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Where We Are

“The task of the leader is to get his people from where they are to where they have not been.”

-Henry Kissinger

 

Where we are from a US stock market perspective is not that complicated. With the SP500 and Russell 2000 closing at 1848 and 1171, respectively yesterday, we are at all-time highs.

 

Yes, all-time is a long time. And, yes, when I say “we”, I’m not talking about them. While my views might rub them the wrong way sometimes (them being the other team, or the other side of the trade), that means I’m just doing my job. I don’t play for them.

 

The aforementioned quote comes from page 59 of Unusually Excellent. The chapter is called “Being Compelling – The Commitment To Winning.” In spite of my many human flaws and countless mistakes, that is my commitment to both you and my team.

 

Back to the Global Macro Grind

 

Winning in this game (or in life for that matter) doesn’t start and end with feeling like we’re winning an argument. I personally have too many silent arguments in my head throughout a week to count – and if I’m not losing some of those, I’m not growing.

 

Arguing with the score of the game is harder to do than simply dismissing the other side of what you think. I just read an article about a hedge fund in Greenwich, CT that got smoked last year (and closed the fund). The head of the firm blamed a macro market that was “dislocated from fundamentals.” I guess that was easier than blaming himself.

 

This, of course, has been one of the best 13-14 month periods to be invested in “growth”, as an investment style factor, ever. Particularly if you are a macro guy (or gal) who was net long growth equities and short slow-growth yielding bonds (or stocks like Kinder Morgan (KMI), which missed last night, that look like bonds). #Fundamental, it was. Indeed.

 

But that is yesterday’s news…

 

Where we go today, tomorrow and the next day are places we have never been.  My job is to help both you and my firm get there without having to make excuses for wrong turns along the way

 

So let’s start with what matters most about where we are – our position:

  1. CASH = 27%
  2. Foreign Currencies = 27% (we still like the Euro, Pound, Kiwi, etc.)
  3. International Equities = 20% (we still like most of Europe, especially Germany and the UK)
  4. US Equities = 18% (Tech, Healthcare, Financials, Industrials, and Materials)
  5. Commodities = 8% (Coffee, Cattle, Copper – and maybe some Gold)
  6. Fixed Income = 0%

Explaining 1-6 in reverse is pretty straightforward:

  1. Fixed Income 0% allocation for 184 days (73% of the time in last 12 months - net short via sovereigns, long corporates)
  2. CRB Commodities Index signaled don’t short last month – still a Bernanke Bubble that popped, but one we can risk manage
  3. US Equities is where we made a Sector Style Shift away from Consumption and Into Inflation (see Q1 Macro Themes deck)
  4. International Equities is the easiest to stick with because the slope of European #GrowthAccelerating is the most obvious
  5. Foreign Currencies will only be easy to stick with if EUR/USD and GBP/USD hold $1.35 and $1.63 TREND supports
  6. Cash, when you are knowingly buying-the-damn-bubble #BTDB in US Equities, is still King at my house

In order to expand on how we think about asset allocation, country and sector/style picking, etc. we do our Global Macro Themes deep dives. If you’d like to review that slide deck, ping us at and you’ll see us refresh our risk management themes on our disruptor (to consensus TV) video platform @HedgeyeTV.

 

One of the videos our all-star offensive line analyst, Darius Dale, and I did this week walks through why we A) like Yen Down, Nikkei Up’s intermediate-term TREND, but B) wouldn’t be aggressive in allocating capital to Japanese Equities on pullbacks until we see some of our key lines of support (for the Nikkei) and resistance (for the Yen vs USD) confirm.

 

Here’s the video link.

 

Where we are from an immediate-term TRADE perspective sometimes deviates from our intermediate-term TREND views. That’s just the way markets (and life) work. Why else would I subject myself to getting up at this un-godly hour to hand bomb immediate-term TRADE lines in my notebook?

