70 billion.

Equichain Wealth Advisors: Market View & Opinion

We expect current U.S. deal could have very limited impact in near term, we see this as yet another round of monitory expansion in a gradual manner.  Incoming U.S. economic data would be very important in near term ahead of US Fed meeting on 14-Jun-23.

We see current U.S. debt deal & likely pause by US Fed on 14-Jun-23 would have huge positive impact of risk-on sentiment and big rally is not ruled out.  Another hike of 25-bps by US Fed could change the matrix and probability of rally or change in risk-on sentiment.  So now US Fed meeting on 14-Jun-23 becomes a very important event for global market.

Click on the attachment to read the full report:
Global Market – U.S. debt – suspends debt ceiling limit till 1-Jan-25.pdf
View Document
Categories
Research Report

Global Market – U.S. debt ceiling limit & impact on interest rate

Global Market – U.S. debt ceiling limit – Impact on Interest rate

This week we will discuss U.S. debt ceiling limit and its impact on interest rate.  We will discuss various scenarios and its potential impact on U.S. interest rate and its global impact on economy.  

U.S. debt ceiling limit – 3 probabilities

1) U.S. mange to raise debt ceiling limit
2) U.S. failed to raise debt by 1st week of June but manages to increase debt limit before 15-Jun-23 – When interest payment of $2 billion is due.
3) U.S. fails to raise debt ceiling limit before it hit the limit and eventually government defaults

Current U.S. debt ceiling limit is at $31.4 trillion

U.S. Congress voted to increase it by $2.5 trillion, which President Biden signed into effect on December 16, 2021. At that point, it was set at about $31.4 trillion. On January 19, 2023, the United States hit its debt ceiling of $31.4 trillion.  U.S. debt ceiling limit is expected to hit by 1st June or by first week of June.  

Equichain Wealth Advisors: Market View & Opinion

Currently market is factoring in U.S. to finalize a deal on debt ceiling and probability of 2nd and 3rd outcome is rare and not factored-in by market.

We do believe that in any case U.S. will increase the debt ceiling limit as failing to do so will have far reaching consequences.  We do believe it will put pressure on interest rate and there will be risk of banking crisis in U.S. regional banks as it remains venerable to high interest rate.

Click on the attachment to read the full report:
Global Market – U.S. debt ceiling limit & impact on interest rate.pdf
View Document
Categories
Research Report

Global Market – European market at fresh 52-week high & China’s growth slows

Global Market – European Market at fresh 52-week high & China’s recovery slows

This week we will discuss, despite U.S. uncertainty on debt ceiling limit and crisis in U.S. regional banks, European market continue to make fresh high.  Germany’s DAX made fresh 52-week high this week.  Japan’s Nikkei surges to 33-year high, seen at highest level since 1990.  China’s economic recovery fails to keep momentum on fear of global growth.

Germany’s DAX at fresh 52-week high

European shares rose on Friday, with Germany’s DAX 40 index solidifying its gains above the 16,200 level and reaching a new 16-month high, fueled by growing optimism that a resolution regarding the US debt ceiling was on the horizon.

JAPAN’S NIKKEI 225 SURGES TO 33-YEAR HIGH, ENDS AT HIGHEST LEVEL SINCE 1990

Asia-Pacific stock markets closed on a mixed note on Friday, marking the end of a tumultuous week influenced by a variety of factors, including concerns over the US federal debt ceiling.

China’s April data show economic recovery losing steam, testing policymakers

Tuesday’s batch of data, which also showed a further decline in property investment, adds to concerns about the outlook for the world’s second-biggest economy as both its domestic and export engines of growth remain underpowered.  

Equichain Wealth Advisors: Market View & Opinion

We believe equity market continue to ignore the negative economic factors in near terms as they focus on earnings season.  Most of the companies came with decent set of result except few disappointments as market went into earning season with low expectation.   

We do believe this trend can’t continue for long, on one hand there is debt crisis and on other hand interest rate continue to rise although at declining pace and market continue to trade near its recent high. 

Either there should be pivot as far as interest rate policy is concern or market should witness sharp correction from current level which could reflect current economic data.

Click on the attachment to read the full report:
Global Market – European market at 52-week high & China’s economic recovery slow.pdf
View Document
Categories
Research Report

Global Market – U.S. debt ceiling & reginal banking crisis

Global Market – U.S. debt ceiling limit & regional banking crisis

This week we will focus on U.S. debt ceiling limit, crisis at regional banks as deposit continues to flees small and regional banks move towards treasury and big banks.  We will also discuss BOE action this week and China’s economy showing slow pace of economic recovery.

