Dollar Pattern Playing Out, Rates Surprise (some folks), Powell Got His Way, A Deeper Dive Into the Jobs Setup, Had To Be Tactical With EM, And Maybe We're Not Yet Out of the Woods

Currently testing some new video software, and don't quite have it where we want it just yet... I expect next week we'll be back at it with your end-of-week message delivered via video.

In the meantime, the following consists of a few highlights from our latest internal notes along with commentary I'll add for clarity and context... I'll close with some compelling (BCA) arguments against the growing notion that we're out of the woods just yet:


10/12/2024

The technical setup for the dollar (bullish) that we flagged a couple weeks ago has played out to a T:

Chart of the Day

Here’s one (among a number of) reason(s) why we are long-term bullish on emerging markets (although near-term cautious [on everything]) :

China's Latest, CPI Is (short-term) Key, Investment Mgr Sentiment, and a Slight Rise In Stress

Dear Clients, the following is an important read.

From our internal notes:

10/8/2024

The reopening of Chinese markets, after “Golden Week”, was met with some serious profit taking. Headlines suggest that it's due to a press conference held by the National Development and Reform Commission (NDRC) that did not unveil any details around the fiscal stimulus measures that the market got so euphoric over the past couple of weeks... Thing is, the NDRC would not have offered up such detail, as that’s not necessarily (particularly from an immediate-term perspective) within the purview of that particular entity.

Somewhat (near-term) More Constructive

Delivering this week’s update to you in written form. 

The following is the long and the short of the latest on the economy, and on financial markets.

Our PWA Index (measures overall general conditions) rose markedly for a third straight week -- moving closer to the neutral line -- denoting improved conditions (i.e., recession risk remains elevated, but notably less-so of late):

Pre-Recession Data-Spike??, Rising Liquidity, China and Reflexivity

Highlights from our internal notes:

9/30/2024

Despite the notable improvement in our own macro index, the global liquidity setup (see below), etc. (i.e., recession risk has indeed abated a bit of late), we need to be very cognizant – as I’ve illustrated in recent video commentaries – of the fact that it is the norm to get a positive spike in the data just before recession ensues.

Totem Macro’s Whitney Baker (she’s an exceptional analyst, btw) pointed that out last week, along with the factors that she sees pointing to recession. 

Recession Risk Still (but less), China, Inflation, Commodities, Stocks and the Dollar (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

China stepping up, part way

From this morning's (Tuesday) internal log:

9/24/2024

Yesterday’s move in our core allocation may turn out to have been more (near-term) timely (i.e., lucky) than we anticipated.

From our internal supporting narrative:

“Reducing our exposure to US staples and healthcare reflects marginally better odds of a soft-landing based on the Fed’s aggressive start to the easing cycle, and recent improvement in the PWA Index… However, our base case remains that recession odds are better than 50/50 on a 6-12 month horizon… Therefore, despite the cuts, staples and healthcare remain top weightings, as do cash (t-bills) and gold.

Increasing our emerging mkt equity exposure reflects the improved prospects for a near-term weaker-trending dollar, as well as China’s historically-weak valuations and the likelihood of Chinese policymakers to be forced to step up the stimulus over the next 12 months.”

Well, I guess I should've said next 12 hours... They stepped up last night… Here are the details (HT P. Boockvar):