 

The alternative to being committed to winning is accepting mediocrity. The Manifestation of Mediocrity in America is something I think I could write a book about. So I’ll end that prickly point with a period. Because, to get a certain kind of person from where they are to somewhere better, sometimes feels like just that. Capitalizing on their frustration wins too.

 

Our immediate-term Global Macro Risk Ranges are now (TREND in brackets):

 

UST 10yr Yield 2.79-2.92% (bullish)

SPX 1 (bullish)

VIX 11.84-13.35 (bearish)

USD 80.74-81.31 (neutral)

Brent 106.12-108.66 (bearish)

Gold 1 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Where We Are - Chart of the Day

 

Where We Are - Virtual Portfolio


January 16, 2014

January 16, 2014 - Slide1

 

BULLISH TRENDS

January 16, 2014 - Slide2

January 16, 2014 - Slide3

January 16, 2014 - Slide4

January 16, 2014 - Slide5

January 16, 2014 - Slide6

January 16, 2014 - Slide7

January 16, 2014 - Slide8

 

BEARISH TRENDS

January 16, 2014 - Slide9

January 16, 2014 - Slide10

January 16, 2014 - Slide11
January 16, 2014 - Slide12

 


THE M3: MACAU VISAS

THE MACAU METRO MONITOR, JANUARY 16, 2014

 

 

GOVT KNOWS OF NO CHANGES TO INDIVIDUAL VISA SCHEME Macau Business

According to a spokesperson, the Macau government is unaware of any changes to the individual visa scheme for mainlanders visiting Macau.  The spokesperson said so after the Hong Kong government announced a freeze on expansion of the scheme.  The scheme gives citizens of 49 mainland cities visas to travel to Macau or Hong Kong as individuals rather than as members of tour groups, who travel on collective visas.  Hong Kong chief executive Leung Chun-ying said the central government had agreed on a temporary freeze on the number of cities covered by the scheme.

 



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THE HEDGEYE DAILY OUTLOOK

 TODAY’S S&P 500 SET-UP – January 16, 2014


As we look at today's setup for the S&P 500, the range is 17 points or 0.72% downside to 1835 and 0.20% upside to 1852.           

                                                                                                                    

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.49 from 2.50
  • VIX closed at 12.28 1 day percent change of 0.00%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: CPI m/m, Dec., est. 0.3% (prior 0.0%)
  • 8:30am: Init. Jobless Claims, Jan. 11, est. 328k (prior 330k)
  • 8:45am: Bloomberg U.S. Economic Survey, Jan.
  • 9am: Total Net TIC Flows, Nov. (prior $194.9b)
  • 9am: Fed’s Williams speaks in Washington
  • 9:45am: Bloomberg Economic Expectations, Jan. (prior -11)
  • 10am: Philly Fed Biz Outlook, Jan., est. 8.6 (pr 7, rev 6.4)
  • 10am: NAHB Housing Market Index, Jan., est. 58 (prior 58)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11:10am: Fed’s Bernanke speaks in Washington

GOVERNMENT:

    • Greek Deputy PM Evangelos Venizelos meets with Sec. of State John Kerry at State Dept
    • 9am: President Obama hosts event with college, university presidents and leaders from nonprofits, foundations, state governments, private-sector on expanding college opportunity
    • 9am: House Science, Space and Technology Cmte hearing on identity theft through Healthcare.gov
    • 9:15am: EPA’s McCarthy testifies at Senate Environment and Public Works Cmte hearing
    • 9:30am: House Energy and Commerce subcmte hears from Gary Cohen from CMS on health-care overhaul
    • 10am: Senate Finance Cmte holds hearing on advancing Congress’s trade agenda
    • 10am: National Transportation Safety Board unveils 2014 Most Wanted list of safety improvements
    • 11:30am: House Speaker Boehner, R-Ohio, holds press briefing

WHAT TO WATCH:

  • House passes $1.1t spending bill in shift from discord
  • J.C. Penney closing 33 stores, cutting 2,000 jobs
  • Yahoo’s Mayer said to have fired COO Henrique de Castro
  • Microsoft CEO list said to include Ericsson’s Vestberg
  • Citigroup sells servicing to Fannie Mae on $10b loans
  • Big banks face sharper risk-management focus in OCC policy shift
  • J&J said to agree to sell Ortho unit to Carlyle for $4b
  • Apollo buys Chuck E. Cheese in near $1b deal, FT says
  • Currency traders told Bank of England of fix practices in 2012
  • AOL gives up control of money-losing local news division Patch
  • Citibank to reissue debit cards after target hack: NYT
  • China’s Treasury holdings rose to record in November
  • ECB said to favor 6% capital requirement in stress test
  • Spain auctions 3Y notes at record-low yield of 1.595%
  • Ahold says 4Q U.S. same-store sales decline

AM EARNS:

    • BB&T (BBT) 5:45am, $0.72
    • BlackRock (BLK) 5:30am, $4.33
    • Charles Schwab (SCHW) 8:45am, $0.21
    • Citigroup (C) 8am, $0.95 - Preview
    • First Republic (FRC) 7am, $0.75
    • Goldman Sachs (GS) 7:35am, $4.18 - Preview
    • Huntington Bancshares (HBAN) 5:55am, $0.17
    • PNC Financial (PNC) 6:24am, $1.64
    • PPG Industries (PPG) 8:11am, $1.73 - Preview
    • UnitedHealth Group (UNH) 6am, $1.41 - Preview

PM EARNS:

    • American Express (AXP) 4:01pm, $1.25
    • Capital One Financial (COF) 4:05pm, $1.55
    • Intel (INTC) 4:01pm, $0.52 - Preview
    • People’s United Financial (PBCT) 4:03pm, $0.20
    • Skyworks Solutions (SWKS) 4:30pm, $0.66
    • SLM (SLM) 4:15pm, $0.73

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Sugar Falls to Lowest Since 2010 on India Subsidy; Cocoa Gains
  • JPMorgan Leads Mining Loan Rebound Amid Price Slump: Commodities
  • India Spurring Sugar Exports Sends Global Prices to 43-Month Low
  • WTI Crude Advances to Two-Week High as U.S. Inventories Decline
  • Soybeans Climb for a Sixth Session on Sustained Chinese Demand
  • Gold Declines for Worst Run in Four Weeks as Dollar Strengthens
  • Nickel Advances for Fifth Day on Speculation Supply to Tighten
  • Natural Gas Rebounds on Forecast for Record Drop in U.S. Supply
  • Rebar Falls From One-Week High Amid China’s Lower Credit Growth
  • Gold to Trade in Range for StanChart’s East as Asia Counters Fed
  • Singapore Exchange to Stop Trading, Clearing LME Futures
  • U.S. Corn Exports Seen in Peril as China Mops Domestic Glut
  • China to Cut Sugar Imports as Premium Narrows: Chart of the Day
  • Richest Coffee Takeover in Asia Seen With Super Group: Real M&A

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


Ask For The Truth

This note was originally published at 8am on January 02, 2014 for Hedgeye subscribers.

“If any man seeks for greatness, let him forget greatness, and ask for the truth – and he will find both.”

-Horace Mann

 

There’s a blizzard rolling in on the East Coast this morning and they’ll be legally selling pot in Colorado today. Welcome to 2014.

 

Last year I had a well known pundit tell me I wasn’t being “truthful” about US #GrowthAccelerating. The truth is US growth accelerated from +0.14% in Q412 to +4.12% by Q313. So I thought I’d start with the weather this morning. It’s tougher to obfuscate.

 

One thought I’ll share with our team in this morning’s New Year’s meeting will be to Breathe and Be Yourself. That’s a subtitle to a solid chapter in Unusually Excellent titled “Being Authentic” where John Hamm reminds us that “authenticity is the first step of leadership… because it is the basis for the kinds of trusting relationships with followers…” (pg 27). Ask yourself for the truth, every day.