U.S. debt ceiling limit at $3.4 trillion

U.S. national debt surpassed $31 trillion for the first time October 2022, according to the Treasury Department. A whopping $8 trillion were added since the start of the coronavirus pandemic in early 2020.

In a letter to Treasury Secretary Janet Yellen, current and former leaders of the Treasury Borrowing Advisory Committee said the costs of the current standoff extend beyond markets to the time that financial firms are having to spend preparing for a possible default.

BOE Raises Key Rate To 4.5%

The UK central bank lifted its key rate a quarter point as expected to 4.5%, with two of the nine-member Monetary Policy Committee voting for no change.

China’s Weak Inflation, Borrowing Show Economic Recovery Waning

Consumer inflation weakened to a two-year low of 0.1% in April, the National Bureau of Statistics said Thursday, as food and energy costs eased.

PacWest deposits fell 9.5% or $1.5 billion last week – U.S. regional banking crisis

Shares of PacWest Bancorp (PACW.O) plunged 23% on Thursday, 11-May-23 after the Los-Angeles-based lender said its deposits declined and that it had posted more collateral to the U.S. Federal Reserve to boost its liquidity.

Equichain Wealth Advisors: Market View & Opinion

U.S. banking crisis or debt ceiling limit problem is yet to have any significant impact on financial market.  Although sentiment remain weak, global asset class continue to trade in narrow range.

It is surprising to many experts and market participants that, how all global stocks market continue to trade near its recent highs.  We would prefer balancing approach and would prefer to increase cash level in cash of any major correction due to unforeseen reason which we have discussed today and any other reason which could surprise global market.

Click on the attachment to read the full report:
Global Market – U.S. debt ceiling limit & regional banking crisis.pdf
View Document
Categories
Research Report

Global Market – US Fed comment & Fed fund rate monitor tool indicate rate cut by Dec-23

Global Market – US Fed comment & Fed fund rate monitor tool indicate rate cut by Dec-23

This week we will discuss the action taken by US Fed and indicative pause by US Fed and we see bond yield indicating softening in economy and fed fund rate monitor tool indicate rate cut by end of 2023.

US Fed decision on 3-May-23

• Fed raises rates by 25 bps as expected to 5.25%
•  Policy statement softens the rate guidance in a way consistent with past pauses
• Deletes reference to “some additional policy firming may be appropriate”
• Unanimous decision
• Fed Chair Powell: a decision on a pause was not made today
• Powell: we’ll make decisions meeting by meeting, based on data

Fed rate monitor tool – showing US Fed 13-Dec-23 meeting

Currently US Fed continues to focus on long term inflation target of 2% and has removed this reference from this policy statement – “some additional policy firming may be appropriate” and have guided for decision to be taken meeting by meeting.

Equichain Wealth Advisors: Market View & Opinion

This rate hike cycle by US Fed is one of the steepest rate hikes by US Fed and with last rate hike of 25-bps rate hike on 3-May-23.  US interest rate is highest in last 4-decades.

US Fed has guided for pause and not pivot as of now, there is banking crisis going in regional banks in US which is taken care by US regulator.  We believe market has not factored in any banking crisis in big US banks.  We have earlier also seen US Fed changing its view based on incoming data and we would prefer to focus on incoming US economic data.

Click on the attachment to read the full report:
Global Market – US Fed comment & Fed fund rate monitor tool indicate rate cut by Dec-23.pdf
View Document
Categories
Research Report

Global Market – US Fed will pause or hike another 25-bps?

Global Market – US Fed to pause or hike rate by another 25-bps?

This week we will discuss whether US Fed will pause or hike rate by another 25-bps as widely expected by market.  All major data has now been out which does indicate slowdown, now US GDP for Q1 for 2023 will be released on 27-Apr-23.

Key Economic data to be released in next week

1) CB Consumer Confidence
2) Advance GDP q/q
3) Unemployment claims
4) Core PCE Price Index
5) Employment Cost Index.

Equichain Wealth Advisors: Market View & Opinion

Now the focus will shift to US Fed meeting on 3-May-23, from 21-Apr-23 to 3-May-23 till Fed decision is out is currently under black out period.  So now there will be no comment from US Fed members and major economic data will be last quarter advance GDP data and core PCE price index which could provide further cues.

We do believe, US Fed could surprise by temporary pause as it is done by RBI MPC meeting.  So incoming data will have its impact and currently fed fund monitor tool indicate 89.1% probability of 25-bps rate hike as on 21-Apr-23.  Even if there is rate hike by US Fed, we expect commentary to be dovish.

Click on the attachment to read the full report:
Global Market – US Fed will pause or hike another 25-bps?.pdf
View Document