 

Back to the Global Macro Grind

 

While we may not always be positioned for it, in this game last price is truth. We can argue with it, twist it, call it names – but that won’t change what it is. It’s the score.

 

Check out some of this morning’s Day 1 of 2014 scores:

  1. Thailand’s stock market -5.2%
  2. South Korea’s stock market -2.2%
  3. India’s stock market -1.3%
  4. Greece’s stock market +2.6%
  5. United Arab Emirates stock market +3.0%

#Fun. We call this a big macro day of #Divergence in Global Equities.

 

In commodity land, there are some interesting price % moves as well:

  1. Silver +3.2%
  2. Platinum +1.6%
  3. Wheat +0.8%

In other words, 3 of the commodities that experienced the biggest crashes in their 2013 prices are up more than mostly every commodity and stock market in the world today. We call this a nice bounce (to lower-highs).

 

Then alongside the #PotShops thing in Denver, you have some other social truths to consider in Japan this morning:

  1. Japan’s population growth (lack thereof) showed its largest decline on record in 2013 (-244,000)
  2. Japanese births were -6,000 y/y and deaths were -19,000 y/y in 2013, allegedly (hard for us to get to these #s)

But don’t worry, after opting for the Burning of The People’s Purchasing Power (their hard earned currency was -17% in 2013), the Japanese stock market was +59.3%. So some people crushed it in Japan; some people got crushed.

 

What do all these truths mean? And are they in fact truths? What if the birth/death calculation in Japan is as suspect as it is here in the US? However suspect the data, our working assumption here @Hedgeye is it’s apples to apples, suspect vs suspect.

 

Accepting the last market price as truth is a lot easier than taking conflicted and compromised government data at face value. The aforementioned 8 price moves in global equities and commodities, combined with what was already starting to move COUNTER-TREND in December, leads my macro craw to the same potential Global Macro Theme: Inflation Expectations Rising.

 

Stay tuned for our Q1 2014 Global Macro Themes call in the coming weeks where we’ll try our best to contextualize a developing truth (last price vs. market history) and what it could mean for your asset allocation and positioning.

 

Our immediate-term Global Macro Risk Ranges are now as follows (bullish or bearish TREND duration in brackets):

 

UST 10yr yield 2.97-3.07% (bullish)

SPX 1830-1858 (bullish)

Gold 1180-1223 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Ask For The Truth - Chart of the Day

 

Ask For The Truth - Virtual Portfolio


ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET?

Takeaway: Our LONG “New China” vs. SHORT “Old China” theme is working and should continue to deliver alpha over the intermediate term.

CONCLUSIONS:

 

  1. We continue to see evidence that confirms our view that China’s credit-fueled fixed-assets investment bubble is firmly in the process of popping. Furthermore, this unwind will remain a growing headwind to Chinese GDP growth for the foreseeable future (CLICK HERE for more details).
  2. Such confirming evidence underpins our long-held view that China’s growth potential and its demand curve for certain resources (namely commodities) is structurally impaired – thus necessitating a commensurate shift in the way investors should seek to allocate capital to China plays.
  3. As such, we see value in being exposed to our LONG “New China” (i.e. growth in the consumer and services sectors + broad deregulation) vs. SHORT “Old China” (i.e. the concomitant bubbles in credit and fixed assets investment + anti-pollution regulation) theme. For equity investors, this equates to being exposed to Chinese technology and consumer staples names on the LONG side and exposed to Chinese financials and industrials names on the SHORT side. We also see value in being exposed to foreign companies with “New China” exposure on the LONG side.
  4. Switching gears, we continue to think Chinese economic growth will go from slowing to stabilizing to accelerating throughout 1H14; we lack conviction in our (or any) 2H14 outlook for Chinese growth amid policy uncertainty on the economic reform front (more details below).
  5. Make no mistake, however, if China can’t “comp” ridiculously easy growth compares with clear signs of #GrowthAccelerating in 1H14, we think Chinese real GDP growth has downside to the mid-to-low 6% range by year’s end. That would represent a material delta vs. current consensus estimates of +7.4% YoY real GDP growth in 4Q14 and would obviously have broad negative implications for a variety of asset classes (particularly emerging market assets and commodities).

 

Today, China released its DEC credit data. Headline total social financing figures were solid sequentially, but all was far from well underneath the hood:

 

  • DEC Total Social Financing:flat at +1.23T CNY MoM
    • New CNY Loans:+482.5 CNY MoM vs. +624.6B prior
      • Ratio: 39.2% of the total in DEC vs. 50.7% in NOV; 51.4% in 2013 vs. 52% prior
    • Non-Traditional Credit (TSF less CNY and FX Bank Loans, Net New Corporate Bond Issuance and New Equity Capital Raised): +553.5 CNY MoM vs. +377.9 prior
      • Ratio: 45% of the total in DEC vs. 30.6% in NOV; 29.9% of the total in 2013 vs. 23% of the total in 2012
    • Total Social Financing: +9.7% YoY in 2013 vs. +22.9% YoY in 2012 vs. -8.5% in 2011
    • New Loans: +8.4% YoY in 2013 vs. +9.8% YoY in 2012 vs. -6% in 2011
    • Non-Traditional Credit: +42.8% YoY in 2013 vs. +43.2% YoY in 2012 vs. -29.7% in 2011

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Nominal TSF Q

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Nominal TSF Y

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - TSF YoY Q

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - TSF YoY Y

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - TSF Ratio Q

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - TSF Ratio Y

 

The demonstrable ramp in non-traditional (a.k.a. “shadow”) financing speaks volumes to our long-held view that perpetually rising NPLs have clogged traditional credit channels in China – forcing both corporations and lenders to find creative (and often convoluted) ways to maintain financial lubrication throughout the economy.

 

While this creativity has offset some of the downward pressure on Chinese economic growth over the past 2-3Y, it has dramatically increased system-wide financial risks and has effectively tightened monetary conditions by giving less creditworthy borrowers and institutions a seat at the table (side note: SOE and government borrowers are the only entities in China with access to cheap capital via bank loans; everyone else must scramble to find capital from whatever source at whatever cost they can find).

 

As a result, we’ve seen a demonstrable rip in borrowing costs all throughout the Chinese economy that has weighed on economic growth amid what we believe to be rising quantities of traditional financing that are coming due without the necessary cash flows to retire the debt – essentially financing debt rollovers at the expense of net new credit growth (see: “Key Problem Loan Areas” chart below). Consider the following data points:

 

  • Almost 22% of the 17.89 trillion CNY ($2.96 trillion) of local government financing vehicle debt outstanding comes due in 2014. Local government debt overdue at the end of June was 1.15 trillion CNY, or 10.6% of borrowings, according to National Audit Office data… Meanwhile, the rate on AA-rated five-year notes  jumped +146bps in the past year to a record 8.3%; that compares to a TTM rise of +104bps to 5.2% for Bloomberg’s EM USD Corporate Bond Index. Most local government financing vehicles are rated AA in China. (sources: China Daily, StreetAccount and Bloomberg News)
  • Liabilities at non-financial companies may rise to more than 150 percent of gross domestic product in 2014, raising default risks, according to Haitong Securities Co. The ratio of 139 percent at the end of 2012 was already the highest among the world’s 10 biggest economies, according to the most recent data. That compares with 108 percent in France, 103 percent in Japan and 78 percent in the U.S., figures from the Bank for International Settlements and the World Bank show. (source: Bloomberg news)
  • China Cinda Asset Management, one of the nation's four state-owned bad-loan managers, raised $2.4B in Hong Kong's biggest IPO in a year as it prepares to take on more distressed assets. The IPO will help Cinda to profit from a new round of non-performing loans following a $6.5 trillion lending spree since the end of 2008. Non-performing loans at Chinese banks increased for an eighth consecutive quarter in Q3 to 563.6B CNY ($93B), extending the longest streak in at least nine years. (source: StreetAccount)

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Shadow Banking

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Rates

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Key Problem Loan Areas             

 

Perhaps most importantly, it is our view that the aforementioned phenomenon will remain a structural headwind to Chinese GDP growth. The good news is that, for whatever reason – be it policy guidance or the pervasive extrapolation of recent trends – consensus is now squarely in our camp with respect to structurally depressed expectations for Chinese GDP growth.

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - GDP Growth

 

As such, we continue to believe that investors should not be looking to passively allocate assets to China as a play on elevated rates of economic growth – especially if expectations for the second derivative of GDP are set to remain in negative territory on a structural basis. Rather, we continue to call for investors to #GetActive with their China exposure.

 

One of the ways we think investors should be actively managing their China exposure is by being LONG “New China” plays and SHORT “Old China” plays. For equity investors, this equates to being exposed to Chinese technology and consumer staples names on the LONG side and exposed to Chinese financials and industrials names on the SHORT side. It’s worth noting that on an equal-weighted basis this strategy is up +2,039bps since we introduced it on 12/4/14. This is obviously net of transaction costs and we are fully aware these aren’t investable indices; still, we think the takeaway is clear.

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Long New China vs. Short Old China

 

Another way investors can play our LONG “New China” vs. SHORT “Old China” theme is by being LONG foreign companies with material exposure to the growth of the Chinese consumer and service sectors. The following table is a screen of US, German, UK and Japanese equities (i.e. the four developed markets we like on the long side of equities here) above $10B in market cap that attribute > 33% of their sales to China. Obviously not all companies break out their revenues by geographic segment, but this is a good starting place for those that do. QUALCOMM Inc. looks very interesting from a valuation perspective and, to a lesser extent, so does Murata Manufacturing Co. Ltd.

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Equity Screen

 

Thus far, the focus of this note has been from a strategic asset allocation perspective. In adopting a more tactical purview, we continue to think Chinese economic growth is slowing and we think it is likely to continue to slow for the next 1-2M.

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Market Based Leading Indicators

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - PMI Manufacturing

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - PMI Services

 

From there, Chinese growth should stabilize and then accelerate throughout the balance of 1H14. A favorable base effect, easing money market conditions and seasonality are all supportive of an acceleration in Chinese GDP growth in 1H14.

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - GDP Comps

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - Money Markets Monitor

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - GDP Seasonality

 

ARE YOU LONG “NEW CHINA” AND SHORT “OLD CHINA” YET? - CHINA

 

It’s tough to have a strong view beyond that given the continued lack of clarity on the economic reform implementation front – though the latest signs are indeed positive. Specifically, Shanghai FTZ capital account reform is likely to come as soon as 1Q14, per the latest official commentary (click HERE, HERE and HERE for detailed explanations on why that is the most important catalyst for a positive upside surprise with respect to Chinese GDP growth over the intermediate-term TREND and long-term TAIL).

 

Make no mistake, however, if China can’t “comp” ridiculously easy growth compares with clear signs of #GrowthAccelerating in 1H14, we think Chinese real GDP growth has downside to the mid-to-low 6% range by year’s end. That would represent a material delta vs. current consensus estimates of +7.4% YoY real GDP growth in 4Q14 and would obviously have broad negative implications for a variety of asset classes (particularly emerging market assets and commodities).

 

The analytical table is now set; best of luck risk managing your China exposure(s) from here. Feel free to ping us with follow up questions.

 

Have a great evening,

 

DD

 

Darius Dale

Associate: Macro Team


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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